The importance of building customer loyalty and focusing on the client

Teresa Serra. Professor. IE Business School

1 November 2013

A loyal customer is a treasure. And not only because of their purchasing power, but rather because of the evangelical effect they can have within their circles or on social networks.

The changes that have taken place over the last few decades mean that customer management and relations are no longer the exclusive domain of sales and marketing departments. Today, they are also under the watchful eye of upper echelons in firms, as they define and manage corporate strategy.

The client is now firmly at the center of business management. Changes have taken place mainly in two areas.  First, customers are exposed to increasingly similar ranges of products and services and are far more demanding and more informed. Moreover, in order to gauge the value of what is on offer, they not only access information supplied by companies or the media, but also information provided by friends, people they know, or other users through social networks, websites or blogs where customers share their experiences of brands and talk about them. It is apparent that customers trust these sources of information more than traditional channels.

Second, technology has brought the consumer easy and immediate access to platforms where they can obtain or share information via computer and smartphones. For companies, technological development has brought operational efficiency, increased productivity, and above all the possibility to monitor, classify and measure clients’ behavior, and to get to know everything about them in so much detail that it is now possible to provide them with segmented and personalized attention. Marketing consists in contributing relevant and differential value to a client group, but also, if you want to improve bottom line results, you need to secure value in terms of sales, profits or market share.

A customer-centric strategy is one that aligns the development and delivery of a company’s products or services with the current and future needs of a specific client segment. It is about identifying, getting to know, and focusing efforts on clients that bring the company greater value in such a way that you succeed in to keeping them using the firm’s products or services on a long-term basis.

A client-centric business is one that understands the cost and value of clients, and employs the resources needed to spend more time on relations with them, and to optimize the relation in order to generate a greater number of purchases, on a more frequent basis, at higher prices, cross-selling, etc., and make the clients passionate about the product, to the point of brand evangelism.

Building customer loyalty plays a key role in this process, given that capturing a new client costs at least five times more than keeping a current customer. Furthermore, for all the reasons stated above, a loyal customer brings significant intangible value for the company in that they become an advocate for the brand. As the attached graph shows, companies that concentrate their efforts on building customer loyalty have also seen an increase in market value in recent years.

Hence it is necessary for the whole organization, beginning with  top management, to understand the importance of becoming client oriented, which will no doubt bring significant changes to corporate culture in the form of coordination among departments, processes, metrics and investment in technology and human resources in order to not just capture clients, but keep them. These are just some of the issues that will be the subject of deep research by the Travel Club Chair in Customer Loyalty, created recently at IE Business School.

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