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  • Cyclical Unemployment – Definition, Causes and Cure

    In the previous two articles, we studied about frictional and structural unemployment. They can be considered to be the mild and moderate form of unemployment respectively that can be suffered by an economy. They are not usually the ones being referred to when common people talk about unemployment.

    The most dreaded form of unemployment is called cyclical unemployment. This is the form that plagued the world during the Great Depression of 1929 and after the subprime mortgage crisis in 2008 and many more times. This is the type which brings horrific images to people’s minds and overthrows governments in the blink of an eye. In this article we will study the concept of cyclical unemployment in detail.

    Definition of Cyclical Unemployment

    Investopedia defines cyclical unemployment as follows:

    A factor of overall unemployment that relates to the cyclical trends in growth and production that occur within the business cycle. When business cycles are at their peak, cyclical unemployment will be low because total economic output is being maximized. When economic output falls, as measured by the gross domestic product (GDP), the business cycle is low and cyclical unemployment will rise.

    Examples of Cyclical Unemployment

    Cyclical unemployment cannot be explained with the help of personal examples. Rather the examples here refer to huge events which are known to pretty much everybody.

    • The Great Depression is one of the biggest examples of cyclical unemployment. Estimates of the magnitude of the problem vary. However, some estimates have pegged the unemployment rate to be as high as 40%.

      Considering the fact that official figures tend to understate the true impact of the problem, this situation was indeed alarming. Also, it must be noted that the Great Depression in 1929 happened immediately after a period of immense economic growth i.e. the roaring 1920’s

    • The more recent subprime mortgage crisis is also an apt example of cyclical unemployment. During the early 2000’s the demand for housing exploded as a result of low interest rates and cheap availability of money. As a result, houses were being constructed at a breakneck speed providing employment to a lot of people in the process. When the housing market collapsed in 2008, it had ripple effects causing losses, foreclosures and unemployment at a catastrophic scale.

    Economic history is rife with examples of cyclical unemployment. Earlier, these incidents were isolated to a particular industry or to an economy. However, of late, the financial markets of the world have become increasingly integrated and the rise of cyclical unemployment in one part of the world, particularly the developed markets, quickly escalates into a spiral and spreads to other economies as well.

    Duration of Cyclical Unemployment

    Cyclical unemployment is of long term duration. It is this kind of unemployment that escalates into a self destructive economic spiral whose cause and consequence are both unemployment. This type of unemployment can take decades to resolve if left on its own. The most famous example being the Great Depression wherein the situation did not get resolved until US joined World War -2 i.e. in 1944 i.e. after 15 long years.

    Causes of Cyclical Unemployment

    Cyclical unemployment is caused by a fundamental imbalance within the economy. In this case, the number of people in the economy looking for jobs is greater than the number of jobs in the economy. Hence if all the jobs in the economy are filled simultaneously, there will still be someone who will be unemployed.

    This kind of unemployment happens when the economy as a whole goes down. This means that the GDP of the country reduces. Hence, since less and less goods are being consumed by consumers, fewer people are required to manufacture them. Since fewer people are required, manufacturers begin to lay off excess employees. This causes even more panic causing even lesser consumption and the self destructive cycle goes on. The only way to stop this downward spiral is to uplift the entire economy by increasing the GDP i.e. coming out of a recession into a boom phase. This, as we all know, is not at all an easy task. Hence cyclical unemployment is considered to be a cause of concern. Economies that are plagued by it have a hard time recovering from it.

    Cure of Cyclical Unemployment

    Cyclical unemployment can be cured by increasing the GDP of the country. In most countries today, this job is done by the governments. They cannot single handedly end the recession. However, the government can accumulate money in the form of debt and end the negative cycle by creating more jobs which can later be paid off by taxes received.

    The idea behind government spending is to give a forward thrust to the economy. This forward thrust creates a momentum which can then be sustained by private firms. More government jobs will create more spending which will then also create more private jobs.

    Government spending as a means to end unemployment has been a widely debated topic in the past. There are both advantages and disadvantages to this approach. In fact, this topic is so wide that it is beyond the scope of this article and we will discuss it in the next article.

    For now, it is enough to understand that cyclical unemployment is the most severe form of unemployment that there is and massive programs have to be created to help economies recover from them.

