Customer Loyalty & Retention Flashcards

What is 'customer defection rate' and why is it important?

Answer: The percentage of customers who stop doing business with a company in a given period; important for measuring retention effectiveness

Customer defection rate (or churn rate) measures lost customers over time and directly indicates the health of a company's retention strategy.

Which retention strategy involves reaching out to customers before a subscription or contract renewal date?

Answer: Proactive retention

Proactive retention involves anticipating renewal decisions and engaging customers with value reinforcement before they consider leaving.

How does customer segmentation improve retention strategies?

Answer: It allows companies to tailor retention efforts based on the specific needs, value, and risk profile of each group

Segmentation enables targeted retention tactics—high-value customers receive different treatment than at-risk or low-engagement segments—improving efficiency and outcomes.

Which of the following best illustrates 'emotional loyalty'?

Answer: A customer who continues purchasing even when competitors offer lower prices, due to strong brand affinity

Emotional loyalty is characterized by a strong psychological attachment to the brand that overrides purely rational factors like price.

What does the 'repeat purchase rate' metric indicate?

Answer: The percentage of customers who return to make a second or subsequent purchase

Repeat purchase rate measures how many customers return after their first transaction, serving as a direct indicator of early-stage loyalty.

In the context of loyalty programs, what is 'tier creep' and why is it a concern?

Answer: The tendency for loyalty program tiers to multiply over time, reducing the perceived value of upper tiers and diluting the program's motivational effect

When too many tiers are added, achieving elite status loses its exclusivity and aspirational value, weakening the program's ability to drive incremental loyalty behavior.

Which of the following best explains why resolving a complaint successfully can actually increase customer loyalty?

Answer: The service recovery paradox suggests that a well-handled complaint can result in higher loyalty than if no problem had occurred

The service recovery paradox shows that customers who experience a problem and receive an excellent resolution sometimes report higher satisfaction and loyalty than customers who never had an issue.