Customer loyalty is still very much the holy grail for most commercial organisations. Surprisingly, in these data-driven days, many companies – over 50 % of them – have no clue as to who their most loyal customers are. Why is this a tragedy? Well, it’s simple enough. Although they may account for just 20 to 35% of the customer base, they are good for 60% to 80% of total sales. On top of that, acquiring a new customer costs 7 times more than keeping an existing one. One of the biggest tricks, though, is to figure out if one should thank customers early on in the client relationship in order to keep them loyal. Or if one should rather concentrate on those that have been following the company for a long time already.
The truth is that not all customers are equally valuable. Even worse, some can even cost an organisation money. I would obviously never advise to `fire’ a client, like Sprint Nextel rather hilariously did in 2007. It wrote to more than 1,000 high-maintenance –and thus high-cost – customers that “the decision has been made to terminate your wireless service agreement”. But I do think it is crucial to know how profitable and influential each and everyone one of our customers is. It is the only way to a really smart and durable loyalty campaign.
Brands used to be mostly threatened by other brands that were proposing deals to their customers. Today, these empowered customers are continuously comparing prices and services to see if they are not better off elsewhere. Customers have many more opportunities and means to be disloyal today. Trying to foster their engagement is certainly not a luxury. On top of that, today’s competition is much more aggressive: data-savvy giants with intelligent loyalty and acquisition programs are attacking from all sides. And I’m not even talking here about what fast-growing, low-cost disruptors, issuing from the sharing economy – like Airbnb, Uber and PayPal – are doing to the loyalty numbers of the hotel, transportation and banking industries respectively.
Engagement and loyalty are as challenging as they are essential. I do understand why some companies with a very limited product offering and little potential for cross- or upselling or upgrading – wireless companies, indeed like Sprint Nextel – put all of their marketing efforts into finding new customers rather than rewarding existing ones. But even they need to truly know their customers. Because a client’s value goes far beyond potentially paying (more) money for (more) products or services. It can lie in their popularity and how they can truly be advocates for a brand and thus drive some of the acquisition aspects.
When it comes to customer loyalty, there are 2 essential questions to be answered: which customers can I not afford to lose and how much can – and should – I invest in them? Companies need to know where their threshold lies, and they need to know it all the time. When a major competitor launches a ‘too good to be true’ offer causing major churn within their own ranks, they need to be able to react immediately with counter actions. They need to know already how low they can go with their own offer. They also need to know if they should just let this type of high maintenance customer – that are most sensitive to this kind of competing campaign – go because they are actually better rid of them.
So, concretely, what does make a well-balanced loyalty program? First off, the past and present sales and marketing efforts should be carefully analysed. Which customers responded to what campaign? Which actions were the most successful? Which campaigns had the best ROI? Which customers buy the most products or services? Which clients buy the most expensive ones? It is always a good idea to have a benchmark brand, product or service. So organisations should check how similar ‘grade A’ products of leading competing brands are doing. Banks do this all the time. They compare the interest rates of the competition so they can move fast – and know exactly how far they can push their margins – when they are facing a potentially dangerous situation.
Customer loyalty starts with data
Only organisations that have this kind of insight can make the right decisions. They know when to avoid counterproductive actions, such as retargeting a customer online with discount prices for the same product he has just purchased full price in a shop a few days ago. They know when one of their most loyal clients is present in their flagship store. They know at which point it is better to give a reduction: when to wait for someone to have spent €150, when to wait until he has bought his tenth item or when to reward him because he is in the Webshop and it has been a while since he bought something. Customer loyalty is not just about shiny and clever marketing campaigns. It starts with data. Because the customer might always be king, but some are indeed more `king’ than others.