  • Cyber Risk in Reinsurance

    The global business environment has turned increasingly digital in the pasts few years. It is very common for businesses across the world to conduct most of their business online. This includes transacting with customers, employees, suppliers, and even the government. It is for this reason that the role of computers has drastically increased within the business environment. However, this rapid adaptation of cyber techniques, which was accelerated by the coronavirus pandemic also carries several risks.

    In this article, we will have a closer look at some of the cyber risks and how they affect the reinsurance business.

    What is Cyber Risk?

    Before we begin discussing further, it is very important for us to clearly quantify what is meant by cyber risk. This is because of the fact that computers have proliferated in our lives. As a result, they impact businesses in multiple ways.

    It is important to have a clear idea about the type of business disruptions that could be caused in order to understand the quantum of cyber risks. Some of the prominent examples of cyber risks have been mentioned below:

    • Privacy Liability: It is important to understand that since businesses all over the world are operating online, they have access to a lot of data belonging to other parties.

      It is common for companies to store personal and financial data related to their customers, suppliers, and other such entities as part of their regular day-to-day operations. This makes these companies vulnerable to financial liabilities in case this data gets stolen from their servers.

      In the past few years, mega-corporations such as Facebook and Marriott have found themselves liable for financial losses because of the loss of data from their servers.

    • Business Interruption: It is also important to realize that businesses have become extremely dependent upon technology for the functioning of their day-to-day business. For instance, most airlines across the world, run their entire operations based on technology.

      The flight schedules of all the airplanes as well as the customer data are stored on computers. In such cases, technology disruption can cause business operations to come to a grinding halt. There have been instances in the past where cyber failures have created situations leading to the grounding of airplanes which has led to financial losses.

    • Extortion: The recent past has seen some innovative trends with regard to cyber extortion. There have been cases where famous ransomware such as “WannaCry” have been created. The end result is that hackers do not have access to the underlying data but they block the access of the corporation to the same data. Hence, unless companies pay up the ransom, they are unable to access critical data. The losses from ransomware are estimated to be in the range of $10 billion per annum!

    • Data Restoration: A lot of the time, due to operational errors, companies end up losing data that is important to them. It may be possible to restore this data by copying it from a backup or a test system. However, this can be expensive and requires a lot of time and resources. This could prove to be a significant financial loss for the firm.

    Cyber Risk

    Why is Cyber Risk Difficult to Quantify?

    Insurance and reinsurance can only protect companies from losses once the accurate amount of money at risk is determined. However, in the case of cyber risks, it is difficult to come up with an accurate estimation of the risk involved. This is because generally insurance and reinsurance companies turn to empirical data for risk modeling.

    If a larger set of past data is used, then the research is considered to be more thorough. However, in case of cyber risks, such data is not available. Hence, it is not possible to predict cyber risk using traditional means.

    Reinsurance companies have developed their own new methodologies to help them ascertain cyber risks. However, a lot of these methodologies remain untested because they have only been around for a short period of time.

    Why Reinsurance is Important in Cyber Risk Management?

    Ceding insurance companies cover cyber risks in various forms. An elementary level of risk is covered within the regular contracts. At the same time, a separate cyber risk contract needs to be created in order to cover the more detailed risks.

    It is important to note that ceding insurance companies are less sure about the probable losses that may arise because of this risk. As a result, most of this risk gets passed on to reinsurance companies.

    Studies conducted by industry bodies have shown that almost 40% of the premiums collected to mitigate cyber risks are passed on to the reinsurance company. This is in stark contrast with about 10% of the insurance premium that ceding insurers pass on to reinsurance companies in the case of other lines of business. This effectively translates into the fact that cyber reinsurance is likely to be the growth engine of reinsurance companies in the future. Hence, the cyber risk management business is very important to reinsurance companies across the globe.

    The fact of the matter is that cyber reinsurance is both a risky as well as a profitable venture. The ability to profitably provide cyber reinsurance coverage will be the differentiating factor in the future.

  • Cutting Costs Strategically

    The business environment today has become extremely competitive. Companies are not only facing competition from their local competitors but also from global ones. Different economic and geopolitical factors make global supply chains necessary.

    The problem with having global supply chains is that operations become broad and complex. It is much easier to manage operations located in the same geography rather than those located in multiple countries.

    Rising costs and increasing competitiveness are making it mandatory for companies to cut costs. Corporations also agree that up to 25% of their expenditures are wasteful in nature and could be eliminated. The problem is that they do not know which 25%?

