Which Features Increase Customer Retention?

This is an MIT Sloan Management Review Article. 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 tadding 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.

• Customer retention