Improving and Monitoring Customer Retention

The paper was commissioned by the Microcredit Summit Campaign in 2006.The article discusses the need to understand the causes of desertion among microfinance institution (MFI) clients to develop an effective customer retention strategy. The article:

• Provides a framework to improve client retention and proposes an integrated system to monitor the causes of desertion;
• Bases its findings and framework of analysis on research on customer satisfaction and desertion undertaken at MFIs in 4 countries two in South America, one in Central America, and the other from the Caribbean.

The research finds that when customers leave an MFI, they do not go to a competing institution, instead prefer to use their own capital to fund their businesses.The research also finds the different causes of client desertion, which include factors related to:

• Industry structure such as:
  • The existence of a fragmented market with fierce competition that can cause current customers to become overly indebted;
  • Mismatch between products designed for different markets.
• Performance of the MFI including:
  • Customer dissatisfaction with the product;
  • Quality of customer service;
  • MFI image;
  • Emotional involvement.
• Client profile that the importance of understanding customer behavior through data segmentation.

The article outlines the following main steps to developing a retention strategy:

• Identifying the causes of desertion;
• Isolating 20% of causes that cause 80% of desertion;
• Segmenting the customer base;
• Prioritizing solutions.

The article ends by describing 10 points to consider in the monitoring of retention and desertion.