    Cutting the wrong kind of costs can lead to a decline in quality or customer service, both of which are sure to reflect as declining sales in the near future. In this article, we will understand the concept of strategic cost cutting and how it adds value, especially to global supply chains.

    The Problem with Cost Cutting

    Cost cutting can be very ugly if proper attention is not paid to how it is done. For instance, cost-cutting can lead to job losses. It can also lead to suppliers not being paid on time and so on.

    The common link in ugly cost cutting is that the company tries to benefit by undermining somebody else’s interest. In the short-run, it might appear that every dollar saved will directly add to the bottom line. However, in the long-run, one will see the quality of products and services dropping drastically.

    Thus, cost cutting if done incorrectly can cause the revenue of the company to fall. The damage done could be severe if the company begins to lose loyal customers. The cost of acquiring loyal customers is increasingly high nowadays!

    Competency Based Approach

    Costs should not be blindly cut. Instead, cost cutting should follow a strategy. That means that every single cost reduction must be a step towards achieving a larger goal. The common goal that most successful companies pursue is when they decide to align with their competencies.

    Large multinational companies do a lot of things. For instance, consider a company like Nike. It is in the business of marketing sportswear. However, the company does not manufacture any of the products it sells. The company identifies itself as a marketing company. All the other functions which do not align with this competency are outsourced.

    The key thing to note is that Nike keeps its marketing department extremely well-funded. The core competencies are provided the resources to be the best in the global marketplace.

    Other less strategic tasks are outsourced to cut costs. This enables Nike to cut costs where things matter less and to redirect the financial muscle to future investments that will allow the business to thrive and to grow even faster.

    What is a Competency?

    A competency is a difficult thing to define. The difficulty is due to the wide nature of qualities that can be included in the competency. It could be related to people, technology, know-how or processes!

    It is something that the company excels at relative to its peers. Every company must necessarily have a competency. It is not possible to survive in this cut-throat marketplace without having some core competency.

    It must be recognized that competencies are all about focus. Companies can have a handful of competencies at most. If you have a list of competencies, then you probably have not defined your competencies right!

    The Tradeoffs

    Strategic cost cutting means that the companies can differentiate between the costs that they need to incur to survive. This would companies can identify mundane expenses like electricity, fuel, accounting costs, regulatory costs, etc. and contrast it with costs related to competencies.

    The idea is to funnel all the money towards competency building and be as lean as possible in other expenses. Overheads must be identified, and incessant cost-cutting must be undertaken in those fields. However, at the same time, the competencies that allow the company to outmaneuver the competition should be developed over the long term regardless of the costs.

    Disadvantages of Strategic Cost Cutting

    Higher Management Buy In

    Strategic cost cutting is a decision that needs to be made by the entire organization. The top management has to be involved in this approach.

    The middle management can execute this strategy on their own to some extent. However, they will have to interact with the other areas of the organization which is not within their control. This is where strategic cost cutting would fail.

    An AVP or a VP cannot implement this strategy by themselves. Instead, this strategy would only work if the decisions are driven from the top i.e. from the CEO or the board of directors themselves. Getting a buy-in at that level is not very easy. Hence relatively fewer companies indulge in this activity.

    Time Frame

    Strategic cost cutting does not work overnight. It takes years to build competencies that outmaneuver the competition. The problem is that most companies run with the short term in mind. They are only focused on their quarterly or annual results. If immediate cost reduction is the objective, there are huge limitations as to what this approach can achieve.

    To sum it up, organizations must never cut costs in their core areas. They must identify administrative and non-critical areas and make the organization as lean as possible by focusing on those areas.

  • Customs Department – An Introduction

    International Trade is facilitated and controlled by Countries with the help of Foreign Policy, Export Import Regulations, Schedule and Tariff of Import and Export Duties as well as Trade Laws and Regulations.

    Customs Department is the Federal Government Agency that is invested with Authority to conduct Customs Valuation and collect Import as well as Export Duties on behalf of the Government.

    Customs are present in all points of entry into and out of the country. These include airports, sea ports, on road border check posts and any other point of exit and entry into the country.

    Customers Departments are invested with quasi powers similar to the police and work in close co-ordination with the border security, police and other security intelligence departments.

    Imports and Exports cover two channels of transport of goods. Business related trade is carried on through cargo imports. Caro Import as well as export can be consigned through road network, via shipping as well as airfreight. All the said modes will be covered by Customs Department.

