The Wrong Way To Approach Customer Loyalty
Good piece at Harvard Biz Publishing today, but most of the community commentary misses the point. Offering price promotions to all customers isn’t loyalty marketing, its price promotion. Some customers respond only to this message, but many would be just as responsive to a different message (new product intro, local event, cross-sell to a recent purchase), to great service, or to the brand as a whole.
The authors rightly point out that usually only 20% of customers are profitable. But its not that simple, since what matters is the marginal profitability of the last dollar sold. You have to cover those fixed costs somehow.
A different interpretation of the tactic they criticize might be:
Resources are limited, so focus on the most profitable customers. If you have the resources to focus on unprofitable customers too, go for it, since they help cover fixed costs. But try to allocate your overall resources based on potential for future profitability, not evenly across all customers. Only when you are totally out of time, creativity, and employee bandwidth should you shift to pure price promotion.
Tags: customer profitability, loyalty, marketing, promotion
