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The customer loyalty myth
Do loyal customers translate into steady sales or profits? Intuitively, the answer should be yes - and indeed, customer loyalty is a significant metric by which companies rate their performance. However, there a few problems with the concept of customer loyalty and a corporate strategy to develop it, according to Esteban Kolsky, practice leader with eVergence.
For one thing, customer loyalty is difficult to measure. Two, even if it were easy, it doesn't necessarily add to a company's bottom line. "You can still have great customer satisfaction and loyalty and still have a 45% churn in your customer base," he told CRM Buyer.
Kolsky is a recent convert to the thinking that customer loyalty is the wrong goal for companies. It was only after working with several clients that he decided loyalty does not automatically translate into a higher likelihood of repeat purchases.
Not that he is recommending companies milk customers as much as possible in a transaction. Rather, in a recent blog post, he suggests companies focus on building the infrastructure - the technologies and processes - necessary to deliver a good customer experience.
If this reversal in thinking is still hard to grasp, consider Kolsky's cinematic reference from his post:
"In the movie 'Nothing in Common' Jackie Gleason plays an older salesperson who prides himself in having the best relationships with his clients. They all admire him, respect him, and have great loyalty towards him. Early in the movie, a brash young new VP of sales calls him into his office to discuss his performance. He is truly impressed by the relationship he has with his clients, but when he looks at the performance he is dismayed. Abysmal sales numbers have been trickling in for the last few years. Turns out all his clients are now buying from the competition because they have better shipping policies and cheaper prices. So much for loyalty, and for Jackie's job."
