The importance of customer loyalty
Customer loyalty among other things creates returning customers, and research shows that five percent more returning customers can increase the company’s earnings by 25 to 85 percent. This means that there are huge profits to be gained by increasing customer loyalty and getting more returning customers.
A returning customer can be more profitable based on that long-term returning customers buy more, take up less of the staff’s time (since the customer already knows the company and its products), are less prize sensitive, attracts new customers by giving references, and that long-term customers do not have any acquisition (for example advertising) or startup cost.
OK, but as stated above, the profitability comes from the returning customers, right? Then why shouldn’t a company only try to get returning customers?
One of the problems with not having truly loyal customers is that customers that are not loyal can spread bad reputations about the company. It could also be hard to counteract a bad reputation. Research has shown that people tend to put more focus on negative information compared to positive information. It can take five positive comments to neutralize one single negative comment. This means that also a small amount of negative information spread by customers, can have a large impact on the company’s reputation.
A bad reputation in turn can lead to that many customers surrender the company in the future. This means that customer loyalty is more predictive of future success compared to only having many returning customers. By focusing on getting loyal customers the number of returning customers will also increase. This means that the company gets more profitable both in the short and long term.