# Improving Customer Retention Through Relationship Marketing Commerce Essay

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Customer retention has been considered as the most powerful engine pulling the people out of the clutches of competition & choices and raising their customer loyalty. Due to the importance of customer retention we will do the research on the customer retention. Our topic is "Improving the customer retention through relationship marketing" for this study we check the impact of some independent variables (Information sharing, Trust &Commitment, Mutual goal orientation, Long term relationship) on the dependent variable "Customer retention". We use the different studies of other authors who work on these variables. The definition for relationship marketing according to the chartered institute of marketing is "â€¦ the process of getting closer to the customer by developing a long-term relationship through careful attention to service needs and their quality delivery". The study of desertion provides insight into how to improve products and services offered to the targeted market by developing effective retention programs and consequently creating long-term relationships. But why is retention so important? It is not only because retaining a customer is cheaper than acquiring a new one or because of the necessity of retaining customers until they are profitable. Rather, client retention is important because it is a value generation strategy for the relationship marketing: that is, the relationship marketing value is not only related to the bottom line of its financial statements but also to the present value of its future revenues. Guaranteeing the relationship marketing future revenues greatly depends on strengthening its customer's loyalty. For this reason, two relationships marketing with the same number of customers, the same costs, profitability, and debts condition may have different values if one of them has more loyal customers than the other. As such, customer retention is not only necessary for relationship marketing sustainability but it is also a value generation strategy for the shareholders. We get the data through questionnaire technique from the FMCG customer. Our sample size is 101 customers from different markets. We use the different statistical techniques for getting the results and checking the impact of different variables on the dependent variable. We use the Descriptive technique, Histogram technique, Scatter plot technique, Correlation technique and Coefficient of Regression technique for the analysis.

## Research problem:

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Does improving customer retention through relationship marketing?

## I. Research Questions:

What is the effect of information sharing on customer retention?

What is the effect of trust & commitment on customer retention?

What is the effect of long-term relationship on customer retention?

What is the effect of mutual goal orientation on customer retention?

## II. Objective of the Study

The objective of the study is to explore the effect of customer retention through relationship marketing. After analyzing the effects of different factors on customer retention, effective importance of customer retention is found through different statistical tools (descriptive, histogram, scatter plot, correlation and coefficient of regression).

## Literature Review

Chartered institute (1999) the definition for the relationship marketing is "â€¦ the overall process of getting closer to the customer by developing a long-term relationship through attention towards the service needs and their quality delivery"

Chen (2002) investigated the develop and implement an approach for measuring the magnitudes of switching costs and brand loyalty for online service providers based on the random utility modeling framework. They collected data from media metrics of total 28,807 households, of which 11,397 households are tracked throughout the period of interest. They can be proceeding in two ways. First, we can compute switching cost estimates for each firm and customer characteristics. They find that customer demographic characteristics may have little effect on changing, but that systems usage measures and systems quality are associated with reduced switching. They also try to find that firm characteristics such as product line and their quality may reduce switching and may also overcome customer attrition.

Chen (2003) investigated the business to consumer segment of the electronic commerce regarding the effects of relationship commitment and trust. They collected the data from Taiwan using the survey technique from 250 online consumers. They found that the commitment and trust factors have the pivotal role in customer retention that supports our hypotheses. The proposal research model suggests that relationship benefits, switching costs, customer skills and communication to the relationship commitment and trust, and trust to relationship commitment is positive and that there are positive relationship between relationship commitment and propensity to leave. This study confirms that the research model is useful and robust in revealing and explaining relationship benefits, switching costs, customer skills, communication, relationship commitment and trust are the critical variables in affecting the propensity to leave. To improve customer retention and to reduce the propensity to leave are important, we still need to promote the products and services to attract more profitable transactions.

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Parvatiyar (1998) investigated the nature and scope of relationship marketing and developing conceptualizations regarding the value of cooperative and collaborative relationships between buyers and sellers as well as the relationship between different marketing actors. They are working on the four variables (suppliers, competitors, distributors and internal functions in creating and delivering customer value. The object of relationship marketing extends into many areas of the strategic decisions. Its recent prominence is facilitated by the several other paradigms of marketing and by the corporate initiatives that have developed around the theme of the cooperation and collaboration of organizational units and its stakeholders, including customers.

