Which Features Increase Customer Retention?

Book description

Companies must make important decisions about which features to include in the goods and services they offer to customers. Understanding the return on investment for a feature is essential to increasing profitability. Although tadding features increases costs, it may also increase revenues, either by attracting new customers or retaining existing customers. Yet the features that retain customers, the authors argue, may be different from the features that initially attract them. The authors provide insights from their research on how to calculate the return on investment for features. Working with a global hotel company, the authors developed a model to assess how features produce financial returns by attracting new customers and/or by retaining existing customers. The model integrates three kinds of data: the revenue increase due to the effect the feature has on attracting new customers; the revenue increase due to the effect the feature has on retaining existing customers; and the costs associated with adding the feature. They tested the model using three features, or "amenities of interest," in the hotel industry: bottled water, free internet access, and a fitness center. Not surprisingly, the authors found that free wireless internet was much more likely to attract customers than free bottled water. However, the picture changed when the authors switched from looking at features that attracted guests to features that retained them. Offering free bottled water during a stay led to a bigger boost in customer retention than offering wireless internet access. Why the difference? The authors argue that, although customers may have a good sense of the value of some amenities prior to using them (such as in-room internet), the value of other amenities (such as bottled water or a well-equipped fitness center) may be more visceral or emotional, and they may influence the consumer's evaluation of the overall service experience in a more holistic manner. It's harder for both consumers and companies to predict how visceral or emotional reactions to features will affect future behavior. From their research, the authors conclude that companies shouldn't rush to add new features that seem promising. Rather, they should first ask a series of questions: • Why should I add this feature to my offering? When considering a new feature, think about whether the feature is likely to attract new customers, retain existing customers, or both. • Do my competitors offer the feature? The desire to match competitive offerings often leads to what's known as feature fatigue and amenity creep. Although benchmarking is important, it is more important with features designed to attract customers than with features designed to retain customers. • How can I measure the effects of adding a feature on customer retention? Surveys, interviews, focus groups, and conjoint analysis are very useful for predicting whether specific features will attract customers. However, because customers often have a harder time predicting whether features will influence their repeat purchases, directly asking them is unlikely to generate accurate estimates of a feature's effect on retention. Instead, the authors say, it is often better to use A/B testing, which involves implementing a feature in a few different settings and comparing the results with those where the feature hasn't been added.