Ensuring long-term customer loyalty: short-term contracts and no gifts

Jan Becker standing in front of white board

What do customers look for when they are shopping for an IT package that includes a contract? What influences their decision to purchase one product instead of another? In an extensive study, marketing experts have found that contract duration and promotional gifts are the top key factors. “Short contract duration and exclusive, high quality gifts are the best means of convincing customers to decide in your favor,” said Dr. Jan Becker, professor for Marketing at Kühne Logistics University (KLU) in Hamburg.

Customers’ motives vary greatly. People who prefer short-term contracts are happy to do without extra gifts and stay with their supplier longer. Those who focus on incentives, on the other hand, are more likely to switch. Becker’s unconventional advice: “If you want to ensure long-term customer loyalty, make it easy for your customers to switch and offer contracts with short durations. Most customers will reward this strategy with loyalty.”

The study is based on an evaluation of the data sets of almost 80,000 DSL customers – such a large body of data had never been evaluated with regard to this subject. The researchers analyzed the data from the psychological, behavioral and advertising points of view. “The results of our research should be especially valuable for companies that sell products with a high frequency of use, such as smartphones, Internet services and cable TV,” explained Becker. The expert clearly shows that exclusive gifts such as special discounts or cut-rate hardware are useful for acquiring customers, but they do not ensure long-term customer loyalty. In particular, companies should distribute high quality gifts with care. “People are happy to take advantage of them but they tempt customers to switch suppliers frequently, since the competition also makes attractive offers,” said Becker. In contrast, customers who choose short-term contracts are often less expensive to acquire and more loyal to their suppliers.

Becker, Jan U., Martin Spann and Timo Schulze: “Implications of minimum contract durations on customer retention,” Marketing Letters, forthcoming.

More information about Jan Becker.