Some researchers tried to look at this phenomenon by developing theoretical models around the dual concepts of leadership versus management. A review of these descriptions also shows a relations-oriented versus task-oriented focus. For instance, Bennis and Nanus (1985) contrast a focus on the people with a focus on structures and system. Kotter (1990) contrasted inspiring and motivating versus problem and controlling. Zaleznik (1977) differentiates between concentrations on what things mean to the people versus concentrating on how things are done. Eicher (1999) supported inspiring others against directing operations. Further evaluation of these leadership and management distinctions highlights the use of interchanging terms. For example, Bennis and Nanus's (1985) leadership behavior of focus on people is similar to Kotter's (1990) motivating and inspiring, Zaleznik's (1977) focus on what events mean to people, and Eicher's (1998) inspiring others.

## Theoretical foundation

## Improving customer retention through relationship marketing

## Conceptual framework

## Information sharing

Trust & commitment

Customer retention

Mutual goal orientation

Long term relationship & mutual value sharing

The definition of relationship marketing according to the chartered institute of marketing is "â€¦ the process of getting closer to the customer by developing a long-term relationship through careful attention to service needs and their quality delivery"

In the theoretical foundation we are proving the effect of customer relationship marketing on the customer retention. We are studying the different theories about customer relationship marketing. Four variables (Information sharing, Trust & Commitment, Mutual Goal Orientation, Long term Relationship & Mutual Value Sharing) are used in the research.

Scott (1995) stated the progression of relationship marketing by suggesting that "Relationship selling moves the dyadic exchange associated with personal selling from a short-term transaction orientation to a life-long process where immediate closings might be postponed on the basis of more effectively meeting customer needs", as Yau et al. (1999) stated "The primary force behind the concept of relationship marketing is to promote a long-term relationship and thereby create repeat purchases".

## Data and Methodology

## I. Data

A sample of 101 customers has been selected for this study for the "improving customer retention through relationship marketing". Depending on the availability of data we have selected the longest possible sample data to avoid the small sample bias. Data on all the variables have been collected from FMCG CUSTOMERS. Four independent variables and one dependent variable have been selected for this study. Customer retention has been used as dependent variable. Whereas, information sharing, trust & commitment, mutual goal orientation and long term relationship have been used as independent variables. The description of variables has been given below:

## Dependent Variable:

Customer retention: This variable is very important for the organization. In the FMCG sector the customer retention is changed due to more competition. Organization tries to improve the customer retention for the loyalty of the customer and growth of the customer.

## Independent Variables:

Information sharing: This is an independent variable for improving the customer retention. If the organization shares the information about the attributes and the benefits of the products the customers are more loyal.

Trust & Commitment: This is an independent variable for improving the customer retention. If the quality of the product is good the trust of the customer is increased.

Mutual goal orientation: This is an independent variable for improving the customer retention. If the organization makes the product according to the customer need and wants then the customer is more loyal.

Long term relationship: This is an independent variable for improving the customer retention. If the organization tries to build the long term relationship with the customer it must for the organization to provide the quality and provide the product on every place where the customer of this product is exist.

## Quality of Data:

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Examples of our workIt is really tough to comment on quality of the secondary data. However, the above definitions of the variables show that the variables measure the concepts which we intended to measure. Given that the data have been collected according to the above definitions of the variables, the data used in this study is valid for the purpose of analysis. The explanation of different variables is written generally not in briefly. No data values are missing from any series. Data is collected from the different FMCG customers.

## II. Methodology

To present the overall picture of the variables the descriptive statistics are used. The scatter-plot matrix is used to view the relationships among the variables used in this study. This matrix shows all the possible two dimension plots of the variables. A table of correlations among variables is also a part of the study. This table provides the values and signs of the coefficients of correlations. This table also provides the P-values of the t-test of the null hypothesis which states that the said variables are correlated and not correlated to each other. This table is also helpful to check the problem of multi-co linearity. The large correlations between the predictor variables indicate the problem of multi-co linearity.

