<P> Many companies in competing markets will redirect or allocate large amounts of resources or attention towards customer retention as in markets with increasing competition it may cost 5 times more to attract new customers than it would to retain current customers, as direct or "offensive" marketing requires much more extensive resources to cause defection from competitors . However, it is suggested that because of the extensive classic marketing theories center on means of attracting customers and creating transactions rather than maintaining them, the majority usage of direct marketing used in the past is now gradually being used more alongside relationship marketing as its importance becomes more recognizable . </P> <P> It is claimed by Reichheld and Sasser that a 5% improvement in customer retention can cause an increase in profitability of between 25 and 85 percent (in terms of net present value) depending on the industry . However Carrol, P. and Reichheld, F. dispute these calculations, claiming they result from faulty cross-sectional analysis . Research by John Fleming and Jim Asplund indicates that engaged customers generate 1.7 times more revenue than normal customers, while having engaged employees and engaged customers returns a revenue gain of 3.4 times the norm . </P> <P> According to Buchanan and Gilles, the increased profitability associated with customer retention efforts occurs because of several factors that occur once a relationship has been established with a customer . </P> <Ul> <Li> The cost of acquisition occurs only at the beginning of a relationship, so the longer the relationship, the lower the amortized cost . </Li> <Li> Account maintenance costs decline as a percentage of total costs (or as a percentage of revenue). </Li> <Li> Long - term customers tend to be less inclined to switch, and also tend to be less price sensitive . This can result in stable unit sales volume and increases in dollar - sales volume . </Li> <Li> Long - term customers may initiate free word of mouth promotions and referrals . </Li> <Li> Long - term customers are more likely to purchase ancillary products and high margin supplemental products . </Li> <Li> Customers that stay with you tend to be satisfied with the relationship and are less likely to switch to competitors, making it difficult for competitors to enter the market or gain market share . </Li> <Li> Regular customers tend to be less expensive to service because they are familiar with the process, require less "education", and are consistent in their order placement . </Li> <Li> Increased customer retention and loyalty makes the employees' jobs easier and more satisfying . In turn, happy employees feed back into better customer satisfaction in a virtuous circle . </Li> </Ul>

Becomes the foundation for creating value in a partnering style relationship