CENTRAL UNIVERSITY - SIERRALEONE

PROPOSAL
TOPIC
AN ASSESSMENT ON THE IMPACT OF CUSTOMER
RETENTION ON BUSINESS PERFORMANCE
(CASE STUDY OF DELO PURE WATER COMPANY
MAGBURAKA)

BY

LAMIN THOLLEY

BUSINESS ADMINISTRATION AND MANAGEMENT

SUPERVISED BY
MR. BARRIE
 CHAPTER ONE

1.0 INTRODUCTION

Business organizations have been increasingly concerned about how to achieve

and improve upon their performance level. Though organizational performance
is a measure of a number of factors such as financial, non-financial and
operational on a wide spectrum but specifically profitability, growth, increased
sales turnover, are some of the common measures in the existing literature.
The identified measures might become impossible task if customers are not
properly reckoned with and that is why efficient customer relationship
management (CRM) must been seen as a strategy by contemporary managers.
An efficient CRM will not ensure attracting customers but will ensure their
retention with the organization. A business entity retains its customers by
satisfying them for instance with value and good feeling. Business
organizations wishing to remain competitive in a treacherous business
environment have to ensure customer satisfaction in order to establish an
appropriate customer retention strategy in order to enjoy excellent
organizational performance.

1.1 BACKGROUND OF THE STUDY

Ahmad and Buttle (2001) defined customer retention as the systematic

objective of striving to maintain long term relationships with customers.
Customer retention according to them is the mirror image of customer
defection. A high retention rate is equivalent to a low defective rate.

Today businesses follow different marketing strategies to survive in the highly

competitive world by identifying, Acquiring and Retaining most economically
important customers and developing ongoing and long-lasting relationship with
them. As customers are the key to success of any business, firms without
customers would not be able to sustain their performance. This is because
such firms are believed to have no revenues, no profits and therefore no market
value. Losing customers to another competitor tends to worry business
executives. Accordingly, customer retention is deemed to be very crucial
business agenda in which the key focus has been switched in recent years from
attracting new customers to preserving existing ones. Understanding the
reasons why customers switch from one financial institution to another help
these executives to plan their customer retention and customer acquisition
strategies. Both business practitioners and scholars have discovered that it is
much easier and cheaper to retain the existing customers than investing on the
potential customers. A decent customer retention is believed to be a significant
contributor towards improvement in the overall firm performance. A glimpse on
the existing researches on customer retention highlights that financial sector
has been thoroughly investigated which leave a room for a detailed
investigation on customer retention within the Delo pure water company. The
water service industry is highly competitive in Sierra Leone, Magburaka to be
specific. Most water companies provide identical services, they can only
distinguish themselves on the basis of price and quality of the customer
services they provide. Therefore, customer retention is potentially an effective
tool that firms can use to gain a strategic advantage and survive in today’s
ever-increasing competitive environment.

According to Armstrong and Kotler (2008), it is important for firms to

implement the right marketing strategies in order to succeed. Traditionally,
firms have focused their marketing strategies around attracting new customers
and increasing their market share.

Customer retention is seen as an obligation by a customer to carry out

business transactions with a particular firm on a regular basis (Hansemark &
Albinsson, 2004). In addition, Molapo and Mukwada (2011) have ascertained
that firms are all out to foil attempts by customers to switch retailers and
indirectly retain them. Customers will frequently patronize firms which meets
their needs and hence, an enduring relationship will be fostered (Fill, 2005).

Farquhar (2004) claimed that retained customers increase firms’ profits

because acquiring new customers are a costly affair. This is in line with the
findings of Reichheld and Schefter (2000) which ascertained that firms that are
able to raise customer retention by five per cent would be able to boost profits
by 25 – 95 per cent. In addition, the costs of acquiring new customers are five
times more than retaining an existing customer for a firm (Tu, Lin, & Chang,
2011). Thus, boosting customer retention will increase firm’s profits and
performance by leaps and bounds (Sim, Mak & Jones, 2008).

Reichheld and Kenny (1990) argue it is more economical to keep customers

than to attract new ones. The costs of attracting customers to ‘’replace’’ those
who have been lost are high. This is because the expense on attracting
customers is incurred only in the early stages of the commercial relationship.
In addition, current or existing customers buy more and, if satisfied, may
generate positive word-of-mouth promotion for the company. Additionally, such
customers also take less of the company’s time and are less sensitive to price
changes.
In the competitive marketing environment, customer retention is critical to a
company‘s profitability and long-term success (Russell,2000) to become so
customer focused, all managers, professionals and executives of marketing as
well as employees of the organization must understand how to build impactful
relationship with each customer and to make managerial designs‘ every day
designed to increase the value of both the company and customer that will
grow their value from the customer based strategy (peppers and Rogerr, 1993)

These incidents were labeled as inconveniences, service failures, pricing,

unacceptable behavior, attitude or knowledge of staff, involuntary /seldom
mentioned incidents and finally attraction by competitors. Abratt and Russell,
(1999) argued that the key factors influencing customers’ selection of a
company included the range of services, rates, fees and prices charged.

