Making the case for Customer Loyalty

12 years ago   •   2 min read

By Marcia Kadanoff

Can a small- or medium-business focus on measuring customer loyalty without breaking the bank. Yes. If your SMB leverages the net promoter score methodology pioneered by Bain & Company and the topic of the book “The Ultimate Question.”

In fact, if you are a small- or medium-sized business and don’t focus on customer loyalty, we would venture to say to that you may find yourself behind the eight ball. Why? Because increasingly, sites where your customers congregate online are collecting reviews and making them available. Take Houzz, a popular site that showcases interior designers and architects has started a Yelp-like service, where it asks visitors to its site to rate their experience with trade professionals. To access, you need to be a member. But anyone can leave a review here. Here’s a typical listing:

Houzz Screen Shot Customer Loyalty

Just to refresh you on the importance of customer loyalty.

Rules of Thumb

A customer who is has a positive experience with your company is thought to tell 2-3 people of this fact.

A customer who has a negative experience with your company is thought to tell 10 people of this fact.

These rules of thumbs aren’t wrong. In fact, Forrester research has studied the impact of a positive customer experience on revenues, profitability, and intent to repurchase and concluded that a positive customer experience can be worth millions to companies and that in fact a positive experience is strongly correlated with positive word of mouth, intent to repurchase, and disinclination to switch to another brand.

Customer loyalty is easy to measure – using something called the “net promoter” score. In fact, there is only a handful of questions you need to ask: “Would you recommend working with INSERT YOUR COMPANY NAME HERE to a friend or colleague.” Calculating net promoter scores does not take an MBA and the questionnaire can be executed as a simple online survey. See the links at the bottom of this article for how to calculate net promoter scores.

The very fact that you bothered to ask your customers about their experience working with your firm tends to have a positive effect on customer loyalty.

A focus on customer loyalty makes dollars and sense. Firms with high net promoter scores tend to be more profitable than firms with low net promoter scores. It always costs you money to acquire a new customer whereas sales to existing customers cost you nothing. Indeed, in many industries and segments, you must sell to the customer multiple times to make back what you spent on new customer acquisition.

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