April 20, 2011

Loyalty: Oh Boy!

Here's two business tidbits for you:
  • Most of the marketing literature tells you to focus on increasing customer loyalty.
  • The easiest way to grow your business is to find new customers.
I shared this image with you, back in February.  I conducted an analysis of annual retention rates across fifty or so businesses ... as you can see, retention rates vary by +/- 10%, over time.

In other words, if you currently retain 40% of last year's buyers, you should not expect to find a marketing strategy that allows you to retain 80% of last year's buyers ... you may find a strategy that increases loyalty to 44%, or you may fail, causing loyalty to drop by 36%.

So much of the marketing literature focuses on loyalty.  Here's the deal, folks.  Loyalty matters much more if you are Wal-Mart, Starbucks, McDonalds, Nordstrom, Target, any place you purchase from at least once a month.  In those situations, getting a customer to go from 12 purchases a year to 13 purchases a year is easy, and it has a huge impact on the profit and loss statement.

Now pretend you are Pottery Barn.  Folks, you don't buy from Pottery Barn once a month, do you?

Here's another key point.  The vast majority of us work for businesses that generate less than a billion dollars of sales a year, right?  Well, in those cases, the best way to grow is to find new customers.  Heck, I can recall being at Nordstrom back in 2005, and one of my analysts produced a slide that showed that we had something like 3-6% market share in womens apparel ... and we sold more than a couple billion dollars of womens apparel a year.  We could still find new customers, and we were an eight billion dollar company.

You don't have 3-6% market share, in all likelihood, do you?  That being the case, go out and find new customers.  It's easier to find a new customer than it is to increase customer loyalty, and if you do find a way to increase customer loyalty, you'll increase loyalty among prior buyers and the new buyer you just acquired ... a multiplicative effect, right?!


  1. OK, that nails the point home. Thanks for re-posting this research Kevin.

  2. awesome post. makes total sense too. I'm glad you backed it up with some facts.


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