Analysing customer defections and their effects on corporate performance: The case of Indco

Abstract

Each year, organizations spend vast sums of money on promotional efforts, much of which is geared towards acquiring new customers. Most senior marketing executives are acutely aware of the costs of this. Analyses are made of such variables as cost per thousand in advertising budgets, new accounts opened in sales management, and coupons redeemed in new product launches. Fewer executives seem to realize the substantially higher cost of losing existing customers. Perhaps this is because advertising, selling and sales promotion are much more pleasurable, exciting, and seemingly challenging, activities. Customer service — including the activity of keeping customers once the firm has them — can often be regarded as somewhat boring, dreary and tiresome. This paper presents a simple model for evaluating graphically the effects of customer defections on corporate financial performance, using data from a real‐world firm operating in the business‐to‐business sphere to illustrate the applicability of the approach. Th...