    The second mode of export and import relates to personal baggage. Though this mode does not have much of revenue implications but still the baggage has to go through customs inspection to ensure illegal items and prohibited items are not being imported or exported. Items like Narcotics, illegal weapons and cash etc are always smuggled into the country through various routes. Customs department has revenue intelligence teams that are trained to prevent such acts and arrest the accused.

    In the Airports and Ports, Customs have designated area and offices where the exporters deposit the export consignments. After customs clearance the cargo is directly handed over to the Airline or the Shipping line from Customs department for onward shipment.

    Similarly, imports cargo is offloaded from the aircraft or ship into the Customs designated area and store until it is custom cleared and released to the importer.

    The customs designated area is always a bonded area where in only customs is permitted entry. The cargo that is kept within the bonded area cannot be moved or taken out without Customs permission.

    Customs Department officials inspect the inbound cargo and based on the descriptions of the items in Invoice and other documents, assign the correct tariff to arrive at the valuation of the consignment based on the Invoice value. The duty amount is calculated and once the duty payment is made by the importer, the cargo is released. The process of submitting the cargo for customs clearance as well as facilitating the documentation and clearance process is handled by Third Party Service Providers called Customs Brokers.

    Similar process is followed for customs exports too. Customs Brokers file documents on behalf of the clients to Customs department, facilitate cargo inspection and approval to enable exports to be completed.

    Customs Departments also work closely with border security forces and revenue intelligence agencies to work on information related to smuggling and illegal entrants into the country.

    Revenue intelligence wing of Customs deals with matters pertaining to valuation of imports and try to check transfer pricing under valuation, under invoicing etc done by importers to evade import duty payments. They also build database of international prices of specific commodities and the trends in the markets to be able to spot under valuation attempts by importers.

  • Customs Clearance – Meaning, Scope and Documentation

    Customs Departments are the government designated authority to implement the policies related to import and export, collect customs duties and facilitate movement of people, goods, and cargo into and out of the country.

    Area of Operations and Authority

    Customs departments have offices at all seaports, airports and border gateways that are essentially the exit and entry points for people and cargo movements into and out of the country.

    Customs agencies are empowered to make arrests, confiscate goods and enjoy powers similar to that of police departments.

    Customs and Trade Logistics

    Every country annually publishes its policy for Foreign Trade, which stipulates the conditions under which goods and services are eligible to be exported or imported. Customs departments implement the provisions of the policy under customs rules, regulations and tariffs.

    Imports in many countries may be allowed freely, or some categories may be permitted with due licenses. Many items are also published as banned for import and not allowed entry into the country.

    All of the items imported into the country have to be custom cleared. This applies to the items brought in as personal effects and also imported by trade and business establishments including governmental and defense agencies. Necessary stipulated duties would have to be paid before the goods are released by Customs.

    Cargo imported into the country from any point of entry is warehoused at Customs bonded area under customs jurisdiction until it is released after clearance.

    Imports and Customs Clearance

    Freight Forwarders who coordinate the international transportation also provide customs clearance services to the clients. The activity is called customs brokerage.

    Customs clearance work involves preparation and submission of documentations required to facilitate export or imports into the country, representing client during customs examination, assessment, payment of duty and co taking delivery of cargo from customs after clearance along with documents.

    Some of the documents involved in customs clearance are :

    1. Exports Documentation: Purchase order from Buyer, Sales Invoice, Packing List, Shipping Bill, Bill of Lading or Airway Bill, Certificate of Origin and any other specific documentation as specified by the buyer, or as required by financial institutions or LC terms or as per importing country regulations.

    2. Imports Documentation: Purchase Order from Buyer, Sales Invoice of supplier, Bill of Entry, Bill of Lading or Airway bill, Packing List, Certificate of Origin, and any other specific documentation required by the buyer, or financial institution or the importing country regulation.

    Customs Agents prepare the document of Shipping Bills in the house for submission while rests of the documents are obtained from the client. Preparing shipping bill involves Classification of cargo under specific classification that is a critical activity in the entire process.

    Customs clearance agents are also called Carrying and Forwarding agents. They are registered and licensed by Customs to operate. Their role is limited to acting on behalf of and representing clients as third party agencies engaged in customs clearance.

