The Value of Loyalty

Paul Long

President

re:member group

paul@remembergroup.com

remembergroup.com

Topic: Open Column

The Scene: 

Ryan (George Clooney) and Alex (Vera Farmiga) are in a hotel lounge, emptying the contents of their wallets all over a table. It is all MEMBERSHIP CARDS.

The Conversation:

Alex: "Oh my, I've heard about these but never actually seen one," she says while grabbing a black card from Ryan. "Is this an...."

Ryan: "Onyx card. Yeah. I was pretty excited the day that puppy came in."

Alex: "I'll say." Alex smiles, admiring the card. "This is pretty sexy."

Ryan: "I hope this doesn't cheapen our relationship."

Alex: "Hey, we're two people who get totally excited about perks and rewards and elite status. I think cheap is our starting point."

Ryan: "There's nothing cheap about loyalty!"

We aren't film critics, but we certainly do agree with George Clooney's road warrior character and his views on customer loyalty in the Hollywood film "Up in the Air." There isn't anything cheap about customer loyalty.

In fact, acquiring new customers can cost five times more than satisfying and retaining current customers.

Think for a moment about the purpose of your business. If you say it's to make a profit, you're wrong (respectfully). But don't take our word for it. According to Peter Drucker, "The purpose of  business is to create and keep a customer." If a business successfully creates and keeps customers in a cost-effective way, it will make a profit enabling it not only to survive, but thrive.

We're also all awakening to the fact that not all customers are created equal. Keeping customers who are highly valued can greatly improve profit, says author and business strategist Frederick Reichheld, who developed the Net Promoter Score based on his research in measuring customer satisfaction, customer retention and its link to revenue growth and profitability.

In his groundbreaking book, "The Loyalty Effect," Reichheld presented extensive data across a wide array of verticals, showing how and why as little as a five-percent increase in retention can improve a company's bottom-line profitability between 25 percent and 85 percent, depending on the industry.

Frequent buyer programs, also referred to as loyalty programs and reward programs, have become a critical retention tool for companies searching for unique ways to add value and, in turn, build customer loyalty.

For example, estimates show that more than 60 million Americans belong to frequent flier programs. You also can earn points when you shop for groceries, go to the dry cleaners, talk on the phone or even use an HMO.

For many companies, these loyalty programs are proving to be wise investments. Research company A.C. Nielsen completed an in-depth market research project on U.S. retail loyalty programs and found:

• In most cases, frequent shoppers spend more per household each year than non-members.

• There appears to be a correlation between higher income levels, frequent shopper participation and customer loyalty.

• There's a high level of cross-shopping among "loyal" customers.

Expect to see more loyalty programs introduced in every market space. Why? Because technology is making these programs easier and less expensive, and because customers have come to expect them.

As Reichheld said, "Loyalty has implications that extend into every corner of every business system that seeks the benefit of steady customers."

New customers will always be your most expensive customers. So why not improve your marketing ROI and keep your business and profits flying high by making your customers repeat customers.

2010-05-27 08:48:56 -0600