Loyal customers - any benefits?
We want to make it clear for ourselves what the benefits of the customer loyalty are.
There are two different opinions about customer loyalty.
Opinion 1: Repeat purchases come cheaper for business than primary ones. Consequently, work with customer loyalty (commitment, etc.) is useful for business. If you transfer a part of the funds that you spend to attract new customers to work with loyalty, your profit increases.
Opinion 2: A loyal customer requires money to be spent to increase their loyalty, discounts for loyalty, etc. That is why a loyal customer comes more expensive than a non-loyal one that does not require anything.
It is important for us to know what you think about loyalty and if it is worth spending money and efforts. Meanwhile we want to make it clear for ourselves what the benefits of the customer loyalty are.
I am convinced that an answer to the question “Is it possible?” should be numerical. The numbers should look simple, and any CFO (or CEO) should be capable of providing these calculations. I would not offer any formulas right here in the post – it’s boring, though might be not, for somebody. But it is important to make calculations before you decide whether to work on loyalty or not.
It could be challenging to complete those calculations though, because there are some issues here.
Issue #1: It is difficult to separate the expenses to attract new customers from those to increase loyalty of the old ones. You are always tempted to say: “And we’re also giving ads to remind our old customers about us.” There could be some truth in this as well, because brand awareness may influence the customer choice under otherwise equal conditions.
What to do?
No CFO can take a decision about which item of the budget these or those expenses go to. The decision has to be taken by a responsible manager or a director (ideally by a marketing director). If I had to be my decision, I would do it this way: if we don’t spend money on this channel (for example, media advertising), what will we lose in the first place? - New or repeat purchases? – If we lose the former, the expenses will go the corresponding budget item.
Issue #2: It is difficult to calculate which ad or ad channel drove this very customer, and it is sometimes difficult to understand if this customer is new or old.
What to do?
Of course it’s always easier to give advice than to follow it. Calculate! You have to be aware of the fact that you’ll need tools and resources to do this task. And don’t attribute other, more decent goals to the statistics tools. For example, I’m pretty sure that supermarket discount cards work more on statistics than on loyalty. And we give a customer 3-5% discount not for his coming to our shop again but for the fact that we know about it. By the way, it’s so expensive for information. And if you are waiting for sales to increase instead of processing the received information and taking decisions based on it, you’ll be definitely disappointed.
A functioning CRM is a solution for B2B companies. By “functioning” I mean really working and effective. In my view, one of the challenges companies face when introducing and setting up CRM is mixed up goals and values. As soon as the CRM is introduced, and you start waiting for sales to increase, your commercial department will stonewall the process. Sales reps will sabotage data input, their managers won’t be able to handle all the tasks, etc. The reason is simple: you need something quite different to increase sales. Nobody knows what decisions will be needed once all the statistics is available in CRM. And if you have already taken a decision, that there is a resource for sales increase there, then you don’t actually need the CRM. But if you want to see the real state of affairs, pluck up your courage and admit a) you need resources, and b) you have to be ready to face any statistics (no matter how good or bad it turns out to be).
So, what do we finally have? Companies which are a) quite honest with themselves, and b) competent in finance can answer the question whether repeat purchases (= loyal customers) are beneficial for them or not. But what about other companies? Other companies live in ignorance or believe what they have always believed in.