Since the objective of this study is to check the dependence of the customer retention on different factors as stated above, in this study ordinary least square (OLS) method of multiple-regression is used to estimate the effects of those factors on the customer retention. The purpose of the regression in this study is to find such an equation which could be used to find the predicted value of the customer retention for a given set of values of information sharing, trust & commitment, mutual goal orientation and long term relationship. The specified multiple regression equation takes the following form:

## CRi=C+b1 (I&Si) +b2 (T&Ci) +b3 (M&Gi) +b4 (L&Ri) +Ei

As specified in the above equation CRi is the dependent variable and other four variables are independent. Since all the variables are time series', subscript we denote the variation from 1 to 100. C is the constant term. b1, b2, b3, b4, are the partial regression coefficients of the independent variables. A partial regression coefficient represents the change in dependent variable, ceteris paribus, due to one unit change in independent variable. Ei is the error term. To test the significance of the individual coefficients t-test is also employed in this study. Overall goodness of fit of the model is checked through F-test and the adjusted coefficient of determination (adj. R2).

## Justification of the Method:

This study has used the descriptive statistics to present the overall picture of the variables. For the initial look on the relationship between different variables the scatter-plot matrix is used. This matrix shows all the possible two dimension plots of the variables. Magnitudes and signs of the correlation coefficients are provided in the table of correlations. This table is used to view the strength and direction of the relationship between the variables. This table also provides the P-values of the test of the null hypothesis that states that there is no correlation between two variables. This table is used to indicate the problem of multi-co linearity as well.

The method of multiple-regression is used to estimate the effect of multiple predictors on the predicted. Considering the objective of this study the multiple-regression analysis is used in this study to estimate the partial regression coefficients of the independent variables and their statistical significance. We have used the method of multiple-regression because there are four independent variables in this study and all of them are scale variables.

## Empirical findings

We found the data on the topic of "Improving customer retention through relationship marketing" There are different independent variables are used to find the impact (information sharing, trust & commitment, mutual goal orientation, long term relationship) on the customer retention. For this purpose we collected the data from 101 customers from FMCG sector. We used the questionnaire technique for getting the responses from the customers. The data is then entered in SPSS, and we get the following different kind of results.

## Descriptive Statistics (5.1)

No

Minimum

Maximum

Mean

Std. Deviation

Information sharing

101

2.33

5.00

4.2112

.52646

Trust commitment

101

1.67

5.00

4.0693

.50677

Mutual goal orientation

101

2.00

5.00

4.2178

.52161

Long term relationship

101

3.00

5.00

4.2277

.43952

Customer retention

101

1.75

5.00

4.2438

.52033

Valid N (list wise)

101

## Descriptive analysis

We collected the data on four independent variables and one dependent variable. Independent variables are (information sharing, trust commitment, mutual goal orientation, long term relationship) dependent variable is (customer retention) and the values are calculated with the likert scale. Where the 1 is used for strongly negative and the 5 is used for high positive. In first variable information sharing the mean is 4.21 it means the value is near about agree. In this variable the minimum value is 2.33 which represent the most customers are giving the response are disagree. The maximum value is 5.00 which represent the most customers are highly agreed some variation in the mean is + 0.527. In other variable trust & commitment the mean is 4.07 it means the value is near about agree. In this variable the minimum value is 1.67 which represent the most customers are giving the response are disagree. The maximum value is 5.00 which represent the most customers are highly agreed some variation in the mean is + 0.507. In other variable mutual goal orientation the mean is 4.22 it means the value is near about agree. In this variable the minimum value is 2.00 which represent the most customers are giving the response are disagree. The maximum value is 5.00 which represent the most customers are highly agreed some variation in the mean is + 0.522. In other variable long term relationship the mean is 4.23 it means the value is near about agree. In this variable the minimum value is 3.00 which represent the most customers are giving the response are neutral. The maximum value is 5.00 which represent the most customers are highly agreed some variation in the mean is + 0.44. This is a dependent variable customer retention the mean of this variable is 4.24 it means the value is near about agree. In this variable the minimum value is 1.75 which represent the most customers are giving the response are disagree. The maximum value is 5.00 which represent the most customers are highly agreed some variation in the mean is + 0.520.

