Factors That Determine Customer Retention in Electronic Commerce

Factors that determine customer retention in electronic commerce

Prepared by: Mariel Cházaro Fuentes

EC-400, spring 2016

Executive summary

When companies are at the basis of a customer base creation, there are two stages that need to be taken into consideration, acquisition and retention. The acquisition stage involves converting a person, who is not a customer currently, as a customer buying your products. This means that a person who was not buying your product earlier, because he or she was not using that kind of product at all, or was buying an alternate brand of the products, starts buying your product., whereas retention involves keeping an existing customer happy, so that he continues to buy your product. This article presents the factors that determine customer retention in electronic commerce, aggregating identified factors that affect it, and models factor interdependencies.

Introduction

A primary concern of anyone involve in an e-commerce business is the attraction of users and how they can make them paying customers. However, after this concern it comes a question with equal or greater importance, now that I have the customers, how do I keep them? Everyday competition amongst online retailers in the market gets fiercer so building strong customer relationships can help keep the coveted consumer that you worked so hard to attain in the first place.

Evidence suggests that the majority of online consumers conduct most of their business with a principal online merchant (Reichheld and Schefter, 2000). This persists even despite price fluctuations amongst competing sites in the range of 20-30% (Pandya and Dholakia, 2005). Therefore, investing on customer relationships ensures customer satisfaction, allows higher markup and higher profitability. Although CRM seems to be a potential opportunity there is still not enough understanding about the mechanisms by which these relationships are established and maintained.

Customer retention

Customer retention has many well recognized benefits; it brings mainly, major profit and permits the company to save costs. When companies achieve a long term relationship with a customer, they tend to buy more, lose sensitive to price and share a lot of positive mouth to mouth reviews and according to studies it’s cheaper to keep current customers than to attract new ones.

To always being looking for new customers it means to always staying in the starting stage of the commercial relationship. In this stage the company needs to destine more money to get the customers participation. Thus, customer retention pretty much means that long term customers get the company more revenues and cost saving opportunities with a lower cost to maintain them than to acquire new ones.