Case Study-Omnico Inc.
I. Statement of the Problem
The problem to be tackled from this case study is how to increase the customer retention rates in the company, Omnico Inc. The management has noticed that the company has lower customer retention rates than other companies in the same industry. In business, it is a widely accepted phenomenon that retaining customers or having long-term clients is less expensive than recruiting new customers. The debate from this case study stems from whether developing personal relationships with clients is the main way to retain customers or whether customer retention can purely be achieved by providing superior products and services. Both sides of the argument should be carefully analyzed in order to come up with proper recommendations for the case.
II. Summary of the Facts
The company’s sales records indicate that the customer retention rates are way below the national average for its industry. This means that the company is not doing enough to retain the customers it currently has. Customers are only transacting with the company once or twice and then moving on to other companies that offer similar services to Omnico Incorporated. If the state of affairs is allowed to continue then the costs of advertising are sure to soar without any shield provided by the income generated by long-term clients.
Mr. Buddy Towers has been appointed the new sales chief and his first mandate is to correct this worrying trend. He notes that if the trend were to be allowed to continue, Omnico Inc. would be out of business in a maximum of three years.
The Sales Manager, Buddy Towers, is a formidable sales representative in the company having being its top sales rep for more than two decades. His loyalty to the company has also been unshaken, as he has never worked for any other company after graduating from the University of Michigan.
He believes that follow-up and developing a friendship with his customers is the sure way of maintaining customer loyalty and by extension, customer retention. He believes that a personal relationship with the customer, which he develops by playing golf with his clients, is the reason behind his success as a sales rep in the company. According to the legendary sales rep, playing golf with each of his clients enabled them to develop a feeling of trust and cooperation between himself and his clients.
Now that he is the Sales Manager, he is advocating that the other employees under his charge follow suit and try to connect with their clients on a personal level. To this effect, he has even offered to pay for golf lessons for those sales representatives that do not know how to play golf. This way, the employees can invite their clients for a round of golf every occasionally. Informal settings such as these make the clients more comfortable. They are also more receptive and are easily persuaded to listen to the sales representative about the different products on offer. The next time the client is seeking a new product, he will remember his golf buddy usually sells them and he will approach this particular sales representative first.
He also believes that the reason behind his company’s failure to cultivate long term relationships with clients compared to other companies is the reluctance of the staff to engage the clients on a personal level.
On the other hand, Laura Kilburn, a successful sales representative in her own right does not believe cultivating more relationships that are personal with the customers is the way to go. She acknowledges the fact that customer loyalty to the company is below the national average but she believes the only way to solve this is by providing superior products to the clients. She also looks at the golf idea distastefully claiming that most of her reputable clients do not even play golf. In essence, she believes developing personal relationships (buddy-buddy relations) with the client is a complete waste of time.
The truth of the matter is getting new customers is often more expensive and time intensive than actually retaining the customers that the company already has. Acquiring new customers requires creating a new marketing plan every time and spending a lot of money on advertising, sales, and marketing projects. Therefore, it is essential for the company to invest considerable time, money, and effort in maintaining the customers that it already has.
For this case study, both sides of the argument have a fundamental flaw: believing that there is only one way to retain customers. On the one hand, Buddy believes that developing personal friendships is the only way to cultivate loyalty to the company. On the other hand, there is Laura who believes that customer retention can only be achieved through provision of high standard goods and services.
Customer retention is a complex process that depends on these two options in addition to a myriad of other strategies. This means that both ways when combined will have a better chance at improving customer retention rates in the company rather than implementing one strategy over another.
Of-course there are occasions whereby one strategy is more advantageous than the other one. For instance, buddy-buddy relationships between clients and their service providers are crucial for the success of businesses in the service industry. Clients will always flock to the restaurant where they have a favorite waiter or go to the bar where their favorite bar-tender works. This is because the waiter and the bar-tender have cultivated a friendship with their clients.
Buddy-buddy relationships between the company and the client are also beneficial in the investment industry. Investors usually feel welcome and at home if the company, they want to work with treats them warmly. Investors are usually taken out to play golf by the company as symbol of friendship and mutual respect between the two parties.
However, there are also some professional business arrangements where buddy-buddy relationships are generally frowned upon.
The main recommendation here is to merge the two customer retention techniques. The merger of the two will prove more effective in securing long-term clients for the company. Customers will likely remain loyal to a company that is both friendly and provides high quality products and services that can boost the bottom lines of the clients. In this regard, neither Buddy nor Ms. Laura has made a mistake in identifying the customer retention techniques. However, they need to understand that these techniques are sorely ineffective if undertaken in isolation from one another. For increased growth in the company and especially an increase in the level of customer loyalty, these techniques need to be implemented in conjunction with one another.
From the above analysis, it is clear to see why both opinions on customer retention have merit in the business world. Customers are most likely going to seek the services of a company that is both friendly and warm to them. The customer views this as a sign that the company is willing to seek ways in which to best satisfy the customer. However, being friendly to the client will only be efficient if the company is also offering superior products and services to the client. Therefore, both sides of the argument are not wrong but the main consensus should be to combine both efforts to establish sustainable customer retention practices in the company