Title: Module 9 Loyalty
1Module 9Loyalty
2Objectives
- Be able to define/operationalize loyalty in
various ways and understand the strengths and
weaknesses of each. - Identify different classifications of customers
with respect to loyalty. - Understand different perspectives on the role
that loyalty plays in company profitability and
growth. How has this evolved?
3 4MBNA EXAMPLE
- 1982 300 employees and lots of complaint
letters from customers. - President set objective to satisfy and keep every
customer. - Gathered and acted on information from defecting
customers. - Within 8 years, MBNA lowered their defection rate
to 5 - half the industry average. - Their ranking went from 38th to 4th.
- Profits increased by 16 times.
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7Loyalty-based Management
8- Building a highly loyal customer base cannot be
done as an add-on. - Business leaders intuitively know that when
customer loyalty goes up, profits do too. Yet
few companies have systematically revamped their
operations with customer loyalty in mind.
9Company employs retention strategy
Company pays workers better, focus on building
loyalty and retention of employees
Cost of serving customers and acquiring customers
goes down
Profits are reinvested into expanding the
retention strategy, acquiring and retaining more
customers
Customers spend more and give positive
word-of-mouth
Company experiences increased profits
10Better economies mean the company can pay workers
better, which sets off a whole chain of events
- Increased pay boosts employee morale
- Employees stay with the company longer
- Productivity rises and training costs fall
- Job satisfaction increases
- Knowledge and experience increases
11RESULT
- Retained employees are higher quality and more
capable of providing customer value. - Customers become more inclined to stay loyal
- Best customers and employees become part of the
loyalty-based system - Competitors are left with less desirable
customers and less talented employees
12Company employs retention strategy
Company pays workers better, focus on building
loyalty and retention of employees
Cost of serving customers and acquiring customers
goes down
Profits are reinvested into expanding the
retention strategy, acquiring and retaining more
customers
Customers spend more and give positive
word-of-mouth
Company experiences increased profits
13The Right Customers
- People who buy because of a personal referral
tend to be more loyal than those who buy because
of an advertisement - Those who buy at standard price are more loyal
than those who buy on price promotion
14- Companies typically use pricing as a blunt
instrument to bring customers in
indiscriminately, when instead they should be
pricing to filter out precisely the customers
unlikely to be loyal
15- Although it is tempting to use new products to
win whole new markets, it almost always makes
better sense to stick with existing customer
segments.
16- Customers build trust with a companys
employees, not the company itself.
17The Mismanagement of Customer Loyalty
- Werner Reinartz and V. Kumar
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22One explanation
- Previous approaches compared companies with the
varying levels of retention on such factors as
revenue, costs, and profit per customer. - Previous approaches also compared before and
after performance of companies adopting loyalty
strategies. - This article examines any old company in
isolation comparing the loyal customers with the
non-loyal customers.
23Loyal Customers and WOM
- Correlation between customer marketing and
loyalty not strong. - Customers with attitudinal and behavioral
loyalty more likely to spread companys
reputation (up to 54) than customers who are
only behaviorally loyal.
24Chooseing a Loyalty Strategy
Category Profitability/Loyalty
Loyalty Strategy
- Approach softly.
- Dont over communicate.
- Reward loyalty
True Friends
- Profitable loyal
- Buy regularly but
- not intensively
- Milk them with short-term
- hard sell offers.
- Stop investing after their
- purchases drop off.
Butterflies
Barnacles
- Unprofitable but
- very loyal
- If they have money to spend,
- offer them products related to
- those already bought.
- Neither profitable
- nor loyal
- Identify early.
- Invest nothing.
Strangers
25The One Number You Need To Grow
26The Gist
- Most measures and tools for managing customer
loyalty are complex and inaccurate. - They do not link survey responses with real
customer behavior (repeat purchase or referral).
- They do not provide an accurate prediction of
profitability and growth. - The most accurate CL tool for these objectives is
a simple one-question survey - How likely is it that you would recommend
Company X to a friend or colleague?
27Small Group Discussion
- From the three readings for this module, make a
list of the different ways that loyalty can be
operationalized in terms of measurement. - For each of these methods, are there any known
advantages or disadvantages? Can you think of
any? - Based on the three readings for this module,
identify the distinctions between each that
establish whether or not loyalty is king.
28How is Loyalty Operationalized?
- Defection rates/retention rates
- Customer stays for X number of years
- Conventional satisfaction measures
- Recency, frequency, monetary value
- Share of purchases in a category
- Intent to repurchase
- Intent to recommend
29Is Loyalty King?
- Reichheld (1993)
- Loyalty (defection/retention) is a strong
predictor of profitability and growth. - Brief mention of focusing on the right
customers - Overall, try to keep customers as long as
possible and they will only get more and more
profitable.
30Is Loyalty King?
- Reinartz and Kumar (2002)
- Retention at all costs is not good.
- Must consider the 2 x 2 of loyalty and
profitability. - Different strategies for each group.
- Many loyal customers are unprofitable and many
profitable customers are not loyal.
31Is Loyalty King?
- Reichheld (2003)
- Defines loyal as much more than someone who
simply continues to purchase. - Loyal customers are those who really care for
the company, want a win-win, etc. - Congruent with Reinartzs take that all repeat
buyers are not good for the company. - Reichheld never says that there is the need to
measure profitability. Rather, he indicates that
loyalty is a driver of profitability. The one
question, in turn, is a solid indicator of
loyalty.
32Is Loyalty King?
Intent to Recommend
Loyalty
Profitability