In order to retain customers in industries characterized by high competition,

firms need to meet each individual customer’s needs and expectations.
Gumesson (2002) argues that it is the value of the customers’ experiences with
the product/service that is important, therefore, customers’ needs are
important to consider when developing products and services.

1.2 STATEMENT OF THE PROBLEM

In today’s competitive business environment customer retention is one of the

cornerstones of a firm’s effort to manage its customers. Customer retention is
now not given the interest due to it, via most companies specially Delo pure
water. It has been discovered that customer retention has extra influence on
income than market share, economies of scale and different variables that are
regarded to supply aggressive gain to a firm. In fact, it has been located that
companies, which decreased consumer defections via 5 percent, should
increase earnings from 25 percent to 85 percent. Traditionally, marketing
management has relied on diversifications and combination of the marketing
mix elements (product, price, place and promotion) to attain market dominance
to gain more suitable market share through obtaining new customers. This
method considers the formation of homogenous segments of pretty
heterogeneous customers. It does no longer take into account the records of
affiliation between the customers and the business and consequently does no
longer expose the true shopping for conduct of the customer.

Aggressive branding and promotions are different strategies used by sellers

adopting the common marketing approach. But manufacturers with the
absolute best market share are no longer usually the most profitable. In some
cases, they may even become unprofitable. The relationship between marketing
and marketing method on the different hand, focuses on consumer retention,
encouraging accelerated spending and on long-term relationships with
customers. Gronroos, a lookup scholar, has noted that, ‘Marketing is to
establish, keep and beautify relationships with customers and different events
at an income so that the goals of the firm concerned are met. Customer
retention needs to as a result grow to be a phase of the strategic marketing
planning procedure of any firm. It is on this aspect that the researcher
investigates the impact of customer retention on business performance.

Moreover, customers’ comments are now not additionally taken into

consideration by most firms. As a result, client retention is difficult to ascertain
which can easily help a firm to gain large customers experience. According to
Peter F Drucker, one of the marketing scholars mentioned that, marketing is
looking at the business through the consumers’ eyes. It is solely when a
company focuses on customers’ feedbacks; it can gain the preferred desires
(goals) of the organization. Failing to adopt the above mentioned factors can
influence customers to shift to other competitors.

Finally, customer relationship management plays a great role in retaining loyal

customers. It is one of the major factors that can influence the switching and
staying of customers in your business. Most businesses sometimes do retain
customers but do not always give great attention in managing the relationship
between the customers and the business.

1.3 AIM AND OBJECTIVES OF THE STUDY

1.4.1 AIM

The aim of the research study is to examine the impact of customer retention
on business performance.

1.4.2 OBJECTIVES

1. To determine the factors that influences customers retention at Delo pure

water company Magburaka.
2. To examine the relationship between customer retention and business
profitability
3. To know how customers feedback can improve business performance.
4. To analyze the effects of customer switch on Delo Pure Water company’s
performance
1.4 RESEARCH QUESTIONS

The research questions below formed the basis for the study;

1. What are the factors that can influence customer retention in the Delo pure
water company?
2. What is the relationship between customer retention and business
profitability?
3. How customers’ feedback can improve a company’s performance?
4. How the switching of customers to other competitors affects Delo Pure
Water Company?

1.5 RESEARCH HYPOTHESIS

For the successful completion of the study, the following research hypotheses
will be formulated by the researcher;

H0: there are no factors that influences customers retention

H1: there are factors that influences customers retention

H02: there is no relationship between customer retention and business

profitability.

H2: there is relationship between customer retention and business profitability

1.5. SIGNIFICANCE OF THE STUDY

Acquiring new customers is more expensive than retaining existing ones.

Studies show that it costs five times more to attract new customers than to
keep the current ones. Therefore, the study can help business people on how to
save a significant amount of money by focusing on customer retention, thus
boosting revenue.
The study shall give clear insight on the impact of customer retention on
business performance. The study will further benefit customers and the
organizations. This will apparently serve as reference to other academic
researchers.

Moreover, this study will pave way of better understanding for students in the
business administration and management and others, on how customer
retention can easily impact the growth of a business. Especially those that
have planned to become entrepreneurs in the future.

It will help to move firms’ attention, especially Delo Pure Water Magburaka on
the retention of existing customers than acquiring new customers.

1.6. SCOPE OF THE STUDY

Businesses are mainly meant for profit. And customers are the key element to
the success of every business. As a result, the scope of this study covers the
impact of customer retention on business performance.

