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CUSTOMER LOYALTY MAKES BUSINESS WORK
by Margaret Ross
Top performing companies focus on attracting and keeping customers. Why? Loyal customers provide greater profitability. Loyal customers spend 80% more than other customers. Eighty percent of a company’s sales come from 20 percent of their customers. Loyalty can’t be purchased by the pound. Loyalty can’t be stocked on shelves in colorful ‘new and improved’ packaging.
Customer loyalty is built over time. Customer loyalty is built in stages.
Customer Loyalty Takes Time: In the consumer goods and services industries (e.g. food, health, beauty, restaurant, telephone) it takes 12-18 months to build and earn a customer’s loyalty.
Customer Loyalty is built in Stages: Each customer loyalty stage has a number, a name and a cost. The stages of customer loyalty are: Try > Buy > Ask >Tell Others > Loyal
Customer Loyalty Begins At Try It Stage : To get a customer to the “Try” stage, she must first become aware of the product and sample it. Across most industries the average cost to get someone to ‘try’ something new is between $60 and $120. That’s a lot. This is known as the Customer Acquisition cost.
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Cost is six to eight times more: A good customer is like a good friend. It should be worth a lot to keep these customers and buld customer loyalty. Many companies replace their entire customer base every few years. They still haven’t grasped the dollars and cents of this.
They need to do the math. It costs six to eight times more to acquire a new customer than it does to keep a customer and build loyalty. If the customer doesn’t continue to buy the product, the $60-$120 spent to get them to TRY your prodict or service the first time was wasted.
Customer Loyalty Wise Spending and Fiscal Priorities.
Priorities Wrong: Most companies continue to spend 75% of their sales and marketing budgets to get non-customers to try their products while spending relatively little on the 20% of their customer group who provides them with 80% of their revenues.
Telecommunications is an industry famous for getting this part of the business backwards. We see telecom companies pay to acquire the same customer over and over again. They’ve been known o write checks to get people to switch to their service or offer large incenvtives over a short time period.
Then they take such poor care of those same customers that they drive customers away again.
Break this cycle requires a giant amount of long-term cultural and corporate change. Spending money to acquire new customers doesn’t require change- it requires cash. Most choose cash over change. Most are wrong.
Build customer loyalty. Customer loyalty and customer relationships Make Business Work.
Customer Loyalty Research :
Kamaron Customer Loyalty Research: 80% can provide Profits
It's often said that it can cost up to seven times more to acquire one new customer than to retain an existing one. But in the financial industry, the costs reach a whole new level: acquiring one new customer can exceed US$350. As a rule, of these 20% will be very profitable, 20% will cost money to retain, and the middle 60% will pay for themselves while generating marginal revenue, according to Harvard Business Review (http://www.hbr.com (in a new web browser window)">www.hbr.com).
Customer loyalty is a corporate strategy and requires corporate ongoing commitment. It is not a short term tactic or a cookie cutter program. The value proposition created for the top 20% key customer a truely superior value in relation to competitive offerings.
Customers participating on loyalty programs, offering specific benefits are willing to share name, address, phone, order history. They are not willing to provide their income, age, or weight.
© 2002- 2009 Making Business Work, Margaret Ross. Kamaron Institute. All rights reserved. No reprints.
