Reward Loyalty

Do you share this frustration?  You have been buying regularly from a supplier and you are reasonably happy with the prices you pay.  You then spot their latest advertisements and promotions offering the exact same items to new clients – but at a price lower than you pay.  Why is it that loyal clients end up with a worse deal than new clients, who may never become regular buyers?  You can see this in many industries – utilities, telecoms, broadband, insurance etc.  This strategy is very short-sighted and inefficient.

What is the matter with these suppliers?  Why do they think it’s a good idea to alienate their loyal existing clients?  Their strategy might be to grow their market share by offering favourable terms to attract many new clients quickly.  It is quite likely that such promotions do encourage more people to buy but it is at a high cost.  More established clients feel they are not getting the best deal and so they start looking around at other suppliers.

Why do companies, both large and small, do this?

I have no answer.  These suppliers simply create “client churn” and (worst of all) leave their long-term customers/clients with feelings of being ripped-off.  Loyalty isn’t rewarded.  Once their existing clients realise what is happening, they start looking around at the competition to get the best “new client” deal from a new supplier.

This makes absolutely no sense and puts long-term profitability at risk.  Why do these organisations pay no attention to the concept of the lifetime value of their customers / clients?

When you win a new client for your small business, it will have cost you significant amounts of time and money to do so.  What logical or emotional reason is there to drive this new client to look at your competitors?

The only situation where it makes sense to do this is if you are not making a profit from your client and can see no way of turning the situation around.  But even this scenario may disguise the real facts – you should avoid losing clients who will turn out to be profitable over their lifetime of using your product/service.  The concept of a client’s lifetime value is important as it helps you to get everything into perspective.

It is quite common for new clients to be loss-making, especially in the period immediately after they sign up to use your product/service.  Typically this will reflect your higher start-up costs for new clients (covering installations, support, training etc) that will quickly reduce once everything is functioning smoothly.  When this time approaches, the client will begin to generate a profit.

Some clients, however, follow a different profile.  They might be profitable for a period but over time, the cost of supporting them escalates.  As a result, they no longer produce a profit and you cannot identify how to change things to return them to profit.  There is no point keeping a loss-making, established client with little scope for moving it into profitability.

For me, every profitable client must be looked after and retained forever.  You will want them to buy from you over and over, across your full range of products/services.  For these long-term and loyal clients, your cost of sales for any follow on sale will be low.  Reward your loyal clients by sharing some of these cost savings with them.  Don’t get greedy; make it attractive for them to keep buying from you.

There are many ways you can do this, depending on your industry.  Use the Internet to get some ideas by researching what other companies are doing.  Avoid the temptation to simply copy your competitors.  Devise your own strategies so you can build up some additional points of difference over your competitors.

Look into things like Loyalty Points, extra cash discounts, reduced or free delivery and installation.  You might offer interest-free finance or low-interest finance to your longest standing clients.

I can see no logic in failing to offer your best deals to your best clients.  A client with a history of buying from you at profitable levels must be worth keeping in the long term.  Why would you want these clients to start buying from one of your competitors?

Small business owners should do whatever they can to ring-fence their best clients and give these clients absolutely no reason whatsoever to look at a competitor.

ACTION IDEAS

  1. Begin thinking about the lifetime value of your clients.  Find ways to give your longer-term clients your best deals.  Reward loyalty.
  2. Understand which clients are profitable and which are loss-making.  Address the loss-makers at regular intervals.  If they can’t be returned to profit, get rid of them.
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