Keep Your Customers

How to Stop Customer Turnover, Improve Retention and Get Lucrative, Long-Term Loyalty

Ali Cudby

• Publisher: Morgan James Publishing
• Year: 2020
• ISBN:
  9781642796438
• Topic: Business
• Subtopic: Customer Relations
• Index: Business

Keep Your Customers shares why loyalty in the business world matters and walks companies through the strategies and tactics that boost long-term customer value.It costs 5 to 25 times more for companies to acquire a new customer versus retaining an existing one. That means a company's process to keep their customers is tied directly to their revenue and profitability. In Keep Your Customers, Ali Cudby provides insights from business leaders ranging from legendary executive Kay Koplovitz to leading venture capitalist Mark Suster.Drawing from real-world client stories, business best practices and case studies featuring company CEOs, Keep Your Customers has everything companies need to get started immediately. Ali shares the entire proven process that has helped companies around the world cultivate lucrative, long-term customers.

PART I

Loyalty Is Lucrative

When loyalty is genuine and cultivated strategically, customers engage for the long term and become highly profitable. What is loyalty? In this book, “loyalty” refers to customers who care about their relationship with your company.

Loyal customers are a small subset of your overall customer base. Their value vastly exceeds their numbers. When you create a system to keep your customers, your company reaps the benefits today and into the future.

CHAPTER 1

Why Loyalty Matters

Think about your best customers. Now consider the system you have in place to attract, nurture, and promote your relationships with them. If you improved your system for cultivating loyalty, what would happen?

Loyal customers generally exhibit three key traits:

• •They stay with your company longer.
• •These long-term customers become highly profitable users of your products and services.
• •Put the right system in place, and loyal customers also refer additional business to you and become your advocates.

Those three advantages—staying longer, spending more, and referring new customers—mean that loyal customers are highly valuable to your company. Since most companies have limited time and resources to apply to strategic projects, it’s important to find ways to ensure your loyalty efforts produce profitable results.

In my experience working with a wide variety of companies, the juice you’ll get from focusing on customer loyalty is definitely worth the squeeze. The benefits of cultivating customer loyalty are wide-ranging, producing financial returns, competitive advantage, and better employee engagement.

Loyalty Generates Financial Returns

Recent research into the financial impact of top customers has quantified the value of loyalty, and the numbers are jaw-droppingly compelling.

Historically, companies have applied the Pareto Principle to sales revenue. In this application, the Pareto Principle, also known as the 80/20 Rule, says 20 percent of a company’s customers generate 80 percent of its revenue. That’s a tall order. Does the rule stand up to scrutiny?

A 2017 study examined customer behavior at consumer-packaged goods companies. On average, the companies in the study generated 73 percent of the revenue from the top 20 percent of their customers. The 80/20 Rule wasn’t fully realized, but it was close.

In another study, Dan McCarthy, a professor at Emory University, and Russell Winer, New York University, looked at product and service companies in a variety of industries that had consumer and business customers. In 2017, the companies generated a combined $4.3 trillion in revenue. The top 20 percent of these companies’ customers delivered an average of 67 percent of their revenue.

While the 80/20 Rule might not precisely hold true, the findings are clear and consistent: whether it’s consumer-packaged goods or other products and services companies, top customers deliver a hefty percentage of a company’s revenue.

Top Customers Deliver Profits

Here’s where it gets interesting. McCarthy and Winer also researched the profitability of top customers. They found the top 20 percent of those same companies’ customers generated 105 percent to 113 percent of net income.

You might wonder how a subset of customers could be worth more than 100 percent of net income. It’s possible because not every customer is profitable. The customers who are highly profitable compensate for the customers who are served at a loss.

The top 20 percent of a company’s customers generate 105 percent to 113 percent of its net income.

In addition to being more profitable, it’s less expensive to keep your top customer than acquire new ones. The Harvard Business Review found that it costs five to twenty-five times more for companies to secure a new customer versus retain an existing one. An ongoing cycle of new customer acquisition costs more than keeping the customers you’ve already won. It makes financial sense to make existing customers happy.

The power of customer retention is amplified when considering research from Bain & Co., which shows that when companies improve their customer retention rate by as little as 5 percent, they see an increase in profit of 25 percent to 95 percent. In other words, if you motivate just 5 percent more of your customers to stick with you, your profits can jump considerably.

Top customers are ultra-valuable, so it would make sense that companies make every effort to keep them loyal, yet I consistently see companies forfeit time, energy, money, and goodwill by neglecting the impact of loyalty. When companies shortchange loyalty, they shortchange their financial results.

Loyalty Boosts Competitive Advantage

In addition to financial rewards, loyalty boosts competitive advantage by repelling your competition. When customers are dedicated to your company, they’re satisfied with the solutions you provide. That makes them less likely to consider your competitors.

For example, right now, I’m happy with a product that manages my company’s customer database. I’m sure there are competitors. Maybe they’re better or less expensive. But I’m not looking because I like what I have. The interface and functionality do everything I want. Every time I’ve had a problem, my current provider has solved it efficiently. I’m loyal. When someone asked me recently to recommend a company for this product, I gave my provider a full-throated endorsement.

Referral is one of the three identifiers of loyalty. Loyal customers tell their friends, family, colleagues, and even strangers about their positive experiences with your company. These referrals are high value.

Research shows that people trust positive feedback from people they know and even from strangers more than they trust reviews from experts, so referrals from loyal customers carry real weight on your behalf. These referrals are more likely to inspire action.

