Are Loyal Customers Always Valuable?

Companies that disregard their current customer base struggle. You cannot have a successful business if you take your current customers for granted, no matter how powerful your marketing tactics are. It’s bad business to treat your customers poorly, and doing so will build your company a bad reputation that could haunt it for years to come.

So companies have focused their efforts on customer loyalty – doing their best to ensure that customers are not only satisfied, but rewarded for being customers. Keep the customers happy and the money keeps flowing – or at least, so says logic.

But it turns out that customer loyalty may not be as valuable as previously thought. While there is certainly a great deal of value to having customers that are loyal to your products and brand, not all loyal customers appear to be created equal.

Downsides of Customer Loyalty

The basic premise of customer loyalty is that customers that are loyal continue to bring in revenue. According to “The Mismanagement of Loyalty” by Werner Reinartz and V.Kumar, loyal customers may not bring in as much value as it seems.

  • Loyal customers tend to understand their value and look for ways to exploit it.
  • Loyal customers often receive discounts and special attention that reduce their value.
  • Loyal customers don’t always continue to put money back into the company, and instead milk what they already have.

The findings show that not all loyal customers actually bring in the value that people believe. Similarly, research showed that customers that came in and spent a great deal of money before leaving for another company often provided more profits than some of their regular customers that barely spent any money and/or took advantage of their positions.

In some ways this makes cognitive sense. Consider a hypothetical Best Buy. You can choose between two customers: One that comes in every month and buys a CD that’s on clearance, and another that comes in only once, ever, but buys a $3000 plasma television at full price, and purchases the insurance option with it, along with a stereo and a few DVDs. The first customer may be more loyal, but the latter customer is the one that is bringing a profit.

The Value of Customer Loyalty

There is no denying that customer loyalty is valuable. But not all customers are created equal, and you may find that some loyal customers are worth less than one time or infrequent customers. When you analyze the future of your company, always pay attention to the customer’s true value to your company, loyal or otherwise. Include information about the financial value of the customer in our survey, and try your best to filter out the customers that are bringing less value to your company from loyalty efforts.

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