Customer Satisfaction, Loyalty and Profit – Understanding the Links (Part-2)
People prefer to buy From those they like and trust, very simple human nature and very often overlooked!
This is in continuation to our previous blog post regarding “Customer Focused Market”
Why and How is Loyalty Profitable?
It’s the cost of delivering value to the customers over an extended period of time. While doing a customer based marketing, it’s actually very costly to give the customers exactly what they want. But once you figure out what that customer wants, and you deliver it to them the first time, it’s cheaper to deliver it to them time after time.
When you go for a tight disciplined mindset, you look for Genuine value. Here the sustainable competitive advantage is Trust; gained over time. So, companies following this strategy focus on reducing costs marginally.
Give the customer what they want. Just about any customer has value. But loyal customers — those shoppers who will not only buy your premium products again and again, but also talk up your company to all their friends and send you new customers, too — are priceless.
Profitability comes from basic 3 factors in a customer focused market:
Different markets show varied customer loyalty profiles. In some manufacturing sectors, customers may have very little choice of supplier. This can lead to complacency and the feeling that customer loyalty is irrelevant, since they have no option but to come back. Such reasoning is flawed on two counts:
1. Customer loyalty goes beyond mere retention to a range of attitudes and behaviors; and
2. Customers do come back when they have no other choice, but they will be vulnerable if a competitor arrives on the scene. Companies that are in a virtual monopoly situation can be vulnerable to this way of thinking. The difference between markets is due to a combination of factors – the amount of competition, the sophistication of the customers, and the perceived switching barriers. If all competitors were equally easy to use, we would expect an almost perfect correlation between customer satisfaction and loyalty.
A study conducted by Bain & Company ; shows that companies with higher NPS have measurably higher revenue growth rates than do those with lower scores.
Common loyalty personality divisions might include
- Innovators/Risk Averse– Some people will always be on the lookout for the latest product or trend, and will tend to try something just because it’s new. If you’re not making the most up-to-date product you may have to resign yourself to losing these customers, however good your service is. Rest assured, though, that they’re no more likely to remain loyal to your competitors, and tend to be less profitable in the long term than customers who need a reason for switching
- Level of Involvement– Some markets are more ‘high involvement’ than others, reflecting the importance to customers of making the right purchasing decision. Beyond market-wide trends, however, the most significant difference is in how involved your customers feel with you
- Perception of Switching Barriers– Switching barriers are the perceived obstacles to changing supplier. The key word here is ‘perceived’. For instance, how difficult is it really to change bank? Probably not nearly as hard as most people think, but it’s in the interests of the big high-street banks to maintain this impression.
As a final thought for those that are still unconvinced about the concrete benefits of making your customers satisfied and loyal consider this: markets are becoming more and more competitive, and consumers are getting more demanding. If you’re experiencing high customer turnover, but your competitors are locking in customers by targeting loyalty, you’re soon going to run out of prospects to pour in at the top of the bucket.