## Histogram of information sharing (5.2)

In the histogram we check the relation of each variable through plotting the graph.

This is the histogram of information sharing which shows the graph is skewed to left and its relation is positive relation with the dependent variable. The graph is normal distribution.

## Histogram of trust & commitment (5.3)

This is the histogram of trust & commitment which shows the graph is skewed to left and its relation is positive relation with the dependent variable. The graph is normal distribution.

## Histogram of mutual goal orientation (5.4)

This is the histogram of mutual goal orientation which shows the graph is skewed to left and its relation is positive relation with the dependent variable. The graph is normal distribution.

## Histogram of long term relationship (5.5)

This is the histogram of long term relationship which shows the graph is skewed to left and its relation is positive relation with the dependent variable. The graph is normal distribution.

## Histogram of customer retention (5.6)

This is the histogram of customer retention this is the dependent variable which shows the graph is skewed to left and its relation is positive relation with the independent variables. The graph is normal distribution.

## Scatter plot of information sharing (5.7)

In the scatter plot we check the relationship between the dependent variable and the independent variable. If the scatter line goes bottom to up it means the relationship between the variables is positive and strong relationship.

This is the scatter plot which shows the relationship between the customer retention and information sharing. In this scatter plot the scatter line goes from bottom to up it shows that the relationship between the variables is positive.

## Scatter plot of trust & commitment (5.8)

This is the scatter plot which shows the relationship between the customer retention and trust and commitment. In this scatter plot the scatter line goes from bottom to up it shows that the relationship between the variables is positive.

## Scatter plot of mutual goal orientation (5.9)

This is the scatter plot which shows the relationship between the customer retention and mutual goal orientation. In this scatter plot the scatter line goes from bottom to up it shows that the relationship between the variables is positive.

## Scatter plot of long term relationship (5.10)

This is the scatter plot which shows the relationship between the customer retention and long term relationship. In this scatter plot the scatter line goes from bottom to up it shows that the relationship between the variables is positive.

## Correlations (5.11)

## Information

## Sharing

## Trust

## commitment

## Mutual goal orientation

## Long term relationship

## Customer

## retention

## Information sharing

Pearson Correlation

1

.396**

.276**

.477**

.339**

Sig. (2-tailed)

.000

.005

.000

.001

N

101

101

101

101

101

## Trust commitment

Pearson Correlation

.396**

1

.543**

.320**

.359**

Sig. (2-tailed)

.000

.000

.001

.000

N

101

101

101

101

101

## Mutual goal orientation

Pearson Correlation

.276**

.543**

1

.208*

.461**

Sig. (2-tailed)

.005

.000

.037

.000

N

101

101

101

101

101

## Long term relationship

Pearson Correlation

.477**

.320**

.208*

1

.351**

Sig. (2-tailed)

.000

.001

.037

.000

N

101

101

101

101

101

## Customer retention

Pearson Correlation

.339**

.359**

.461**

.351**

1

Sig. (2-tailed)

.001

.000

.000

.000

N

101

101

101

101

101

## Ho: r1 = 0 r1 is equal to zero. If the result accepts the H0 it means there is no correlation between the variables.

## H1: r1 # 0 r1 is not equal to zero. If the result accepts the H1 it means there is correlation present between the variables.

