In a previous blog article (dated 08.07.16) I
discussed research by Reinartz and Kumar which suggested that loyal
customers could be put into four different categories: True Friends, Butterflies, Barnacles and Strangers.
Reinartz and Kumar point out that all
of these customers may be described as ‘loyal’ to a certain extent. And all of them bring you repeat business. In other words they exhibit 'behavioural loyalty' (see article dated 10.06.16).
But some of them might not be very
profitable for your company, and might take more of your time and effort than
is worthwhile. Reinartz and Kumar suggest the
following strategies for addressing these different types of customer:
True Friends - are 'advocates' for your company and are regular customers. They also produce the most profit. Reinartz and Kumar suggest that these customers should be rewarded with exclusive products and other special benefits. However, they warn against over-contact. These customers are already bringing value to your business, and exploiting them too much may lead to 'burn out'.
Butterflies - are also profitable, but they are much less
loyal. They should be given plenty of attention in the early stages of the
relationship. However, once it appears that their purchases are dropping off,
you should stop investing too much time and effort with them.
Barnacles - tend to be less profitable. Although they think
highly of your company and its products, they spend little money and are
therefore not very profitable for you. Ideally, the best strategy is to
try to sell them products and services that are related to what they already buy
from you, but don’t waste too much time on them.
Strangers - may often seem like loyal customers, but they
rarely bring in much value and otherwise don’t show other signs of customer
loyalty. Reinartz and Kumar suggest that this group should be left alone, as
they create little profit and are not bringing any long-term benefit to your
company.
Customer loyalty is obviously really important, but spending too much time and effort treating all customers equally can be inefficient and unprofitable. Your best course of action is to try to discover which category each customer fits into, and then use a strategy to address them accordingly.
REFERENCE
Reinartz, W and Kumar, V., 2002. The Mismanagement of Customer Loyalty, Harvard Business Review, July 2002.
Customer loyalty is obviously really important, but spending too much time and effort treating all customers equally can be inefficient and unprofitable. Your best course of action is to try to discover which category each customer fits into, and then use a strategy to address them accordingly.
REFERENCE
Reinartz, W and Kumar, V., 2002. The Mismanagement of Customer Loyalty, Harvard Business Review, July 2002.