What Value Is Customer Loyalty?

My entire career, I’ve believed that it is easier to get more business from existing customers than to develop new ones. That’s not to say you don’t want new customers, but given the effort and expense involved, trusted relationships tend to win out over unknowns.

Yet, when we think about digital transformation, the topic of customer loyalty is typically an unmentioned benefit and nowhere to be found in the ROI rationale. Why is that?                                                                                                                                           

Why does no one factor it?

The quick and dirty truth is that the rewards of customer loyalty aren’t immediate; loyalty builds over time. When considering a digital transformation, companies will usually focus on immediate results and ROI, spotlighting calculable deliverables, like efficiency, cost take-out, and turn-around speed.

Structural silos further fracture incentives and objectives. Manufacturing, operations, and procurement are motivated differently than post-sales customer success; the former care about cost, while the latter center efforts around improving customer life-time value. Since most digital transformations occur in silos, the operations side of a business will usually fail to consider the significant improvement to customer loyalty when making their case.

 Year after year, companies report issues like lack of visibility across their supply chains. Yet, many continue to delay their digital transformations – a move that hurts more than efficiency. Damaged trust and relationships also have a cost. If you’re not factoring customer retention and loyalty into the equation, you’re missing a significant element of the value.                                                                                                                                                                                                                                                                                                                           

The real value of customer loyalty

If you meet or even exceed customer requirements, the expectation is that they will buy more, and you will grow alongside them and start to take a bigger share of their business. After all, wouldn’t they rather deal with a known entity than take a chance on someone new or with a spotty record?

In my own experience, loyal customers typically form longer lasting relationships, return for repeat purchases, provide reference for new business opportunities, and often accept a slight pricing premium against competitive offers for comparable services.

These are not just empty expectations and anecdotal evidence – studies continue to prove the meaningful financial gains of customer loyalty.

Respected consulting firm, Bain & Company, found that companies working to build loyal customers experience:

  • 20% reduced customer attrition
  • 2X revenue growth (for loyalty leaders)
  • 15% cost advantage

 

Trust is at the heart of loyalty

Whether with existing or new customers, under-promising and over-delivering establishes trust. You see this every day in ecommerce where the promised order delivery date is often exceeded by an earlier one, making customers feel good about their brand experience and significantly increasing their likelihood to order again.

According to Gartner, “by earning the trust of their customers, companies create financial value in their brands.” Their survey indicated that, in the B2B world, trust contributed over twice as much to the customer experience than even product expertise and commitment to customer value realization. In fact, 89% of customers revealed that they’d actively disengage from a brand that broke their trust.

Conversely, building trust offers incredible gains, such as reduced transaction costs and higher productivity, as well as a 5% increase in customer retention, due to increased loyalty, yields a staggering 75% increase in the net present value of an existing customer[i].                                                                                                                                                                                                                                                                                                                           

How to start factoring in customer loyalty and trust into your digital transformation

Every organization’s end aim is creating loyal customers. That loyalty is not as unclear a value as many seem to believe – there is real payback to consider.

Digital Transformations that account for this integral component as part of their ROI calculation gain a fuller picture of what they stand to gain through their investment, but it requires a vision that extends beyond departmental silos.

In our next post, we’ll delve deeper into some of the ways in which you can consider customer experience and cross-silo optimization into your digital transformation.

 

[i] Source: Frederick F. Reichheld, Loyalty Rules!

 

 

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