Small Business Marketing
Customer Loyalty Myths
Written by Clayton Reeves for Gaebler Ventures
Loyalty has always been assumed to be analogous with profit. This is not always the case. The link between loyalty and profits has been shown to be weaker than first thought. We discuss some other myths about loyalty that have recently been revealed.
Loyalty is always assumed to be a positive quality among customers.
Common wisdom is that loyal customers will stay with companies thick and thin, through recessions and changes in popular opinion. However, the more research is put into loyalty, the shakier these assumptions become.
Here are some popular opinions about customer loyalty that are actually more fictitious than many believe.
Myth: Loyal customers are willing to pay higher prices
This has been proven false on most accounts. Most loyal customers expect discounts, special services and extra product. These things are not the recipe for a profitable business.
If loyal customers are supposed to create more profits, it does not make sense that they cut into a company's margins regularly. Thus, the link between profits and loyalty weakens after this first myth is revealed.
Myth: Loyal customers become marketers
This is true in only a small percentage of cases. Word of mouth marketing is the cheapest and most successful kind, but it is also the most difficult to foster and sustain.
For some time, it was assumed, loyal customers were the main proponents of this grass roots marketing campaign. Research shows that the relationship is not quite as strong as previously assumed.
Myth: Loyal customers are cheaper
There are several customer attributes that markets generally associate with loyal customers. One is experience, which would mean they are inherently more educated about the products they are purchasing. As a result, these customers would be easier to serve in terms of customer service.
If customers are familiar with a software package for instance, they will require less time on the telephone troubleshooting. Similarly, if customers are familiar with return policies they will have little difficulty efficiently and quickly resolving their return issues.
Also, most marketers agree that it is more expensive to acquire a new customer than it is to retain that customer. Thus loyal customers give them the opportunity to amortize that cost over the life of the customer. All of these things would seem to indicate that these customers are cheaper to serve.
In reality, loyal customers are not cheaper to serve. They usually require more attention because they know how valuable they are to the firm. For instance, they may expect coupons in the mail, increased communications, personal relationships or other personal techniques. This increases their cost to the company. If, in fact, these customers are not significantly more profitable than the average customer, it makes little sense to coddle them.
Avoiding Loyalty Myopia
Loyalty can be a great tool when used correctly. However, it is irresponsible to assume that loyal customers are the most profitable customers your firm has.
Some of the most profitable customers are those than come to your firm, spend a load of money quickly and then disappear forever. Your firm must cater to these customers just as much as their seemingly loyal customers.
Having tunnel vision and focusing on only one type of customer is not the type of strategy to employ for any firm.
When he's not playing racquetball or studying for a class, Clayton Reeves enjoys writing articles about entrepreneurship. He is currently an MBA student at the University of Missouri with a concentration in Economics and Finance.
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