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Customer retention is not enough

Companies spend millions trying to understand and influence customers--to hold on to them and to encourage them to spend more. But to increase the customers' loyalty, companies must do more than track today's typical metrics: satisfaction and defection. For despite all the money invested to promote loyalty among high-value customers, it is increasingly elusive in almost every industry. Report by McKinsey Quarterly.

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Every company knows that it costs far less to hold on to a customer than to acquire a new one. That's why customer retention has become the Holy Grail in industries from airlines to wireless. Yet defecting customers are far less of a problem than customers who change their buying patterns. Today's typical metrics of customer satisfaction and defection don't tell a company how susceptible its customers are to changing their spending patterns.

The take-away

McKinsey's recent two-year study of the attitudes of 1,200 households toward companies in 16 industries shows that focusing on smaller changes in customer spending can have as much as ten times more value than concentrating on defections alone.

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