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Home » The price of loyalty
PERSPECTIVE

The price of loyalty

It costs five times more to acquire a new customer than to keep one. So why don’t companies do more to stop customer churn?

December 10, 2020
David Maloney
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Like many who’ve been working from home the past few months, I realized that my home-office phone service needed an upgrade. I contacted my old provider to discontinue the existing service, explaining that while its price had more than doubled in the many years I had used it, its line quality and value never improved. The customer service rep said, “If you had called us before you switched, we could have worked out a lower-priced package like the ones we offer new customers.” I responded, “If you valued me as a long-time customer, you should have offered me the better deal without my having to ask.”

Recently, I received an email from my mobile provider offering two new phones for the price of one. Of course, the catch was the deal was only available with the addition of new service.

Similarly, my bank offered a great rate on a new money market account. I already had funds deposited in another account and asked if I could get that same rate of return. No, that deal was only for new accounts, and a transfer of existing funds would not qualify for the rate.

In all these examples, I feel like my loyalty has been taken for granted.

I realize this is simply common business practice in the age of customer churn. For companies to grow, they have to attract new customers. But can’t that growth also come from taking better care of the customers who got them to where they are? Customers abandon long-term relationships with companies for a reason. Most of the time, it can be prevented.

There’s a rule of thumb that it costs five times more to acquire a new customer than to keep one (some claim the cost is actually higher). Many companies strive to retain customers by offering “loyalty” programs with rewards based on the amount the customer spends. But while such programs provide some customers with perks, they’re really just designed to gather data and track customer behavior.

Instead, companies should focus on a customer’s lifetime value—getting to know their customers while endeavoring to understand individual pain points and needs, and then devising solutions. Studies have shown that repeat customers spend 33% more than new customers and that even a 5% increase in customer loyalty can increase profits by 25%.

Is the only time that you reach out to your customers when you want to sell them something? Or are you truly interested in understanding their needs while building trust and long-term relationships?

In a time of recession, it’s worth asking: Do you take your best customers for granted?

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David Maloney is group editorial director of CSCMP's Supply Chain Quarterly.

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