A customer retention program can be a powerful tool in the arsenal of customer relationship management.

Retention is important to most companies because the cost of acquiring a new customer is far greater than the cost of maintaining a relationship with a current customer.

For many firms, customer profitability is skewed in such a way that losing the most profitable customers has a very serious effect.

In many banks, for example, the top 30 percent of customers (when ranked by profitability) can make up 100–150 percent of total customer profitability. That's right--the bottom eighty percent of customers may provide no profitability or, worse yet, destroy 50 percent of profitability.

In addition to saving profitable customers, retention programs allow companies to collect data about their customers. This data can be used to better understand, target, market to, and communicate with customers or to customize future interactions with customers.

Retention programs can be a relatively inexpensive means of making customers feel special, increase their purchases and recommend prospects.

Types of Programs

First, it must be noted that customer retention programs are not the same as customer relationship management programs.

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Ro King Ro King is Executive Vice President of Quaero (www.quaero.com). Quaero helps companies maximize their customer profitability through its marketing and technology services through its offices in New York, San Francisco, Atlanta, and Charlotte.