Market Driven Organization Fall 2010 Loyalty Myths 15. November Loyalty Myths Blind reliance on loyalty as a universal goal will put you out of business. Any loyalty initiative needs to begin with an understanding of the profitability of individual customers. Presentation from: Corinne Vogel Evelin Simmen Sascha Schori

Market Driven Organization Fall 2010 Loyalty Myths 15. November Ten key misunderstandings Myth #1:The number one goal of any firm should be customer loyalty - identify and satisfy customer needs at a profit Myth #2: Firms should emphasize retention efforts rather than acquisition activities - introduction and growth phases: customer acquisition - maturity and decline phases: customer retention Myth #3:Companies should strive to make all of their customers loyal - desired customers, 20%, generate % of total profits - break-even customers, 60-70%, generate 0% - costly-customers, 10-20%, lose % Myth #4:Companies with more loyal customers will always have higher market shares - homogeneous markets - heterogeneous markets 

Market Driven Organization Fall 2010 Loyalty Myths 15. November Myth #5:Companies should seek to change ‘switchers’ into loyal customers - variety seeker: motivated by curiosity - deal seeker: motivated by price - problem: deteriorating customer loyalty across the board Myth #6:Efforts to improve customer-centric measures are properly separated from efforts to improve brand-centric measures - brand-centric: focus on acquiring more customers - customer-centric: focus on retaining customers and their loyalty - combination of both Myth #7:Retaining 5% of a company’s customers will increase profits by 25-85% It’s true if: … 1. company generates small current profit percentages 2. firm has low retention rates 3. retain the right customers Ten key misunderstandings

Market Driven Organization Fall 2010 Loyalty Myths 15. November Myth #8:It costs five times more to acquire a customer than to retain one - misallocation of advertising and promotion costs - depends on lifecycle of products and services - ignores heterogeneous customers Myth #9:Companies should focus on their high share-of-wallet customers - high share-of-wallet customer ≠ profit generating customer Myth #10:In planning for the future, it is best to focus on those customers who have historically contributed the most to company profits - no distinction between frequent and infrequent buyers - ignores life changing factors of customers Ten key misunderstandings

Market Driven Organization Fall 2010 Loyalty Myths -Importance of customer loyalty -Adequate understanding of the potential returns of the different customer segments  Without such information, retention efforts may be oriented towards and offered to high-cost, low-value customers: an invitation to financial disaster. 15. November Conclusion