That customer loyalty should be one of the central pillars for any business or brand is obvious. Here comes more reinforcement from a blog post on Nicereply:
While it’s obvious that customers who come back to spend more money is good for business, there’s other, more subtle, benefits to loyal customers.
It’s like the old leaky bucket metaphor. Imagine a business as a bucket. Customers flow in and fill the bucket up. A successful business has a full bucket of customers (and profits).
However, imagine the bucket has a hole in it. Customers who flowed into the bucket start to leak out the hole. Losing customers is called churn, and it has a large effect on business growth. Even if you can somehow start filling the bucket faster, you’re still losing valuable customers. Patching up the hole (or improving customer retention) means keeping more customers in the business bucket. A 5% increase in customer retention increases business profits by 25%-95%.
If it cost the same amount to replenish the customers lost through the leak, then churn wouldn’t be such a big deal. Unfortunately, it’s much more expensive to get new customers into the bucket than continue to sell to existing customers. It’s estimated that new customers cost five times more to convert than existing customers.
Finally, loyal customers also make recommendations to family and friends.
There are many good reasons for making customer loyalty core to the brand. Yet, for most brands, the focus tends to be more on new customer acquisition rather than retention, which in turn means ensuring loyalty. New customer acquisition is where the bulk of marketing budgets get spent. Google and Facebook have made it very easy to point-and-click and pay for running acquisition campaigns. Acquisition-related metrics are the ones that get discussed in top management meetings. Everyone else is running ads, and so should the brand. Someone else’s customer needs to become the brand’s new acquisition, so attractive offers are dangled. And in all this, the quiet, repeat purchasing existing customer is all but ignored. Until it is too late.
This is what needs to be addressed by a rethink at two levels: making retention the new acquisition, and focusing retention efforts on the Best Customers. A loyalty program is seen as a great way to retain and reward the best customers.
Tomorrow: Part 6