“Loyal customers provide bigger profits. Twenty percent of customers provide 80 percent of the revenue.” – Margaret Ross
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.
1. 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.
2. 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
3. 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.
ASK (Ask for product by name)
TELL (Tell others about product)
Customer Loyalty Wise Spending and Fiscal Priorities.
Example of Wrong Priorities: 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 incentives 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.
Building Customer loyalty and customer relationships Make Business Work.
Kamaron Customer Loyalty Research: Return on Investment
Relationships mean profit. Firms that incorporate customer loyalty rules are most likely to increase value and revenue reaped from their full spectrum of customers.
It is reported that a detailed, comprehensive analysis of customer data ('customer intelligence') can generate an average five-year return on investment of up to 431% compared to 55% from a pure customer strategy, according to a recent study by research firm IDC (www.idc.com).
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 (www.hbr.com).
Kamaron Customer Loyalty Research: Customer Value Proposition
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 truly superior value in relation to competitive offerings.
Customer Loyalty: People Talk. Information Sharing
Customers will provide demographic information if you make it worth their while and protect their privacy. This is their WIFM (what’s in it for me).
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.
Be careful what you ask for.
Margaret Ross, a communications, management, education and workplace relationship expert, is the visionary CEO of Visible-Strategies, the author of Making Business Work and the Good Finder series for children. Ross is also the executive producer and host of the Telly Award winning television program, Success Class.
© 2002- 2008, Making Business Work, Margaret Ross. Kamaron Institute. All rights reserved. No reprints without prior permission. One time web use, provided you credit the author and source and link to this original article www.visible-strategies.com