Managing customer loyalty

Foundations for a thriving business

1. Customers will continue to change in needs, demographics, lifestyle and consumption behavior
2. Competitors will change as new technologies emerge and barriers to foreign competition shift.
3. The environment in which businesses operate will continue to change as economic, political, social and technological forces shift.

Successful customer relationship marketing enables businesses with a strong customer focus achieve high levels of customer satisfaction and customer loyalty which directly translates to higher profitability.

A common measure of customer satisfaction is the Customer Satisfaction Index (CSI). derived from customers rating of the overall satisfaction on a six-point scale that ranges from very dissatisfied to very satisfied. CSI is a forward looking indicator on the performance of an organization, that measures how well customers will respond to the company in the future. other performance measures like market share are backward looking.

Research results indicate the following

	Very Dissat	Dissatisfied	Somewhat dissat	Somewhat Sat	Satisfied	Very Sat
%customers	2%	5%	10%	22%	36%	25%
Profitability	-90%	-75%	-50%	25%	125%	800%
Customer turnover		25%			70%

out of 100 dissatisfied customers 4 complain, 96 do not complain, 95% of non complainers exit, whereas 25% of complainers exit.


Customer life

Customer life {N} = 1/(1-customer retention {cr})

Customer Loyalty index (CLI) is defined as

CLI = Customer satisfaction * Customer retention * Customer recommendation
since the negative recommends have more severe consequences, dissatisfied customers tend to accelerate mass defections especially in the presence of an alternative or substitute.

Strategies for managing customer loyalty and profitability

<       Customer profitability	Very high       High	High Potentials Life time value = 2x Customer retention =50% Selectively invest in 1:1 relationships	Top performers Lifetime value = 5x Customer retention = 80% Invest in customized relationships
	Average
	Breakeven       Negative	Non Profits Lifetime value =-x Customer retention 33% Separate potential opportunities from nomads	Under achievers Lifetime value = x Customer retention = 80% Invest in sustaining loyalty and build opportunities to increase margin
	Very weak    Weak   Average     Strong   Very strong                          Customer Loyalty  >