A company’s sustainability initiative, the authors argue, should be led by the CEO and should
become a priority for the board. Business executives should also strive to attract the support of the
company’s middle management. In addition, sustainability must apply to the entire supply chain —
and even beyond, to the usage and disposal of products. Because the details are so granular, this
requires the attention, effort, and creative thinking of all employees and units.
Of course, one company cannot solve the world’s biggest problems all by itself. Companies need to
form alliances with competitors in their sustainability journey. One example: The Consumer Goods
Forum, representing top retailers and consumer-goods manufacturers, came together to work toward
eliminating net deforestation in members’ supply chains by sustainably sourcing the commodities that
drive much deforestation: palm oil, beef, soy, and timber. That commitment was made possible by
companies including Unilever, Procter & Gamble, Nestle, Coca-Cola, and PepsiCo agreeing on a plan.
REPRINT 58218. For ordering information, see page 4.
Which Features Increase Customer Retention?
Rebecca W. Hamilton (Georgetown University), Roland T. Rust (University of Maryland),
and Chekitan S. Dev (Cornell University) pp. 79-84
Companies must make important decisions about which features to include in the goods and services
they offer to customers. Understanding the return on investment for a feature is essential to increasing
profitability. Although adding features increases costs, it may also increase revenues, either by attracting
new customers or retaining existing customers. Yet the features that retain customers, the authors argue,
may be different from the features that initially attract them.
The authors provide insights from their research on how to calculate the return on investment for
features. Working with a global hotel company, the authors developed a model to assess how features
produce financial returns by attracting new customers and/or by retaining existing customers. The
model integrates three kinds of data: the revenue increase due to the effect the feature has on attracting
new customers; the revenue increase due to the effect the feature has on retaining existing customers;
and the costs associated with adding the feature. They tested the model using three features, or “amenities
of interest,” in the hotel industry: bottled water, free internet access, and a fitness center.
Not surprisingly, the authors found that free wireless internet was much more likely to attract customers than free bottled water. However, the picture changed when the authors switched from looking
at features that attracted guests to features that retained them. Offering free bottled water during a stay
led to a bigger boost in customer retention than offering wireless internet access.
Why the difference? The authors argue that, although customers may have a good sense of the value of
some amenities prior to using them (such as in-room internet), the value of other amenities (such as bottled
water or a well-equipped fitness center) may be more visceral or emotional, and they may influence the consumer’s evaluation of the overall service experience in a more holistic manner. It’s harder for both consumers
and companies to predict how visceral or emotional reactions to features will affect future behavior.
From their research, the authors conclude that companies shouldn’t rush to add new features that
seem promising. Rather, they should first ask a series of questions:
• Why should I add this feature to my offering? When considering a new feature, think about whether
the feature is likely to attract new customers, retain existing customers, or both.
• Do my competitors offer the feature? The desire to match competitive offerings often leads to what’s
known as feature fatigue and amenity creep. Although benchmarking is important, it is more important
with features designed to attract customers than with features designed to retain customers.
• How can I measure the effects of adding a feature on customer retention? Surveys, interviews, focus
groups, and conjoint analysis are very useful for predicting whether specific features will attract customers.
However, because customers often have a harder time predicting whether features will influence their
repeat purchases, directly asking them is unlikely to generate accurate estimates of a feature’s effect on
retention. Instead, the authors say, it is often better to use A/B testing, which involves implementing a feature in a few different settings and comparing the results with those where the feature hasn’t been added.
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