A loyal consumer is one who chooses to “stand by” a company and its products, even if they have many other options. Loyalty is born only when a consumer perceives fairness, equity, and transparency in their relationship with a company.
A loyalty / retention program is based on three important factors: relationship quality, perceived alternatives, and critical episodes.
Relationship quality is a vital factor for a company to maintain its market position and achieve steady profit growth. This is closely linked to the other two factors mentioned. To maintain the best possible relationship, you must know your consumer’s needs well, be there for them at all times, and know the competition and what it can offer them. The relationship between the consumer and your company can end when:
- the consumer migrates from the services offered by your company to another company
- the consumer no longer needs your company’s products or services
- alternative companies / suppliers emerge
- the relationship between the consumer and your company has deteriorated
- your company does not properly resolve a critical / important episode with a client
- an unjustified price change occurs for the services offered
The fundamental premise of all retention programs is that retaining a customer is less expensive than attracting a new one. However, there are also opinions that contradict this hypothesis.
Improving the relationship with a consumer by 5% can lead to profitability of 25% to 85%, depending on the industry.
The association of increased profitability with consumer retention efforts occurs because:
- the “acquisition” cost of a customer occurs only at the beginning of the relationship: the longer the relationship, the more the cost is amortized over time;
- account maintenance costs decrease as a percentage of total costs (or as a percentage of revenue);
- loyal consumers tend to be less interested in switching and also become less price-sensitive. This can also lead to an increase in the number of units sold and an increase in sales revenue;
- long-term relationships can lead to positive and free word-of-mouth from customers;
- loyal users are much more likely to purchase ancillary products or services as well;
- loyal consumers tend to be more satisfied with their relationship with the brand and are less likely to replace it with another competitor, making it harder for the competition to increase their market share;
- regular consumers produce lower costs because they are more familiar with the processes involved in the company’s services and require less “education.”
Consumer loyalty makes employees’ work easier and more satisfying, while, conversely, happy employees increase customer satisfaction. It is like a circular process, a virtuous cycle.
Even though you need to retain your consumers, the relationship must be a profitable one. Trying to maintain an unprofitable loyalty relationship is not exactly a viable business model. Therefore, it is very important for your company’s representatives to constantly evaluate the profitability of each client (or type of client) and terminate those relationships that are not profitable. To determine this, you must compare the cost of retention with the revenue generated from the relationship with that client.
A good retention and loyalty program can reduce these unfavorable gaps between costs and revenue. To create a profitable program, a thorough customer satisfaction study is needed. Through this, you can determine what actions need to be implemented to strategically increase loyalty and, consequently, revenue.
Customer satisfaction is one of the first steps leading to their loyalty. MKOR Consulting has extensive experience in customer satisfaction research. We offer you the opportunity to find out everything you need to know about your customers through market research targeted at customer satisfaction. The only thing you need to do is tell us.
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