TITLE

Loyalty: A Prescription for Cutting Costs

AUTHOR(S)
Reichheld, Fred; Detrick, Christine
PUB. DATE
September 2003
SOURCE
Marketing Management;Sep/Oct2003, Vol. 12 Issue 5, p24
SOURCE TYPE
Periodical
DOC. TYPE
Article
ABSTRACT
This article examines how retaining current customers can help save money. Across a wide range of businesses, customers generate increasing profits each year they stay with a company. In financial services, for example, a 5% increase in customer retention produces more than a 25% increase in profit. Take the case of Vanguard, a mutual fund industry cost leader. Its expense ratio--total costs as a proportion of assets under management--is just 0.26%, compared with an industry average of 1.4%. Loyalty leaders also reduce costs by building trusting relationships with employees and associates. Loyal associates nurture relationships with valuable clients. The companies that best understand cost savings through loyalty take these very deliberate steps. Modify customer-acquisition incentives. Reward sales teams and marketing channels for acquiring customers that stick around. Reallocate marketing investments. Shift resources toward programs that attract the richest mix of loyal customers. Identify ways to help under-performers. Test a 360-degree feedback system, starting with senior managers and rolling out to all employees. Use the Internet. Make sure your Web site is so simple to use that many customers will prefer this faster and cheaper alternative.
ACCESSION #
10986546

 

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