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Is customer loyalty an outdated concept?
By Jennifer Kirkby, consulting editor, MyC
Companies are not fair to us – that’s the view of almost half the UK adult population.
In 1980, only 14% thought this way; now 44% do according to nVision from Future
Foundation. Nearly two decades after loyalty theories radically changed the business
world, average loyalty has declined, whilst consumers have strengthened their
recommendation and switching muscles. That’s a dangerous situation for companies
to be in, so let’s look at what’s happened to customer loyalty.
The original loyalty premise
“Companies that want to improve their service quality should take a cue from
manufacturing and focus on their own kind of scrap heap: customers who wont
come back.” So begins the seminal article on customer loyalty, ‘Zero Defections:
Quality Comes to Services’ by Fred Reichheld and Earl Sassar in Harvard Business
Review 1990.
Their claim that “Reducing the defection rate (of customers) just 5% generates 85%
more profits in one banks branch system, 50% more in an insurance brokerage, and
30% more in an auto-service chain,” set the relationship marketing world alight: but
few paid as much attention to the how. “Defection rates are not just a measure of
service quality; they are also a guide for achieving it,” said the authors: the ‘voice of
the customer’ had been born, but it slipped out unnoticed.
The premise was: delivering value for money to customers will win their loyalty and
encourage them to stay – superior profits come from cross-sales, lower acquisition
costs, wider margins and customer recommendations. But the essential objective
was an investment in human assets as a source of sustainable growth: measuring
and understanding that loyalty investment was pivotal.
Stop thinking you are servicing a product and se
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