Friday, 24 August 2012
Profit from customer loyalty
On the surface, this customer acquisition method of increasing sales seemed to work. However, group buying does more harm than good to your business and its brand. You make plenty of sales, but hardly any of these dollars translate to profits. Businesses are starting to be wary of group buying. This is a topic for another day before we digress further.
Consider another channel of increasing sales- through customer retention and loyalty activities. Not only does instilling customer loyalty increase sales, it also creates profits and builds your brand.
According to The Gartner Group, 20% of your existing customers generate 80% of your profits. The key for any businesses to survive and grow is beyond just acquiring new customers, but to build sustainable sales stream of existing customers.
It’s about time businesses pay more attention to building and instilling customer loyalty which has a long-term impact on their brands and not getting completely sucked into the group buying craze. It is more than just increasing sales.
Here are 5 reasons why customer loyalty matters.
1. It’s easier to up-sell and cross-sell to loyal customers
Loyal customers are familiar with their favourite brands and more willing to try out and explore recommendations and new products. Marketing Metrics found out that the probability of selling something to new prospects is only about 5-20%, whilst the probability of selling something to an existing customer is 60-70%. For the same amount of effort to sell something, expected sales as such is higher from selling to your loyal customers.
2. Loyal customers are your free marketing agent, brand ‘ambassador’ to help build your brand
Loyal customers are more inclined to share their positive experience and making recommendation of a business to their friends. They love your brand, they speak about your brand and humans are generally more influenced by people they are familiar with. Word-of-mouth marketing is one of the most powerful channel of marketing, if not the most. They reinforce your brand in the mind of consumers that are unfamiliar and new to your brand.
3. Lower costs to acquire new customers
It is six to seven times more expensive to acquire new customers than servicing your regulars. Businesses have to advertise to attract their attention, incentivize them with discounts, educate them about their brand and product, provide personalised services which all amounts to costs. By focusing on customer loyalty and building your brand, your loyal customers will be a strong influencer to get new prospects to try out your brand, substantially reducing the associated costs in acquiring new customers. Cultivate loyalty, and get an army of free, sales people to spread the love of your brand.
4. Customer loyalty insulates your business from price competition
Competition is heating up! Let’s slash prices! But through loyalty, it reduces the effect of price sensitivity on your customers and in the words of Warren Buffett, it gives you an ‘economic moat’ from losing customers to competitors. It takes more than reducing prices to lure your loyal customers away. Loyalty also helps in the opposite direction when prices have to go up. In times of rising costs and inflation, the stickiness and commitment towards your brand makes it easier to pass on additional costs to customers without them defecting in mass, eventually helping to protect your bottom line.
5. Loyal customers provide honest, quality feedback
Feedback is crucial to know where and how to improve. Loyal customers, they love your brand. They wouldn’t hesitate or be shy to provide their honest feedback, especially negative ones as they want to see your brand thrive and serve them better. In many instances, new customers visit your brand, try it out, have some dislikes or unpleasant experience and they tend not to voice it out and telling themselves that they will not return again. You hardly get feedback loop from new customers and this is detrimental to your product and service quality.
In our startup, ChopChop, we help businesses to easily launch effective loyalty programmes through our mobile app and amplify all the important points above about customer loyalty. Going digital has also made it easier for customers to spread and share their favourite brands and for businesses to increase brand exposure through integration with Facebook, email and smartphones. Customer loyalty, as you can see, not only brings in quality, profitable sales but also building your brand, reducing your marketing costs and innovating on your product and services quality.