Loyal customers multiply their value by referring new business. One loyal customer’s impact includes their individual spending and the cumulative value of every person they refer to your company.

Customers will talk about your company, but loyal customers aren’t the only ones who will share their experiences. Unhappy customers also tell friends, family, and colleagues about their bad experience with your company. Their commentary has a negative impact on your potential customers. If that’s not bad enough, unhappy customers tend to tell more people about their experiences than satisfied customers.

Social media magnifies those complaints. In the 1980s, studies showed that dissatisfied customers told nine to fifteen people about their bad experience. Sometimes, they told as many as twenty. Today, a company can only hope that negative word-of-mouth reaches a mere twenty additional people. When the average Facebook user has 338 friends and a viral complaint can reach millions, companies ignore word-of-mouth at their peril.

Once you’ve lost a customer, it’s hard to win them back. Growth gets harder. Your cost of customer acquisition can skyrocket. Clearly, that’s not efficient. In fact, quite the opposite: it’s expensive.

Retain your customers and put an end to the hamster wheel of constantly having to attract new ones just to keep your existing level of revenue.

If loyalty means you can spend less and extract more value from your marketing compared with your competitors, that’s another advantage. It’s easier to be efficient with your marketing spend if you target the right people.

Before you can nurture a loyal customer, you have to attract a prospect to buy from you. Prospects become customers after they purchase your product or service for the first time. Knowing your most valuable customers’ characteristics enables you to pinpoint prospects who fit a similar profile. That means you’ll be able to speak to those high-potential prospects more clearly, which is more effective and also an advantage.

A clear, targeted marketing opportunity provides better results than a marketing campaign that goes out with a broader message. The better you understand the prospects who are most likely to become loyal, the more you can leverage that marketing advantage.

Your company’s advantage stems from knowing your loyal customers well enough to develop targeted marketing messages, product updates, and relationship-building opportunities.

Mark Suster is an entrepreneur and managing partner at Los Angeles-based venture capital firm Upfront Ventures. Upfront is the largest venture capital firm in Southern California, with more than $1.8 billion in total funds raised. The firm has backed such successful companies as Ring and Bird scooters. Suster says relationship building is one of the most misunderstood and important factors that business leaders get wrong.

“We don’t celebrate the importance of engagement as a core skill set,” Suster says. “It’s a lot easier for people to stay in their comfort zones. Part of it is laziness. Part of it is fear. Part is not understanding the importance of loyalty. But loyalty has a profound impact on the products companies offer when they actually understand customers and their needs.”

The better you know your customers, the more you can engage in ways that motivate deeper levels of engagement.

When I worked at a television network, our audience skewed toward kids and senior viewers, but the top brass wanted us to capture the more profitable demographic in the middle, the eighteen- to forty-nine-year-olds. Our marketing department was constantly pulled between targeting the viewers who actually watched the network and those people our executives wished were watching. We wasted a lot of money chasing people who were unlikely to become viewers, rather than focusing on people who fit the profile of our existing, dedicated audience members. Instead of trying to serve a wider array of viewers, we could have created deeper relationships with the people who were predisposed to become loyal to the network.

Loyalty Improves Employee Engagement

Customer loyalty may be primarily externally focused, but it also provides an opportunity to rally your employees and improve their engagement. Employees are integral to your customer loyalty efforts. When you inspire employees to embrace your customer loyalty goals, there is a benefit for everyone: employees, leaders, and customers. Engaged employees are another advantage for your company.

Employees who feel their contribution is valued are more inclined to feel connected to your company’s goals. By 2025, 75 percent of the workforce will be comprised of Millennials and Gen Z. These employees didn’t invent the concept of work that has purpose, but they’re more vocal about expecting it. They need their work to matter. One way to engage them is to develop processes that show how they are making a difference for customers.

Employees who see how their work drives to a purpose that goes beyond profit are more likely to feel connected and engaged. Motivated employees who see sincere meaning in cultivating long-term customers will become invested in your loyalty initiatives. Some of my clients use their dedication to customer loyalty as a value that helps employee recruitment and retention, creating even more strategic advantage for the company.

Employees are a vital part of your customer loyalty effort because they’re on the front lines of your company. In companies with face-to-face contact, employees engage directly with customers. But even in companies where customer interaction is virtual or through a distributor, customer experience can be designed with your employees in mind. When employees feel like valued contributors to your customer-facing initiatives, they become more invested in your company’s success. Engaged employees help you activate customer loyalty.

Jackie Reses leads Square Capital, a division of financial technology company Square. Square Capital has extended more than $3.5 billion in cash advances and loans to more than two hundred thousand businesses. When it comes to the interactions between companies and their employees, Reses sees companies shortchanging relationships.

“Many companies provide lip service to the importance of loyalty. And they don’t focus. They almost treat people issues as secondary,” Reses says. “What I see is that companies don’t always apply structured business decision-making to relationships in the same way that they would other business issues. They don’t value it because it feels like a ‘soft side’ issue to them, and I don’t think it is. If leaders really applied business rigor to people issues, they would get better results.”

Will This Help You?

The companies that benefit most from implementing a system for customer loyalty generally fall into three categories in terms of their relationships with their customers.

• •Your company is experiencing high customer turnover, and you want to stop the bleeding.
• •Your company attracts customers, but their enthusiasm is lackluster. You want to increase the lifetime value of your ex...