In the correlation we check the all relations between the dependent and the independent variables. Where we find whether the relation is strong or moderate. The relationship between trust & commitment and information sharing is 0.40 it means the Pearson correlation is moderate. The significance between these variables is less than 0.05. It means the Ho: is rejected and H1: is accepted. There is correlation present between these variables. The relationship between mutual goal orientation and information sharing is 0.28 it means the Pearson correlation is weak moderate. The significance between these variables is less than 0.05. It means the Ho: is rejected and H1: is accepted. There is correlation present between these variables. The relationship between mutual goal orientation and trust & commitment is 0.54 it means the Pearson correlation is moderate. The significance between these variables is less than 0.05. It means the Ho: is rejected and H1: is accepted. There is correlation present between these variables. The relationship between the two independent variables long term relationship and information sharing is 0.48 it means the Pearson correlation is moderate. The significance between these variables is less than 0.05. It means the Ho: is rejected and H1: is accepted. There is correlation present between these variables. The relationship between long term relationship and trust & commitment is 0.32 it means the Pearson correlation is moderate. The significance between these variables is less than 0.05. It means the Ho: is rejected and H1: is accepted. There is correlation present between these variables. The relationship between long term relationship and mutual goal orientation is 0.21 it means the Pearson correlation is weak. The significance between these variables is less than 0.05. It means the Ho: is rejected and H1: is accepted. There is correlation present between these variables. The relationship between the dependent variable and the independent variables customer retention and information sharing is 0.34 it means the Pearson correlation is moderate. The significance between these variables is less than 0.05. It means the Ho: is rejected and H1: is accepted. There is correlation present between these variables. The relationship between the dependent variable and the independent variables customer retention and trust & commitment is 0.36 it means the Pearson correlation is moderate. The significance between these variables is less than 0.05. It means the Ho: is rejected and H1: is accepted. There is correlation present between these variables. The relationship between the dependent variable and the independent variables customer retention and mutual goal orientation is 0.46 it means the Pearson correlation is moderate. The significance between these variables is less than 0.05. It means the Ho: is rejected and H1: is accepted. There is correlation present between these variables. The relationship between the dependent variable and the independent variables customer retention and long term relation is 0.35 it means the Pearson correlation is moderate. The significance between these variables is less than 0.05. It means the Ho: is rejected and H1: is accepted. There is correlation present between these variables. The dependent variable relationship shows with the independent variables is moderate. It means if the organization see the customer retention then it's important to see the information sharing with customers, mutual goal orientation with customers, built trust & commitment with customers, make a long term relationship with customers. All these variables are moderate relationship with customer retention.

## Coefficients (5.12)

Model

Unstandardized Coefficients

Standardized Coefficients

t

Sig.

B

Std. Error

Beta

(Constant)

1.005

.532

1.888

.062

Information sharing

.124

.101

.125

1.226

.223

Trust commitment

.052

.111

.051

.471

.639

Mutual goal orientation

.356

.102

.357

3.488

.001

Long term relationship

.237

.117

.200

2.028

.045

Dependent Variable: customer retention

## CRi=C+b1(I&Si)+ b2 (T&Ci)+ b3 (M&Gi)+ b4(L&Ri)+Ei

## CRi=1.01+0.12(I&Si)+0.52(T&Ci)+0.36(M&Gi)+0.24(L&Ri)+Ei

Table presents the results of the regression analysis. The results show that all of the independent variables except information sharing and trust & commitment significantly affect the customer retention as shown by the values of the t-statistic and the significance level. T-test is used to test the significance of the individual partial regression coefficients. Null hypothesis in this test is set as the partial regression coefficient is zero. This test shows that the coefficients of all the predictors except information sharing and trust & commitment are statistically significant at less than five percent level of significance. All of the significant coefficients have the positive signs. The effect of the information sharing on the customer retention is positive and it is statistically not significant. The magnitude of the partial regression coefficient of the information sharing is 0.12, which suggests that holding other factors constant an increase of one unit in this variable would increase the customer retention by 0.12 units. The effect of the trust & commitment on the customer retention is positive and it is statistically not significant. The magnitude of the partial regression coefficient of the trust & commitment is 0.05, which suggests that holding other factors constant an increase of one unit in this variable would increase the customer retention by 0.05 units. The effect of the mutual goal orientation on the customer retention is positive and it is statistically significant. The magnitude of the partial regression coefficient of the mutual goal orientation is 0.36, which suggests that holding other factors constant an increase of one unit in this variable would increase the customer retention by 0.36 units. The effect of the long term relationship on the customer retention is positive and it is statistically significant. The magnitude of the partial regression coefficient of the long term relationship is 0.24, which suggests that holding other factors constant an increase of one unit in this variable would increase the customer retention by 0.24 units.

Apply T-test for checking the significance.

If the value is increased than 0.05 then accept the Ho.

If the Ho accepts then the no relation is present between these variables. The independent variable is not reliable for dependent variable.

If the value is decreased than 0.05 then Ho is rejected.

If the Ho is rejected then the relation is present between the variables and the variables are reliable for dependent variables.