    Customs Agents are linked through EDI with customs in most of the countries and use documentation software to facilitate entire process.

  • Customs Clearance Agency and Process

    Any Organization that is engaged in Imports or Exports would require the services of third party Customs Clearance Agent as well as a Freight Forwarder. While freight forward manages the transportation part of the exports and imports, customs clearance and the approval and co-ordination with the rest of the regulatory authorities to affect the imports and exports is done by the Customs Clearance Broker.

    Every Exporter and Importer would need to know the basics of the Import and Export policies as well as conditions applicable to their specific products of import and exports. In addition they should also be aware of the processes involved in imports and exports broadly. However it is the Customs Clearance agent who would know the working of all the Customs Rules and Laws and ensure compliance of the same in a speed manner so as to ensure that the import consignment is cleared within the allotted free period and does not incur demurrage.

    Pre Customs Clearance

    Customs valuation process demands a list of documents that are required to be submitted by the Importer. Gathering the various documents from the Importer, from the forwarding agent and creating customs documents required to be filed for clearance process is undertaken by the Clearance Agent. It is he who prepares the Bill of Entry the main document on which the Customs approves the valuation and clearance.

    With the standardization of INCO Terms and Documentation, the documents are prepared in advance as soon as the consignment is dispatched from the Country of Origin and the Bill of Entry along with the commercial documentation and the transportation documents are filed electronically from the Clearance Agency’s office and registered at the Customs Department.

    Clearance Process at Customs

    On arrival of the consignment at the Customs Bond, the Customs carries out physical inspection as well as valuation of the import. Valuation of the import consists of ascertaining the correct description of the items, classification of the items under relevant Customs Chapter and Tariff, Ascertaining that there is no case of under invoicing and certifying the valuation of the consignment and arriving at the Customs Duty required to be paid. The clearance agency proceeds to advice and co-ordinate with the importer to make necessary Customs Duty Payments and takes physical delivery of the Consignment and delivers it to the Importer at the designated place along with the set of Original documents.

    Customs Rules permit a free bonding or warehousing period of three to seven days (depends from country to country and location). Normally the air shipments are given only three days for clearance while the sea shipments are given up to seven days of free warehousing in Customs Bonded Warehouse. The importer through the Customs Clearance agent has to clear the consignment within the free period, failing which a daily demurrage would be charged on the consignments for all days up to the time of actual delivery. The demurrage could prove to be very expensive and hence it is important to ensure that the Customs Clearance Agency is efficient and knows its job well enough.

    Importer cannot be expected to spend his time on getting the consignments cleared after ensuring that he is compliant with all the processes. Hence the role of the Customs Clearance Agency comes into the picture for he undertakes to represent the Importer with the Customs Department and follow through the process.

  • A Brief on Customs Brokerage

    International trade is regulated through tariffs and trade laws established by the Country’s Federal Governments to control the imports and exports of the country. The Government invests executive powers to the Customs Departments, headed by Custom’s Commissioners to administer the policies and tariffs on all imports and exports into and out of the country.

    Customs Clearance Departments are setup in all ports of entry and exit at the Country’s borders including Airports, Sea Ports and Check Posts at Road.

    Customs Clearance involves valuation of the goods for their authenticity in terms of both physical inspection as well as value assessment. The Customs inspect the documents submitted to ascertain that the valuation on the Commercial Invoice is on par with the international markets and approve the assessment based on appropriate classification. Once the consignment is assessed, valuation determined the demand for duty is made on the Importer. On receipt of duty payment, the consignment is released out of the Customs bond.

    The entire process of imports is governed not only by the Customs Laws, but all imports are required to be compliant with the other relevant Boards and Bodies like Food and Drug Administration, Department of Agriculture approval, Fisheries and Wildlife Department approval etc. While the import consignment is in the custody of Customs, the rest of the tests and approvals would have to be acquired before the customs can release the consignment.

    The above process of customs clearance can take from anywhere from one day to seven days depending upon each case. There are several commercial documents that are to be submitted by the Importer and few Custom related documents have to be prepared and submitted to enable customs clearance of the imports.

    The customs clearance process and co-ordination with the Customs and other agencies necessitates the services of engaging a Customs Clearance Broker or Brokerage Agency.

    Customs Clearance Brokerage Agency is a Third Party Service Agency that is licensed by Customs Department to operate and represent the Importer. Customs Clearance License Holder is required to have passed Customs Test and Examination and is required to be fully conversant with Customs Laws, Rules, and Processes and ensure adherence to the same.

