Customer relationship marketing enables companies to meet individual customer needs, thereby making customers satisfied and making customers loyal.
The longer the company can retain the customers it already has, the more profits will be gained by the company. Reichheld and Sasser (1990) suggest that reducing customer defections by 5% can increase company profits by 25% to 85%. A similar statement was expressed by Gupta and Lehman (2003) quoted by Yim et al (2004) that by increasing customer retention by 5% can increase company profits by 22% to 37%.
According to Reichheld and Sasser (1990) suggested 3 factors that cause that by retaining customers, the company can increase profits. These factors will be described as follows.
1. When customers become satisfied with a product or service, then they will buy or use a product or service that can satisfy their needs.
2. Customer relationship marketing makes the company able to understand and meet customer needs individually, so that it will reduce the level of errors that occur in meeting the needs and desires of customers. This makes the company more efficient and effective in meeting the needs and desires of customers, thus making costs incurred by the company to decrease and revenue to increase due to repurchases made by customers, thus making the company's profits to increase as well.
3. Companies can set prices that are more expensive compared to competitors, without having to fear that will make customers switch to competitors. This is because customers already have commitment and trust in the company and will not take the risk to switch to competitors who may not be able to provide satisfaction as what they have gotten from the previous company.