The Wright Associates
Customer Loyalty Consultants

Customer Loyalty - The Pareto Principle - Customer Satisfaction & Loyalty -
Financial Dynamics - Customer Loyalty Models - Opportunity & Risks

Developing Customer Loyalty is about building profitable relationships with customers to influence their commitment to one company or product over another.

Whether it is an semi-structured discussion about the potential role of Customer Loyalty in your organization, a structured "audit" of the potential opportunities and approaches or the strategic development and implementation of a Customer Loyalty Programme, we provide an experienced and cost-effective resource.

Customer Loyalty - A Commonsense Approach

Marketers are renowned for their use of acronyms to summarise the many "rules", "mechanisms" and "disciplines" created  by marketers, like any other business discipline, to formalise their business approach.

Customer Loyalty is no exception to this - indeed the concept of Customer Loyalty itself has increasingly become a "sub discipline" of CRM or Customer Relationship Marketing and CPM Customer Profitability Management, with all the attendant models involved.

Rather than list and the many models and theories available - these are available on any number of sites to be found on the Web - I am going to summarise key elements which have, over the years, proven to be fundamental to the success of the many customer loyalty initiatives with which I have been involved.

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Target Audience - The Pareto Principle - Not All Customers are Equal

Vilfredo Pareto (a nineteenth century economist and sociologist) observed that a relatively small number of causes are responsible for a large number of effects, usually on a ratio of around twenty percent to eighty percent. This is now known as the Pareto Principle, or the ‘Vital Few and Trivial Many’ rule, and has been validated in a wide variety of environments. It also holds true in the business world today. For most firms, around twenty percent of customers generate eighty percent of profits, and the top 5% of customers generate 20%-25% of profits!
Those businesses that haven’t identified these high-value customers are missing a key opportunity to supercharge their profit margins.

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Customer Satisfaction does NOT Mean Loyalty

There are many treatise explaining the difference between a satisfied customer and a loyal customer. I admit to being a fan of Fred Reicheld over many years and these two recent articles are excellent summations of the differences.


Customer-satisfaction numbers don't show a consistent correlation with actual customer behavior and growth, according to Bain's research. -Fred Reichheld

For a fuller account of the connection between net promoters and growth, please click here to view "The One Number You Need to Grow," by Frederick F. Reichheld, published in Harvard Business Review in December 2003.

 

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Loyal Customers are Profitable Customers - Basis of Financial Assessment 

Profitability from Customer Loyalty initiatives operates on the premise that loyal customers:

Have a higher average purchase value,  they commit a greater overall Share of Wallet and are more likely to cross-purchase other products and services from the company

Are less likely to defect and given that it costs 5 x as much to acquire a new customer than to retain an existing one (Bain & Co), over time loyalty initiatives can bring very significant savings across the marketing budget

Communications Costs - Loyal Customers are more receptive to communications from companies to whom they are loyal, bringing significant cost efficiencies -

Advocacy - The basis of the Bain Articles above, promoters (those who recommend the products & services to others) are the real basis of growth and profitability of a company

 

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Customer Loyalty Models

As I stated above there are many models of customer loyalty. Here are summaries of just 2 very simple models which I have found invaluable over the years

IRE

Identify 

From the pareto principle above, identify your best customers and understand their requirements from your business

Recognize

Recognize your best customers at every possible occasion - reinforce their sense of "worth" in communications, service delivery, customer service etc

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Enhance

Enhance their experience and you will enhance your profits

The 4 R's

Recognize

Recognize your best customers at every possible occasion - reinforce their sense of "worth" in communications, service delivery, customer service etc - remember "all customers are not equal" so the value of the recognition TO THE CUSTOMER should be appropriate to the CUSTOMER'S VALUE TO YOU

Reward

Reward your customers for their custom - this may be "points", "service benefits", "special privilege offers" etc etc - remember "all customers are not equal" so the value of the reward TO THE CUSTOMER should be appropriate to the CUSTOMER'S VALUE TO YOU

Retain

If you reward and recognize customers appropriately, you will retain a greater proportion of your valuable over time

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Recommend

Your customers will recommend your products/services to their friends - i.e. become advocates - this is the best form of promotion for your company that you can hope for!

What are the Opportunities - and Risks

Assessing the potential ROI of a Loyalty Initiative

Over the years, one of the most difficult things to derive at project development stage, has been how to assess and present the financial opportunity of a customer loyalty approach.
I have now developed a number of profit/ROI models for companies as diverse as Eurostar (pan European) and AlFuttaim in Dubai.
These address a whole range of input costs (development, running and reward costs) against potential scenarios of increased revenue. The outcome is 
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