from Linked In Consortium 10/13 enhanced by Peter/CXO Wiz4biz
5% = > 25% Significant changes in Customer Retention Rates have resulted in extraordinary improvements in profitability. One survey found that a 5% increase in Customer Retention consistently resulted in a 25% to 100% increase in Profits. These almost unbelievable results would suggest that there must be a powerful force, (your emotional connection to your customer) which needs to be understood and effectively managed.
Customer Royalty, no, Loyalty. Creating a new business model that focuses on “loyalty” would then suggest, in fact, a linkage between all elements of your Business system: your employees, customers, & investors for the generation of profits. Providing customer “value” begins with a management philosophy that supports the cultivation of strong Customer Relationships and is implemented by having properly trained & motivated employees – who know how to deliver the “value”. Research has shown that customers who have an “emotional connection” and feel “valued” will repeatedly come back and do business with your organization as well as provide a strong Referral base for new customers. Loyal customers repeatedly purchasing your product or service are what generate sustainable business growth & profit. However, your practices & processes that generate loyal Customer Relationships must be in place before you will begin to see a profitable impact. This model does not work in reverse, although many organizations by their actions appear to think the reverse is possible.
This new business model is important because it initiates a series of steps that can surge through an organization as follows:
1. Revenues & Market Share grow as your best (most loyal customers) build repeat purchases and recommend you to others who also become loyal.
2. Employee Retention increases due to job pride & satisfaction, which in turn creates a loop that reinforces Customer Retention through familiarity and better service to the customers. Customers like doing business with people they know and your employees want to do the right things, because it makes their job easier & far less stressful.
3. Profits increase as costs go down & revenues go up. Improved profits provide resources to invest in employee development & compensation (further increasing retention), and in new features & products that enhance customer value. Profits are important not just as an end in themselves, but they also allow the organization to improve value and provide additional incentive & reasons for employees, customers, & investors to remain loyal to your organization.
4. Costs begin to shrink as the expense of acquiring & serving new customers + replacing old customers declines.
This Loyalty Model effectively provides insight to success vs failure in any organization. It is clear that the companies or organizations with the highest retention rates of loyal customers, also earn the highest profits & maintain viability. In one study, it was found that in most Service Organizations “word of mouth” advertising accounted for 1/3 to 1/2 of all new customers. Relative Customer Retention also explains “bottom line” implications better than market share, scale, cost position, or any variables usually associated with a competitive advantage.
Improving Customer Loyalty. Perhaps a good place to start would be to find better ways to create & sustain a “loyal” Customer base. While there will be an investment, the advantages will be enormous for your customers, employees, & investors. Strictly from a financial perspective, revenues increase from improved Service Quality tend to be 10 to 20 times the costs associated with fixing the problem.
Comments: What strategies do you need to implement today?