Managing Customer Loyalty

Loyal customers need to be identified and managed in an effective manner. The loyal customer represents the most profitable type of consumer, as retention costs are far lower than acquisition costs. Furthermore, the loyal consumer is highly dedicated and will spend significant amounts of money.

Below is the segmentation of customers according to profitability and general behavior.

Different Types of Customers:

1.     Top Performers: the most valuable consumers of any business; they also account for most of the company’s income
a.    Advocates:  they will buy everything
b.    Loyalists: highly dedicated

2.    High Potentials: highly profitable, but unfaithful customers
a.    Big Spenders: they also purchase from competitors
b.    Underachievers: frequent, small-time buyers

3.    New Opportunities: first-time or returning customers who are not yet loyal nor profitable
a.    Win-back: High Potentials who have switched to a competitor
b.    New Potentials: fit the target market and are sensitive to the customer experience

4.    Non-Profits: unprofitable and not loyal
a.    Misfits: fantastic customers for another business
b.    Spinners: one-time buyers

The division of customers into different categories allows the business owner to see that not all consumers are created equal. For example, the top performers of any business must immediately be identified and treated accordingly. The same goes for non-profits. A small business cannot afford to waste time and resources on an oddity when the same resources could be spent on trying to convert a high potential into a top performer.

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