Are loyal customers really profitable?

The debate rages on

After declaring to our readers the past two weeks that "Loyal customers are not your most profitable customers" we have received quite 

a typhoon of responses to our "contrarian" statement. 

Some were in disbelief (thank you to one reader, Paolo, who sent a terrific argument) while some came out of the closet to declare that it does cost too much to maintain "loyal customers". A few were clarifying or asking for clarification. Even one of the authors of the book, Loyalty Myths, Tim Keiningham wrote to us (we asked permission from him to reprint his letter and article on customer loyalty myths as well, which we hope to publish.)

We don't have space to publish all the responses that we received, but we will start with one from Dickie Soriano, from BCD Pinpoint. Disclosure:   Dickie is a friend, no, actually a very loyal friend. But he does have the credentials and not just the relationship with us--that's why we're printing his letter first. (Dickie is in the customer loyalty game as a business. His agency is into CRM -- Customer Relationship Management--and is one of the pioneers and largest in Asia.)

So here's Dickie's response to our invitation in our last column to share your thoughts on the issue.

Hi Dr Ned and Ardy

I read your column here in Vietnam and since I had some time I
decided to respond to your challenge of getting your readers to
contribute to the discussion.

Being a fan of your column, and having been a guest in several of your
events, I am relieved to have read  the question: 

Are loyal customers really profitable? 

I say ‘relieved’ because there is an unfortunate
tendency amongst some  entrepreneurs and businesses  to simplify the
business of customer loyalty, reduce it to a program that offers
discounts to everyone, and then proclaim that, voila’ they have a
customer loyalty program just like everyone else.

There is, I believe, an unfortunate tendency amongst us to apply only
the most visible remedies to a problem, regardless of their actual
effects. Just look at the number of  signs  telling us to be ‘careful
when driving because accidents take place here’  or the irritating
tendency to put humps on roads – when the real problem to solve is
that no one bothers to enforce – or even teach – driving discipline.

What is customer loyalty really?

So let’s start with some definitions: loyalty is the act of someone
sticking by you, regardless of your actual traits or behaviour. It is
probably when you are at your most abrasive – when most people will
talk badly of you and shun you – that you find out who amongst your
friends are truly loyal, and who were just there for the ride. I would
argue that in the same manner, when your brand is at its lowest point
– perhaps because one of your products had a defect, or a new
competitor came in with a much better value proposition – that you
find out just how important loyal customers are.

If you attracted ‘loyal’ customers through a run-of-the-mill discount
program, are you truly developing loyalty to the brand? Or are you
encouraging deal shopping? (My wife, practical person that she is, has
a wallet full of ‘loyalty  cards’ that grant her all manner of points
and discounts – an irony that never ceases to escape my attention,
given that I am in the business of helping clients develop loyalty to
their brands).

Some customers are worth losing...

So the answer to the question – are loyal customers really profitable?
– will have to depend on context and definition. If  by loyal
customers you simply mean card-carrying people in a database, earning
points and discounts, I would argue that a number of them may not be
profitable.  Some may, in fact, be worth losing as they cost you too
much – the most obvious example of this was when customers would
badger either Globe or Smart for a new phone, even if their phone
bills were not commensurate to such a privilege.

At the end of the day...
Or here’s a more recent example. I am writing to you from Ho Chi Minh,
and yesterday I was witness to what I consider a great customer
loyalty program. I was brought around the city by the brand manager of
Vietnam’s largest paint company. We stopped by one housing
development, and she showed me how their field agents would go around
looking for houses that were being built, befriend the home owner and
the contractor, get data on the estimated square meters of surface
area that would have to be painted, and enter the data into a
web-based database. So far, those would be today’s textbook
approaches.

What blew me away was when the home-owner commended one of the field
agents, who, she said, even went to the extent of driving for her, and
running errands for her. All in the name of selling her paint! Now,
there is no doubt in my mind that this home-owner is now a loyal
customer – but it will likely be at least 4 years before she will be
in a frame of mind to re-paint her home. What was the cost of
engendering her loyalty, against the revenue the paint company would
generate from her?

The best way to find out if loyal customers are profitable, is,
unfortunately, the hardest way.   Fortunately, it is also the best way

to make your company profitable: force the discipline of critical
thought on the organization. Go beyond applying obvious remedies of
discount cards, and develop a truly brand-true, strategic program
aimed not just at developing customer loyalty, but of developing
profitable customer relationships 

- Dickie Soriano, Founder, BCD Pinpoint, BCDPinpoint.com

Thanks for sharing this with us Dickie! 

Keep your questions and comments coming.  Send them to us at MarketingRx@pldtDSL.net ordrnedmarketingrx@gmail.com text us at 0918-3386412. God bless!