Excerpts from The One Number You Need to Grow
Frederick F Reichheld in Harvard Business Review
- Loyalty is the willingness of someone--a customer, an employee, a friend--to make an investment or personal sacrifice in order to strengthen a relationship. For a customer, that can mean sticking with a supplier who treats him well and gives him good value in the long term even if the supplier does not offer the best price in a particular transaction.
- Customer loyalty is about much more than repeat purchases. Someone who buys again and again from the same company may not necessarily be loyal to that company but instead may be trapped by inertia, indifference, or exit barriers erected by the company or circumstance. On the other hand, a customer may be loyal even when she doesn't make frequent purchases. For example, she may have moved out of town but still recommends a store to her friends back home.
- True loyalty clearly affects profitability. While regular customers aren't always profitable, their choice to stick with a product or service typically reduces a company's customer acquisition costs. Loyalty also drives top-line growth.
- No company can grow if its customer bucket is leaky, and loyalty helps eliminate this outflow. Loyal customers can raise the water level in the bucket: Customers who are truly loyal tend to buy more over time, as their incomes grow or they devote a larger share of their wallets to a company they feel good about.
- Loyal customers talk up a company to their friends, family, and colleagues. Such a recommendation is one of the best indicators of loyalty. When customers act as references, they do more than indicate that they've received good economic value from a company; they put their own reputations on the line. And they will risk their reputations only if they feel intense loyalty.
- The tendency of loyal customers to bring in new customers--at no charge to the company--is particularly beneficial as a company grows, especially if it operates in a mature industry. In such a case, the tremendous marketing costs of acquiring each new customer through advertising and other promotions make it hard to grow profitably. In fact, the only path to profitable growth may lie in a company's ability to get its loyal customers to become, in effect, its marketing department.
See also:
Reichheld on the war on customers
Reichheld on "The Ultimate Question"
A Survey of Surveys
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