Within the business world there has been a longstanding belief that customer loyalty is the most valuable way to improve your long term financial outlook. Many experts have argued that loyal customers bring in considerable revenue to a company, and should be considered one of the primary focuses of your marketing strategy. The idea is that:
- Loyal customers will continue to spend money on your company’s products and services.
- Loyal customers will be more likely to buy new products and services as they are released.
- Loyal customers speak highly of your company to other potential customers, bringing in business.
The idea is not unfounded. Indeed, there is a great deal of value in customer loyalty, and certainly every company would prefer their customers remain loyal, rather than defecting to a competitor. But in an article by Werner Reinartz and V.Kumar, titled “The Mismanagement of Loyalty,” they argue that not all loyal customers are valuable. Only certain customers truly bring in value to your company, while the rest may actually harm your long term outlook. Reinartz and Kumar break customers down into the following four groups:
Four Types of Loyal Customers
- True Friends
True Friends are the loyalist of loyal customers. They are the customers that not only bring in profit, but also speak highly of your products and promote your business to others. An example of “True Friends” would be the so called “Apple Fanboys” that buy whatever product Apple releases simply because they think so highly of the company.
Butterflies are not particularly loyal, but have spent money on your products and brought in good revenue. An example of a butterfly would be someone that supports Microsoft in general, but buys the iPhone since it happened to be the best available phone on the market.
Here is where some companies, especially B2B companies, find a surprising amount of their customer base falls into. Barnacles are loyal customers, but they are loyal customers that rarely make a purchase, and may not bring in much of a profit. A great example would be a customer that buys one cup of coffee at your coffee shop, and then comes in every day for the next month to use your free WiFi without making a purchase.
Strangers are those that barely bring in any revenue and are not necessarily loyal to your company. An example would be an individual that occasionally stops into a drug store to buy a stick of gum, but otherwise never uses the store.
Where your customers fall into this spectrum, the authors suggest, affects how much you should value their loyalty and the steps you take to try to address their needs. Here are a few tips on how to address the four different types of loyal customers, as recommended by Reinartz and Kumar.