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Who’s in your tent? You’d better find out.

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The Customer Loyalty Effect can be brilliant – or devastating.

 

So you’ve got all these customers milling around in your tent. Do you really know who they are? Here’s a tip. They’re either Fans, Fence-sitters or Critics:

1. Fans are your most loyal and enthusiastic customers. They love you.

2. Fence-sitters have no particular loyalty to you one way or the other.

3. Critics aren’t just disloyal, they cost you money. They’re dissatisfied, demanding, and costly to service. And they’re very capable of spreading negative word of mouth about you.

Customer Loyalty Effect

If your mix of customers is just slightly off, you’ll notice that your marketing and sales efforts aren’t producing the results you expect because:

More Fans = faster growth
More Critics = slower growth

This may seem obvious, but what’s not so obvious is the contribution each customer type makes to your revenues. Studies have shown that “totally satisfied customers” (Fans) contribute 2.6 times the revenue of “somewhat satisfied customers” (Fence-sitters), and 14 times more revenue than “somewhat dissatisfied customers” (Critics).

At the same time, “totally dissatisfied customers” (yet more Critics) were actually found to decrease profitability at twice the rate that Fans contribute revenue, because those Critics typically have much higher service costs, produce lower revenue, and can damage market growth through negative referrals.

 


Fans will grow your business

• 2.6 times the revenue of “somewhat satisfied customers”.
• 14 times the revenue of “somewhat dissatisfied customers”.

Critics can mortally wound your business

• Critics decrease profitability at twice the rate that Fans contribute revenue.
• Too many Critics and not enough Fans spells disaster. Something’s wrong in the tent.


 

The key takeaway is that you can have twice as many Fans as Critics and still be losing ground! That’s why you need to know who’s in your tent, and fast. And yet, most don’t.

When Bain & Company surveyed 362 American companies a few years ago, a whopping 80 percent of those who responded declared their companies were delivering a “superior experience” to their customers. But when Bain asked the customers themselves, only 8 percent agreed. That’s a huge, frighteningly  72 point gap!

Customer Loyalty Effect

To make matters worse, the average U.S. business loses between 10-30% of its customers every year. In contrast, the most profitable companies lose less than 10 percent of their customers every five years. This strongly suggests that the most profitable companies have a better customer mix (more Fans, less Critics) than average companies. If you want to grow, you can’t do it without making sure that your customer mix is working for you.

So what has this got to do with your marketing? Everything! If you don’t have enough Fans in your tent, there may be an issue with your business. No matter how great your need to boost short-term sales, running a marketing campaign with too few Fans in your fold isn’t likely be the best use of your time, people, and money. In fact, if your product or service is broken in some way, exposing more people to your “broken-ness” sure won’t help. It’s almost always better to address the problem first.

On the other hand, if you discover you have a tent-full of Fans, congratulations! You’ll want to step on the marketing gas pedal and get the good word out. But guessing who’s in your tent won’t cut it. You have to go in there, talk to your customers, and find out first-hand who loves you – and who doesn’t.

 

About Drew Williams

My name is Drew Williams. I’m an author and marketing entrepreneur. “A what?”, you say. I call someone who’s passionate about building businesses a marketing entrepreneur. So that’s me. Full Profile | Google+

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