1. Market Driven Organization Fall 2010 Loyalty Myths 15. November 20101 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

2. Market Driven Organization Fall 2010 Loyalty Myths 15. November 20102 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 150-300% of total profits - break-even customers, 60-70%, generate 0% - costly-customers, 10-20%, lose 50-200% Myth #4:Companies with more loyal customers will always have higher market shares - homogeneous markets - heterogeneous markets 

3. Market Driven Organization Fall 2010 Loyalty Myths 15. November 20103 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

4. Market Driven Organization Fall 2010 Loyalty Myths 15. November 20104 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

5. 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 20105 Conclusion