Besides the hard numbers from customer data, there is also a set of qualitative traits that retailers and brands need to consider when thinking about customer loyalty and customer value.
Martin Newman, The Consumer Champion adds that 'most consumer-facing businesses still look at ‘the cost to serve customers’ rather than the benefit. They don't focus on building and maximising customer lifetime value. They are almost always obsessed with customer acquisition.'
While every business must strive to bring on new customers, making more effort to retain existing customers is where the real value lies. According to the Harvard Business Review, a 5% increase in retention leads to a 25% to 95% increase in profitability. In other words, give customers reasons to keep coming back and your business will be far more profitable - common sensereally. Which makes it all the more peculiar that this is not the number one priority for all consumer-facing businesses.
Given the lack of effort to build relationships with customers from so many – you could argue customers have not been given many reasons to be loyal to one brand over another. Interestingly, some industry luminaries say that ‘loyalty is dead.’
However, it's worth noting that maybe loyalty never really existed and if it did, it was largely down to a lack of consumer choice before the age of the internet.
The birth of ecommerce in 1994 began the proliferation of choice that consumers have today and therefore the democratisation of retail, with the power shifting from retailer to consumer.
There is a direct correlation between brands who are customer centric and their commercial performance over a sustained period of time, compared to those which are not.
One of the best examples of a brand that failed due to lack of customer centricity is Blockbuster Video. They weren’t close enough to their customers to see how their wants, needs and behaviour was changing. They didn’t see on demand TV coming or the shift to purchasing online. They also turned down the opportunity to acquire Netflix for $50m!
The COVID-19 pandemic has had a huge impact upon every sector that serves consumers. It has also had a big impact on how we as consumers feel about the brands we engage with and give our money to. What a brand stands for, its values and purpose, have become just as important as the products they sell and how much they sell them for.
This article by Martin Newman originally appeared in Upside's report 'The Tipping Point of Loyalty'.