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By Nikolas Hatz

Cost Center Vs. Profit Center

Loyalty Program written with pencilLoyal customers are the perfect target group to help boost your revenue and maximize profits. Numerous studies show that loyalty pays off in many ways. Existing customers know your brand, know what to expect, and, once satisfied, they will share it with others. However, most companies fail to recognize returning customers’ loyalty and focus their attention and activities on acquiring new ones. Moreover, these companies still consider loyalty benefits to be a cost center instead of an investment in a lasting relationship. Loyal customers have a lower marketing cost per capita than new customers. Thus, companies can save money and use it to offer attractive privileges to loyal customers.

Is It Really Worth the Investment? The 3 R’s

silver, gold and VIP cardsBesides the well-known 4 P’s in marketing (product, price, place, promotion), loyal customers can help stabilize your income stream, if done correctly, through the three R’s: retention, referral, and related sales ¹. Retention means customers return to buy more from you, generating continuous revenue. Once customers are satisfied with your company, they will share their experiences with others and refer future customers through positive word-of-mouth. In addition to such referrals, loyal customers also are more open to upsells and more likely to try new products or services. As mentioned above, companies also spend less on marketing for loyal customers, as it is much cheaper to retain existing customers than to acquire new ones. Thus, the answer to the big question is yes, it is really worth the investment, by far!

Exploring Customer Lifetime Value

Heading of customer loyalty and rising curveMany companies consider each purchase to be a single incident while neglecting past or future purchases. Customer-loyalty programs are a powerful tool to factor into past purchases by granting customers different status levels, e.g., according to number of flights, miles flown, cash spent, or a combination of factors. However, just because a customer has used your company’s services in the past does not mean that same customer will do so in the future. Although achieving customer loyalty may be difficult, it is still the easy part of the game – retaining customers is the difficult part. To capitalize on full customer lifetime value, you must motivate, retain, and reward customers continuously. Do not make the mistake of forgetting about customers once they reach the highest loyalty tier, i.e., keep them motivated and reinforce loyalty wherever and whenever possible.

Complexity Of Loyalty

circle of customer loyalty: service, support, feedback, quality, satisfaction, customer loyaltyIf you want to achieve customer loyalty, you must make it a top priority across your entire organization. Achieving loyalty can succeed only if all departments and teams work together toward the same goal. Loyalty depends on many different aspects: customer-service quality, support options, feedback handling, reward schemes, etc. The complexity here is to manage service quality across touchpoints to ensure consistent service delivery and transmit the desired company image to customers. If customers enjoy the service quality, but are disappointed about the way your company handles customer feedback, they might still look elsewhere. Customers will continue to patronize your brand only if they feel that they constantly receive the same service quality over time and can rely on their loyalty privileges.

Never Break Promises

Business men shaking handsThe worst thing you can do is make promises to customers, then break them – especially if your company offers customer-loyalty recognition schemes that entitle customers who reach different levels to certain benefits. You must ensure that customers get those benefits without having to ask for them. And make sure you thank customers for being loyal, preferably at all touchpoints. If promised benefits carry certain exceptions, ensure that customers are aware of these limits and are not surprised. This can be a tough challenge if parts of your value chain are outsourced. You then will need to ensure that the outsourced company providing services on your behalf is making the same effort to value your loyal customers explicitly.

¹) Heskett, J. L., Sasser, Jr., W. E., & Schlesinger, L. A. (1997). The Service Profit Chain: How Leading Companies Link Profit and Growth to Loyalty, Satisfaction, and Value. New York: The Free Press.

Get Professional Advice

Excellent ideaHappy to Help: HatzConsult is entirely at your disposal to develop an action plan to exploit full customer lifetime value potential through the 3 R’s. We also assess your loyalty-recognition efforts’ quality, along with that of your services across touchpoints. See our complete service offer and contact us for further information and to receive your customized consulting offer.

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