Why is customer loyalty important?

There are at least five fundamental reasons why companies’ future success or failure depends on their level of interest in keeping customers they already own.

The critical mass of customers.

Every business needs a minimum customer base that assures its subsistence. Of that base will depend on whether or not the company stands still and thus achieves short-term profitability levels and the ability to continue to operate and grow in the future.

Worrying about keeping current customers is the most effective and efficient way to maintain the critical mass of customers the company needs for its subsistence, development and growth.

The numbers do not lie: Pareto´s Law.

80% of a company’s turnover comes from the 20% of its customers. It is a realization of the business reality in all types of company and in all types of business area. If 80% of our sales are made to company´s regular customers, why not dedicate 80% of the resources and marketing efforts of the company to them?

The purchase by habit.

They are the purchases that are made without taking place a process of decision making, because the product, service and / or company is known, since the buyer has been satisfied with his previous experiences.

Companies that do not care about taking care of their current customers lose the important potential of creating regular buyers.

 

This is related to the following concept:

The customer’s life value and the customer’s life cycle.

The customer’s life value measures the net present value of future contributions that the customer will make to the overhead and profitability of the company. But you must also take into account the importance of getting the attention of a potential client, show you what you have to offer, get you to become an effective customer, through the execution of a business transaction, and finally achieve that these transactions will last, mature and achieve a high level of satisfaction such that it is sufficient for this client to generate new contacts that are also incorporated into the life cycle. Companies that do not care about taking care of their current customers lose the important potential of creating regular buyers.

Adapting the value-of-life approach and customer lifecycle entails, among other things, that you begin to see customers as business assets that are capable of generating a continuous flow of resources and profitability over a long period of time.

Customer retention increases profitability.

There are many costs that are related to the effort that must be made to attract a new client: advertising, promotion, prospecting, customer management costs, etc. In short, it is always much more costly to sell to a new customer than to a regular customer of the company. There is even talk of the 5 to 1 ratio that indicates that selling to a new customer is five times more expensive than a regular customer. In addition, studies that relate customer loyalty to profitability point to loyal customers:

1. Buy more quantity and more often your usual products.
2. Buy the other products and services more.
3. They have a lower operating cost.
4. Generate positive word of mouth communication.
5. They are an important source of reference of new products and businesses for the company.

Definitely…

The challenge is to develop special relationships with customers so that both parties experience good mutual communication and feel privileged recipients.

In general, small and medium-sized businesses are unaware of the potential of loyalty programs, mainly in terms of generation and processing of information about users, customers, the loyalty program, and therefore all the advantages associated with the use of that information for decision making.