Loyalty - What's It Worth To You?

Back when I started this blog I committed to talking about customer loyalty. I figure since I have recently focused on technology that I will take these next few posts to discuss this most important business issue.

Loyalty is something that I personally take very seriously because much of the bread on my table is directly tied to the loyalty of my customers. What's interesting is that if you are working for any company, even a non-profit, the loyalty of your "customer" effects you as well. It does not matter if you are a business analyst, systems administrator, HR Manager, Director, VP, or CEO, loyalty should be top of mind. Not only is loyalty a nice-to-have, but loyalty and its primary leading indicator - retention - can be directly linked to profitability. According to Frederick Reichheld, founder of Bain & Company’s Loyalty Practice and author of the international best seller, Loyalty Rules, How Today's Leaders Build Lasting Relationships, a 5% increase in retention translates to a 25-100% increase in profitability.

But what about satisfaction? Most companies, yours is probably included, measure customer satisfaction. In fact, companies often boast about their CSI (customer satisfaction index). Geico is famous for their 97% customer satisfaction tagline. While that sounds impressive, satisfaction is an essentially useless measure to determine the health of a business. Here are some facts:

• A recent automotive study showed that of the 90% of customers who said they were satisfied, only 40% became repeat buyers
• 25% of customers who experience a problem with your company don't tell anyone at the company
• Only 1-5% of customers with a problem tells management

Satisfaction is an indicator of what has happened, but in no way predicts what will happen. Measuring satisfaction is like driving while looking in the rear-view mirror. In my mind, loyalty comes down to this...if something better comes along (as perceived by you the customer), would you leave, or stick around? Switching costs have decereased in so many markets, making loyalty even more important. Next, I'll review measuring loyalty and using it to your competitive advantage.