Improving loyalty in a down-turn

Focus on your best customers is something I hear a lot and especially so when times are hard. The mantra moves from acquisition is everything to retention is all. Typically, someone notices that key metrics – net new customers, cost per sale, etc – are deteriorating. While the acquisition process hasn’t changed, the quantity or quality of the customers being acquired has – for the worse.

Yet they carry on doing more of the same but expect different results. Eventually realising that more of the same hasn’t worked, companies switch the conversation entirely to focus on developing current customer relationships. I believe you should think about loyalty before you need to rely on a loyal customer base. Two metrics come into play: retention rate and the number of sales per customer.

How do you encourage retention? Well, you could throw new products at the target market. That’s expensive and few companies or sectors are set up for constant innovation. Another obvious route is to drop your prices. A great short-term method for retaining business, but it also affects short-term value and could destroy your business model over time.

It is hard to change the retention rate in the short term, so can we increase the number of sales we make from each loyal customer? If the best you can expect is for them to repeat-purchase what they have bought before, then you’ll never grow your business. For that you need new customers.

You need to focus on loyalty before you need to rely on loyal customers.

The only practical metric most businesses can influence is the average sale value. You can do this by encouraging the customer to add beyond their main purchase (“Do you want fries with that?”), or bundling (eg, buy 18 months’ insurance and pay only for 15).

Of course, the cross-sell needs to be appropriate, it needs to be credible, and you must be able to deliver. Get it right and you encourage ‘loyalty’ in the best sense – that is, customers giving you more money for providing more of what they want, today.

So forget about improving what is tough and won’t be quick to implement. Instead, focus on short term cross-sell and up-sell opportunities within your current customers and rebuild your acquisition programme, which is where your long-term profit lies.

Of course, everyone knows it costs more to get a new customer than to retain one, but it’s tragic if you fail to even get the new customer in the first place.