Executive Briefings

Thanks for Your Loyalty, But You're Really Not Worth It

Loyalty is a big idea. At its most basic level, it is a feeling of attachment that causes someone to be willing to continue a relationship. And while exclusive loyalty has been replaced in customers' hearts and minds with multiple loyalties for many if not most product categories, often greater than 50 percent of a company's customers would classify themselves as holding some level of loyalty to a particular company. Even if we narrow our classification of loyalty to customers who feel loyal and give the majority of their purchases in a category to the firm, typically we find this to represent one-third of a firm's customers.
The fly in the ointment is that typically only 20 percent of a firm's customers are actually profitable. And many--often most--of a company's profitable customers are not loyal.
This presents managers with a loyalty problem, although not one that they expect. If typically most loyal customers in a firm aren't profitable, how exactly does a customer loyalty strategy ever generate a positive return on investment? Instead asking whether you have enough loyal customers in your customer base, you need to ask yourself three more complex questions: 1) which loyal customers are good for the business, 2) how do we hang onto them, and 3) how do we get more customers like them.
Source: Business Week

Loyalty is a big idea. At its most basic level, it is a feeling of attachment that causes someone to be willing to continue a relationship. And while exclusive loyalty has been replaced in customers' hearts and minds with multiple loyalties for many if not most product categories, often greater than 50 percent of a company's customers would classify themselves as holding some level of loyalty to a particular company. Even if we narrow our classification of loyalty to customers who feel loyal and give the majority of their purchases in a category to the firm, typically we find this to represent one-third of a firm's customers.
The fly in the ointment is that typically only 20 percent of a firm's customers are actually profitable. And many--often most--of a company's profitable customers are not loyal.
This presents managers with a loyalty problem, although not one that they expect. If typically most loyal customers in a firm aren't profitable, how exactly does a customer loyalty strategy ever generate a positive return on investment? Instead asking whether you have enough loyal customers in your customer base, you need to ask yourself three more complex questions: 1) which loyal customers are good for the business, 2) how do we hang onto them, and 3) how do we get more customers like them.
Source: Business Week