What Price Loyalty?

by Peter Thorpe

Most companies spend a fortune trying to win new clients and virtually ignore their greatest profit centre… exisiting clients!

According to one of the world’s leading strategic consulting firms, Bain & Co., most corporation now lose half their customer base in less than five years. They also found that companies that could halve that attrition rate, in most cases, actually doubled their bottom line profits!

The much used adage that it costs five times more to get a new customer than is does to retain an existing one, is truer today than it has ever been.

What’s natural attrition?

Most companies today, seem to accept as normal, a so called ‘natural attrition rate’ of around ten per cent, per annum. This means ten per cent of their customers go away every year and do business with somebody else.

But why? And, what’s natural about it?

It is a proven fact, most people prefer to build long term relationships and do business with someone they know and trust. So, there is nothing ‘natural’ about attrition. It’s really quite unnatural!

Of course, hardly any company can expect to have a zero customer attrition rate and most will always need to find new clients. So, what is a reasonable, acceptable rate of customer attrition?

The answer is still nil.

You will probably never achieve it but you should always be working towards never losing a single customer. Certainly, not through any fault of your own or any action that could be avoided.

If you ask most companies why their customers leave, they will tell you it’s because they got a better offer elsewhere. Often they attribute it to price cutting in a competitive market.

In my experience, working as a business adviser to hundreds of companies over many years, this rarely stands up to scrutiny. Research usually reveals their clients left for one of two reasons:

  • They had a problem and it wasn’t resolved satisfactorily
  • Perceived indifference on the part of the supplier

In other words, they felt that the supplier didn’t care about them or their welfare and was only concerned with their own. (By the way, in the majority of cases they are absolutely right!)

Building relationships

Of course, price cutting is a problem in most industries today and it’s not always an easy one to overcome.

However, price becomes less of a problem if you have established a strong relationship of trust and confidence with a client. Most buyers won’t change from a reliable supplier they like and trust, unless the price difference is quite substatntial.

And, if customers do have a problem and that problem is resolved quickly and to their satisfaction, they are twice as likely to remain loyal to that supplier as customers who never have a problem in the first place!

In fact, there is one well documented case of a company in the US who actually deliberately created bogus problems for their customers so they could resolve them and strengthen customer loyalty! I think this is a bit drastic however, it does serve to illustrate an important point.

So, what should we do to build customer loyalty and form long term relationships with our customers?

The best way is to add value and give your customers benefits and service beyond their expectations. It is also vital to maintain regular, systematic contact with your clients.

Start by practising four-site

I believe your customers need to sight your name at least four times a year-whether they have a need for your products or services or not. Otherwise, they simply forget about you.

You can do this in a number of ways. Here are a few ideas to get you started:

  • Create a regular newsletter. Not just a brochure for your company but a worthwhile document filled with news, information and ideas. (If you don’t have the expertise in-house to do this well, call me and I’ll help you).
  • Instigate a system of regular telephone calls from your staff. Offer specials or announce new products or services
  • Hold regular product nights, plant tours or breakfast seminars with interesting guest speakers
  • Send your clients birthday cards (for good clients, why not send a cake?)
  • Make special premium offers to your VIP customers
  • Consider creating a formal loyalty program for frequent buyers
  • Start an e-zine (email newsletter)
  • Write letters to your good customers thanking them for their business

All of the above involves some cost and a fair amount of effort. However, I’ll bet it’s nowhere near as much cost or effort as you put into trying to develop new business.

So, let me ask you again-what price does your company put on loyalty?