Marketing Profs

What every business needs is a litmus test to prove how loyal their customers really are.

At a recent professional hockey game an intriguing question was flashed up on the scoreboard overhead: “What percentage of our fans told us in a survey they would accept $100 to wear the opposing team's sweater to a game?”

The answer: 38%. Naturally, that disclosure was loudly booed by the home town crowd, believing those fans to be treasonous.

Every business should have an equivalent litmus test that separates the truly loyal customers from those who are neutral or disaffected. Without knowing the proportion of customers who are steadfastly committed, ambivalent or susceptible to switching, marketing spending decisions can get made for the wrong reasons.

Take the example of one long-established brand nearing the end of its lifecycle. Despite the fact that its market share was in sharp decline, no one knew exactly why customers were leaving or where they were going.

Although it was suspected that 40% had switched to competitive products, the brand still elected to divert a major portion of the marketing budget into consumer advertising when a smarter move might have been to spend that money on retaining current users (or upgrading them to another product).

The stubborn allegiance of brand marketers to mass messaging is what keeps CRM on the periphery of strategic thinking. Even if they understand what CRM means, it remains an exotic consideration, low down on the list of spending options.

One of the reasons for this budget myopia is a singular focus on market share: it seems no other metric comes close in importance. Not churn rate, not average revenue per customer, not even share of requirements.

That's because most marketers are trained to battle for the attention of the consumer, not retain the loyalty of customers. While they acknowledge the importance of loyalty, they are often uncertain how to define it--so it remains an ethereal metric.

Often solely bonused on unit sales, brand managers automatically embrace awareness building strategies, shoveling dollars into advertising in the hope that it will pay off through a spike in market share. And yet according to the Mercer Marketplace 2002 Survey, brand image and equity are rated lowest as a source of competitive advantage. The highest rated strategy: effective management of customer relationships. Echoing that finding is a recent PwC “Trendsetter Barometer” survey of the fastest growing businesses in the U.S., which concluded that those companies focused on winning customer loyalty were more likely to have achieved higher growth rates.