    There are several Customs Clearance Service Providers who are specializing in the field. There are many freight forwarder companies including Multi National Companies that own and operate Customs Clearance services for their clients.

    The Customs Clearance process requires several documents including commercial documents from the Buyer, Seller as well as bill of Transport from the Transporting Company, Certificate of Origin from the Seller country etc. Besides the Customs Bill of Entry is one of the key documents required to be submitted along with the rest of the documents. These documents are filed electronically from the Customs Broker’s office before the consignment land.

    From the time the consignment lands and is warehoused at the Custom’s Bonded Warehouse, there is a free period of three days to seven days (varies from country to country) within which the customs clearance process would have to be completed and the consignment released. If not the consignment then starts accruing demurrage on daily basis and would have to be paid up by the Importer before clearance of the Consignment.

    Customs Clearance Agent plays a very crucial role in representing the Importer with Customs and takes the responsibility for compliance of all Rules and Regulations on behalf of the Importer.

  • Customers Expectations and Delight

    Introduction

    In today’s ultra competitive business environment merely meeting customer expectations is not enough.

    In order to effectively differentiate themselves from the competition, service providers need to focus on exceeding customer expectations to create customer delight and create a pool of loyal customers.

    Therefore, when deciding on a service delivery design, it is imperative for the service provider to consider the targeted customer base and their needs and expectations. This will help in developing a service design that will help the provider to effectively manage customer expectations leading to customer delight.

    Customer Needs and Expectations

    Customer needs comprise the basic reason or requirement that prompts a customer to approach a service provider. For instance, a person visits a restaurant primarily for the food it serves. That is the customer’s need.

    However, the customer expects polite staff, attentive yet non intrusive service and a pleasant ambience. If these expectations are not properly met the guest would leave the restaurant dissatisfied even if his basic requirement of a meal being served has been met.

    Thus knowing and understanding guest expectations is important for any service provider.

    Customer Satisfaction, Dissatisfaction and Delight

    Based on the quality of the service experience a customer will either be satisfied, dissatisfied or delighted. Knowing a customer’s expectation is instrumental in developing a strategy for meeting and exceeding customer expectations.

    1. Customer Dissatisfaction: This is a situation when the service delivery fails to match up to the customer’s expectations. The customer does not perceive any value for money. It’s a moment of misery for the customer.

    2. Customer Satisfaction: In this case, the service provider is able to match the customer’s expectations and deliver a satisfactory experience. However, such a customer is not strongly attached to the bran and may easily shift to a competing brand for considerations of price or discounts and freebies.

    3. Customer Delight: This is an ideal situation where the service provider is able to exceed the customer’s expectations creating a Moment of Magic for the customer. Such customers bond with the brand, are regular and loyal and will not easily shift to other brands.

    Meeting and Exceeding Customer Expectations

    Exceeding customer expectations is all about creating that extra value for the customer. The hospitality industry specializes in creating customer delight.

    Example, most 5 star hotels maintain customer databases detailing room order choices of their guests. So if a guest has asked for say orange juice to be kept in the mini bar in his room, the next time that he makes a reservation at the hotel, the staff ensures that the juice s already kept in the room. Such small gestures go a long way in making customers feel important and creating customer delight.

    Another novel way of exceeding guest expectations is often demonstrated by travel companies. Since, they usually have details on their customers’ birthdays, they often send out an email greeting to their guests to wish them. This not only makes an impact on the guest but also helps to keep the company acquire ‘top of the mind recall’ with the guest.

  • What is Customer Satisfaction ?

    Business always starts and closes with customers and hence the customers must be treated as the King of the market. All the business enhancements, profit, status, image etc of the organization depends on customers. Hence it is important for all the organizations to meet all the customers’ expectations and identify that they are satisfied customer.

    Customer satisfaction is the measure of how the needs and responses are collaborated and delivered to excel customer expectation. It can only be attained if the customer has an overall good relationship with the supplier. In today’s competitive business marketplace, customer satisfaction is an important performance exponent and basic differentiator of business strategies. Hence, the more is customer satisfaction; more is the business and the bonding with customer.

