The One Number You Need to Grow

The One Number You Need to Grow

Loyalty – the willingness of someone- a customer, an employee, a friend – to make an investment or personal sacrifice in order to strengthen a relationship.

·       Customer loyalty – much more than repeat purchases

Loyalty:

·       Affects profitability

·       Drives top-line growth

·       Helps eliminate outflow

Loyal Customers:

·       Devote a large share of their wallets to a company they feel good about

·       Talk up the company to their friends, family, and colleagues (word of mouth)

·       They promote that they’ve received good economic value from a company

·       They put their reputations on the line for the company/product

·       Bring in new customers – no charge to the company

The Wrong Yardsticks

Loyalty is so important to profitable growth, measuring and managing it makes good sense.

The best companies focus on:

·       Customer retention rates (that measurement is merely mediocre)

o   Retention rates provide a valuable link to profitability-their relationship to growth is tenuous

o   Track customer defections – the degree to which a bucket is emptying rather than filling up

o   Retention rates are poor indication of customer loyalty in situations where customers are held hostage by high switching costs or other barriers, or other factors

·       An even less reliable means of gauging loyalty is through conventional customer satisfaction measures:

o   Satisfaction lacks a consistently demonstrable connection to actual customer behavior and growth

o   American Consumer Satisfaction Index- publishes quarterly in the Wall Street Journal

§  Reflects the customer satisfaction ratings of some 200 U.S. companies

·       Even the most sophisticated measurement systems have serious flaws:

o   Customer satisfaction surveys

Getting the Facts

Useful metrics for gauging customer loyalty:

§  Customer surveys:

o   Matching survey responses from individual customers to their actual behavior

o   Repeat purchases and referral patterns – over time

§  Loyalty Acid Test – a survey designed to establish the stat of relations between a company and its customers

§  Promoters – customers with the highest rates of repurchases and referral, gave ratings of nine to ten

§  Passively Satisfied – customers that logged a seven or eight

§  Detractors -customers that scored from zero to six

Clustering customers into three categories- promoters, the passively satisfied, and detractors- turned out to provide the simplest, most intuitive, and best predictor of customer behavior

§  Increase the number of promoters and reduce the number of detractors more readily than increasing the mean of their satisfaction index by one standard deviation

The Growth Connection

§  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

o   Brief email survey asking respondents to rate one or two companies with which they are familiar:

§  Obtain comparable and reliable revenue-growth data for a range of competitors where there were sufficient consumer responses

·       They plotted each firm’s net promoters

·       The percentage of promoters minus the percentage of detractors – against the company’s revenue growth rate