Why Loyalty Matters: The Loyalty Payoff Table

In every organization, individuals make decisions – sometimes daily – that impact customers and their behaviors.  Decisions about prices, resource spend, training/coaching, processes, focus, initiatives, and more.

How is customer behavior affected by these decisions?  Or – to make it broader – how do the decisions affect the long-term value of the organization?

Loyalty measurement and analysis helps our clients tap into information to enable them to make better decisions to impact customer behavior and the value of the organization.

Loyalty – as we describe it – is an attitudinal measure akin to a preference.  It gauges the relationship you have with your customers.  When your customer base is segmented based on customer relationship strength – Loyal, Neutral, or Vulnerable – you have the beginnings of a much deeper understanding of the customer and their behavior.

Unlike other measures, a Loyalty metric should demonstrate differences in key behaviors between strong (Loyal) and weak (Vulnerable) customers.  It also gives you a strong indication prior to a change in behavior, allowing you to proactively address any issues causing vulnerability or defection.

In our work, we illustrate the impact of Loyalty segments and their behaviors on a company’s bottom line with our proprietary Loyalty Payoff Table (LPT).  Take a look at the sample LPT below:

In this example, the Loyal segment represents the smallest number of customers but the most value by far.  Average spend is significantly higher than the other two segments, margins are high, and average Customer Lifetime Value is astronomically higher.

Investments to change these numbers can be great or small, and in our Relationship Management programs we help our clients define the areas with the greatest impact.  The LPT helps to demonstrate the potential return from these changes.

So why does Loyalty matter?  It is a measure of the relationship that you have with your customers, offering valuable insight into the differences in relationship strength as well as key behaviors.  As decisions are made that affect customer behaviors, use a strong Loyalty metric and a tool like the LPT to make sure your decisions positively impact your bottom line.

Posted in Blog, Insights, LRC Blog.