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Quantifying loyalty goals and profits isn't easy but the ROI is phenomenal

If our business goal is to sell as much as possible without paying any attention to profit margin or operational expense, we will soon be out of business. IStock_000020168756XSmallIdentifying our best customers, figuring out how to nurture their business, and training our people to maintain the relationships, those are the strategies that make our business sustainable. Loyalty is a simple idea that is hard to practice. 

Harvard Business Review: Building Loyalty in Business Markets, 2005-Sept by Das Narayandas

The $40 million software firm Unitech Systems ... drew up a list of customers that together accounted for 80% of its annual revenues. After analyzing several years of data, the firm found a three-rung loyalty ladder in its markets: making repurchases, providing word-of-mouth recommendations, and paying premium prices. Unitech asked sales managers for information on the three parameters and used the data to place each customer on the loyalty ladder. The firm then calculated the average revenue from customers on each rung to evaluate that rung’s revenue potential and asked marketers to estimate the costs of moving customers up one or more rungs. The information allowed Unitech to classify its customers into four types, ...and to decide whether it wanted to keep them on the rungs they occupied, move them up, or reduce the time and money it spent and force some customers to move down the ladder.... 

Few companies try to build relationships with individual customers, because that approach differs entirely from current practice and, more important, requires considerable discipline in planning and execution.... State-of-the-art customer relationship management systems focus entirely on companies’ interactions with customers; that is a step toward managing customers, but it is only a small beginning. Companies still have a long way to go before they can say they manage individual customers in business markets. The silver lining is that this approach requires neither big ad budgets nor software programs; all it demands is a return to the basics of marketing.

 

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