Market Driven Organization Fall 2010

Loyalty Myths

115. November 2010

Loyalty Myths

Blind reliance on loyalty as a universal goal will put you out of business. Any loyalty initiative needs to begin with an understanding of the profitability of individual customers.

Presentation from:

Corinne VogelEvelin SimmenSascha Schori

Market Driven Organization Fall 2010

Loyalty Myths

215. November 2010

Ten key misunderstandings

Myth #1: The number one goal of any firm should be customer loyalty- identify and satisfy customer needs at a profit

Myth #2: Firms should emphasize retention efforts rather than acquisition activities- introduction and growth phases: customer acquisition - maturity and decline phases: customer retention

Myth #3: Companies should strive to make all of their customers loyal- desired customers, 20%, generate 150-300% of total profits- break-even customers, 60-70%, generate 0%- costly-customers, 10-20%, lose 50-200%

Myth #4: Companies with more loyal customers will always have higher market shares- homogeneous markets - heterogeneous markets

Market Driven Organization Fall 2010

Loyalty Myths

315. November 2010

Myth #5: Companies should seek to change ‘switchers’ into loyal customers- variety seeker: motivated by curiosity- deal seeker: motivated by price - problem: deteriorating customer loyalty across the board

Myth #6: Efforts to improve customer-centric measures are properly separated from efforts to improve brand-centric measures- brand-centric: focus on acquiring more customers- customer-centric: focus on retaining customers and their loyalty- combination of both

Myth #7: Retaining 5% of a company’s customers will increase profits by 25-85%It’s true if: …1. company generates small current profit percentages 2. firm has low retention rates3. retain the right customers

Ten key misunderstandings

Market Driven Organization Fall 2010

Loyalty Myths

415. November 2010

Myth #8: It costs five times more to acquire a customer than to retain one- misallocation of advertising and promotion costs- depends on lifecycle of products and services- ignores heterogeneous customers

Myth #9: Companies should focus on their high share-of-wallet customers- high share-of-wallet customer ≠ profit generating customer

Myth #10: In planning for the future, it is best to focus on those customers who have historically contributed the most to company profits- no distinction between frequent and infrequent buyers- ignores life changing factors of customers

Ten key misunderstandings

Market Driven Organization Fall 2010

Loyalty Myths

5

- Importance of customer loyalty- Adequate understanding of the potential returns of the different customer segments

Without such information, retention efforts may be oriented towards and offered to high-cost, low-value customers: an invitation to financial disaster.

15. November 2010

Conclusion