    Customer satisfaction is a part of customer’s experience that exposes a supplier’s behavior on customer’s expectation. It also depends on how efficiently it is managed and how promptly services are provided. This satisfaction could be related to various business aspects like marketing, product manufacturing, engineering, quality of products and services, responses customer’s problems and queries, completion of project, post delivery services, complaint management etc.

    Customer satisfaction is the overall essence of the impression about the supplier by the customers. This impression which a customer makes regarding supplier is the sum total of all the process he goes through, right from communicating supplier before doing any marketing to post delivery options and services and managing queries or complaints post delivery. During this process the customer comes across working environment of various departments and the type of strategies involved in the organization. This helps the customer to make strong opinion about the supplier which finally results in satisfaction or dissatisfaction.

    Customer’s perception on supplier helps the customer choose among the supplier on basis of money value and how well the delivered products suit all the requirements. The supplier’s services never diminishes after the delivery as customer seeks high values post marketing services which could help them use and customize the delivered product more efficiently. If he is satisfied with the post marketing services then there are good chances for supplier to retain the customers to enhance repeated purchases and make good business profits.

    It is necessarily required for an organization to interact and communicate with customers on a regular basis to increase customer satisfaction. In these interactions and communications it is required to learn and determine all individual customer needs and respond accordingly. Even if the products are identical in competing markets, satisfaction provides high retention rates. For example, shoppers and retailers are engaged with frequent shopping and credit cards to gain customer satisfaction, many high end retailers also provide membership cards and discount benefits on those cards so that the customer remain loyal to them.

    Higher the satisfaction level, higher is the sentimental attachment of customers with the specific brand of product and also with the supplier. This helps in making a strong and healthy customer-supplier bonding. This bonding forces the customer to be tied up with that particular supplier and chances of defection very less. Hence customer satisfaction is very important panorama that every supplier should focus on to establish a renounced position in the global market and enhance business and profit.

  • Customer Retention – A Strategic Process to Retain Existing Customers

    It is difficult to exactly define customer retention as it is a variable process.

    A basic definition could be ‘customer retention is the process when customers continue to buy products and services within a determine time period’. However this definition is not applicable for most of the high end and low purchase frequency products as each and every product is not purchased by the customer.

    For example in the stock brokerage industry, a customer may not buy a particular scrip in the given period of time but is tended to buy the same when the conditions to buy the scrip becomes favorable and when the customer evaluates that now this scrip could be profitable to buy.

    In this case the definition of customer retention could be ‘customer retention is the process when customer is intended to buy the product and services at next favorable buy occasion’. These products are called as long purchase cycle products.

    In some scenarios customer’s buying intentions cannot be determined with respect to financial aspects. For example, some magazines are available online for free and there are no intended charges to read these magazines.

    A reader who is frequently reading every edition of magazine online could be considered as retained customer as through his intentional behavior he shows the magazine company that he likes the magazine content and he tends to maintain a valuable relationship with the company. Hence this magnifies one more aspect in customer retention definition that revenue is not the deciding criteria that indicates that the customer is retained or not.

    Customer retention highly depends on attrition and silent attrition rates. Attrition is the process when customers no longer want to use product and services provided by the supplier and breaks the relationship bond by informing the supplier that he will be no more a customer.

    Most of the defecting customers don’t even intimate the supplier that they are defecting. This process is called silent attrition where the customer stops purchasing the product and services and divert to other suppliers without even informing them.

    During attrition, organization should prepare serious customer retaining strategies to save the customer to defect. It is often seen that if these corrective measures are implemented successfully to save defection then retention level increases to a much higher level as compared to a normal retention process.

    Silent attrition causes the real damage to the organizations because they do not even know when the customer defected. They find no time to implement the corrective measures to try retaining that particular customer or even determine if the customer can be retained or not.

    Customer retention does not make sure that the customer is loyal.

    For example, a brokerage firm has both traditional trading platform and online trading platform. A customer has his trading account in traditional platform but after some time he feels to switch to online trading platform. Now in this situation, the customer is not considered to be loyal to the given services, but the customer is said to be retained by the same organization.

    Customer retention is a strategic process to keep or retain the existing customers and not letting them to diverge or defect to other suppliers or organization for business and this is only possible when there is a quality relationship between customer and supplier.

    Usually a customer is tended towards sticking to a particular brand or product as far as his/her basic needs are continued to be properly fulfilled. He/She does not opt for taking a risk in going for a new product.

    More is the possibility to retain customers the more is the probability of net growth of business.