In this table information sharing and trust & commitment are not significant. The values of these variables are high then 0.05. It means that these variables are not reliable for the dependent variable. These variables are negative relation with the dependent variables. The other variables are mutual goal orientation and long term relationships are significant and these variables are reliable for the dependent variables. The value of these variables are less then 0.05. These variables are positive relation with dependent variables. If any change in these variables the change occurred in the dependent variable

## Model Summary (5.13)

Model

R

R Square

Adjusted R Square

Std. Error of the Estimate

1

.544a

.296

.266

.44571

Predictors: (Constant), long term relationship,

mutual goal orientation, information sharing,

trust commitment

Model summary have been shown in table. The value of the coefficient of determination (R2) is 0.30. This shows that the correlation between the observed values of customer retention and the fitted values of the customer retention is 30%. The adjusted coefficient of determination (R2) shows is adjusted for the degrees of freedom. The value of the adjusted coefficient of determination (R2) is not affected by the inclusion of the irrelevant variables. The value of the adjusted coefficient of determination (R2) is 0.27, which shows that 27% variations in customer retention are explained by the variations in independent variables. If the changes occurred in the employee performance the 30% changes occurred due to these variables. 70% changes occurred due to the rest of the other variables.

## ANOVA (5.14)

Model

Sum of Squares

Df

Mean Square

F

Sig.

Regression

8.004

4

2.001

10.072

.000a

Residual

19.071

96

.199

Total

27.074

100

a. Predictors: (Constant), long term relationship, mutual goal orientation, information sharing, trust commitment

b. Dependent Variable: customer retention

The value of F-statistic is statistically significant at less than five percent which exhibits that in the estimated model al least one of the partial regression coefficients is different from zero. The significant is less then 0.05 it means that Ho is rejected and H1 is accepted. All variables are jointly affected independent variables are reliable.

## Summary and Conclusion

## Summary:

This study has investigated the determinants of customer retention from the sample size of 101 FMCG customers in the Pakistan. The topic of this study is "improving customer retention through relationship marketing". The dependent variable is "customer retention" the independent variables are "information sharing, trust & commitment, mutual goal orientation and long term relationship. For the organization growth customer retention is most important part due to that we check the impact of different variables on the customer retention. We are using the questionnaire technique for getting the responses for the results. We are using the different kind of techniques for getting the result we using the descriptive technique from where we get the mean and standard deviation of these variables after the descriptive we use the histogram technique for checking the normal distribution of the variables all the variables which is using in the histogram are normal distributed. After the histogram we use the scatter plot technique for checking the relation between dependent and independent variables through the scatter line. Scatter line shows the negative or positive relation but in this study all independent variables are positive relation with the dependent variables. After the scatter plot using the correlation technique for checking the correlation between these variables and the significant level of these variables. The customer retention has been used as dependent variable as the representative of customer loyalty. In the correlation the study could not find any impact of negative relation on customer retention. The impact of information sharing, trust & commitment, mutual goal orientation and long term relationship are found to be positive and statistically significant in the correlation. The impact of information sharing, trust & commitment, mutual goal orientation and long term relationship are found to be positive through the significant level. It means that all the independent variables are reliable for the dependent variable. After the correlation technique using the coefficient of regression technique for checking the coefficient, t-test, f-test and (R-square). Yet, the effect of information sharing and trust & commitment on customer retention is found to be positive and statistically not significant in the regression technique. According to the definition of information sharing and trust & commitment used in this study any increase in information sharing and trust & commitment represents the increase in the customer retention. The other two variables mutual goal orientation and long term relationship are found to be positive and statistically significant in the regression technique. In the regression we also check the R-square. In the R-square percentage is 30% it means 30% dependent variable is affected by these independent variables.

## Conclusion:

The research is about this topic "Improving customer retention through relationship marketing". We are using different kind of techniques for proving the effect of independent variables on the dependent variable. Sample size of this study is 101 filling the questionnaire from the FMCG customer. Using different Statistical tools like Descriptive, Histogram, Scatter plot, Correlation and Regression for getting the results. Finally through these techniques overall result is positive means the independent variable are reliable for dependent variable and they affected the dependent variable.