1.7. LIMITATIONS OF THE STUDY

The researcher presumed that he may encounter some constraints which

limited the scope of the study. Below are some the constraints;

A) Availability of research material: The research material available to the

researcher is presumed to be insufficient, thereby limiting the study to Delo
Pure Water Company Magburaka.

b) Time: The time frame allocated to the study does not enhance wider
coverage as the researcher has to combine other academic activities and
examinations with the study.

c) Organizational privacy: Limited Access to selected auditing firm makes it

difficult to get all the necessary and required information concerning the
activities of the study.
 CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 INTRODUCTION

The purpose of this research is to evaluate customer retention strategies at

Delo pure water company Magburaka and suggest ways of improving them.
This chapter gives a literature review on customer switch and retention
strategies. Key issues to be discussed will be under the following main
headings: Theoretical Review, Empirical Review and Conceptual Framework.

2.2 CONCEPTUAL FRAMEWORK

Customer retention has a direct connection with business performance. The

conceptual framework provides a general representation of the relationship
between the dependent variable with customer retention and the independent
variables such as the following:

Trust, Customer satisfaction, and quality service and the strategies used to
retain the customers to increase business profitability.

Trust: Researchers have established that trust is essential for building and
maintaining long-term relationships and it is conceptualized as existing when
one party has confidence in the other party’s reliability and integrity. Due to
costs related to the termination of relationship, once trust has been built, the
probability of each party ending the relationship decreases. The more a
customer trusts a supplier, the higher is the perceived value of the relationship
and consequently, the greater the chances that the customer remains in the
relationship.

Furthermore, trust is an important factor in the perceived quality of service,

especially in business to business services (B2B). Trust is developed
successively as a result of gradual dependence on the relationship resulting
from mutual adaptation to the other party’s needs (Gounaris, 2003).

Customer Satisfaction: Ability of companies to meet customers’ needs well

and satisfactorily to a large extent influences the level of customer retention.
Satisfied customers are likely not to switch than the dissatisfied customers.
Satisfied customers are comfortable and are a source of referrals to companies.

Quality Service: The quality of services offered by companies also can

influence the level of customer retention. Service quality which comprises of
product efficiency, operational efficiency and technological efficiency determine
whether customers will switch or not. If companies offer high quality service
then, they can retain more clients and vice versa.

Switching Barriers: When customers find it difficult to switch, it increases

their retention rate.

Customer relationship management: Building a strong and lasting

relationship customer is a key factor. But managing the relationship between
them is the major priority for every business.

2.3 THEORITICAL FRAMEWORK

Customer retention is an area which has gained increased interest in recent

years (Morgan &Hunt, 1994; Grontoos, 1996). According to Reichheld (1996),
this has led to the studies focusing on metrics such as customer retention
rates and customer share in customer relationship management also known as
CRM. Further, the ways through which firms retain their customers are highly
dependent on the goals, philosophies and the context of each firm and once the
firm knows who their customers are, they tend to use specific tactics to
accomplish the goal of retaining the customers (Zeithalm&Bitner, 1996). A
common paradigm that has emerged from the total quality management
movement is that the ultimate path to retaining customers is to satisfy their
needs.
 CHAPTER THREE

3.0 RESEARCH METHODOLOGY

3.1 INTRODUCTION

The study is focused on evaluating the impact of customer retention on the

performances of Delo pure water company and the strategies of customer
retention used. Therefore, to obtain the necessary data for the analysis, the
researcher would be using both primary and secondary sources of data. This
chapter therefore focuses on the description of the methods and procedures
employed in obtaining the required data, how data will be analyzed and
interpreted. It focuses as well on the research design, the population, and the
sample population, sample and sampling procedure, data and data collection,
research instrument and method of data processing.

3.2 RESEARCH DESIGN

This is broad a bit. It consists of both the primary and secondary studies. For
the primary study, the researcher will be getting information from the following
key areas:

3.2.1 Survey area

The geographical area where the researcher will be conducting this proposed
research is at Magburaka. The researcher will also have to give demographic
information of the age, gender, education, income, marital status, and places of
residence

3.2.2 Sampling techniques

Since the population of customers is large with the combination of

management staff of Delo pure water company, the researcher therefore
proposed to use a quota sampling technique.

3.2.3 Data collection instrument

The researcher intended to use structured questionnaire and personal

interview for the study. The questionnaire will be design for customers while
interview guide will be done for the management staff.
3.2.4 Population

Due to time and resource constraints as well as large number of the target
population, a sample size of 120, made up of 10 management staff and 110
customers.

3.2.5 Method of Data Processing and Analysis

The primary data will be edited to detect and correct any omissions or errors to
ensure consistency. Again the edited data will be analyzed by the use of
Statistical Package for the Social Sciences (SPSS) software. Descriptive
statistics such as percentages will be used to analyze the data collected. The
analyzed data will be presented in the form of tables.