- costly to serve
- price conscious in some sense
- not always profitable
The moral of the story was firms need to decide when to stop chasing a customer. And the evidence Prof. VK put forth were satisfying both quantitatively and analytically. The more I think about these indicators (which included frequency of buying, returns, focused buying etc), I feel that loyalty is not really a concept to worry about because there are no "loyal" customers in the world. There is only waves of propensity which firms could ride along and make money. When one dies, another one comes up. A smart marketer should only look for the right wave. On an average, the loss of customers gets compensated by new ones.
But one thought still lingers in my mind and it might even be recursive in some sense. Once we stop chasing a customer does that mean he is never going to be a loyal one in the future? I remember an example Prof. Bell used in class about Starbucks. There are 2 people who come n drink Starbucks coffee every day - one spends lot more than the other. But the costs of serving these 2 people are the same. The question Prof. Bell posed was 'should we let go of the second customer who pays less and costs more?'. Almost everyone in the class yelled yes except one student who said he would wait to see if the second customer pays more in the future and would not lose him just because he spends low today. And that indeed was the right answer in that situation.
Coming back Prof. VK's conclusion, in an ideal world where you acquire customers just by way of innovating in products and services, losing a not-so-profitable customer is not a big deal. But we live in a world of marketers and it costs a fortune to acquire n retain customers. Shouldn't we also be asking the question of "when to start chasing a customer?". The window of opportunity is not between time zero and when a firm stops chasing. It is between the times when the chasing starts and stops. It would be interesting to look at data that captures both these frames. And it might even be true that customer loyalty is cyclical - there are only waves of loyal customers...
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COMMENT FROM PROF.VK:
ReplyDeleteIt is an interesting idea to explore further: Whether loyalty is TEMPORAL and SPATIAL always?
And should the question be "when to start chasing the customer?"
In terms of the starbucks customers, the answer should be "what is the CLV of the 2 customers?". The current profitable customer may not stay profitable in the future while the other customer may be increasing in value.
What do you think?
V Kumar, Ph.D.
Richard and Susan Lenny Distinguished Chair Professor of Marketing, and
Executive Director, Center for Excellence in Brand & Customer Management
J. Mack Robinson College of Business
Georgia State University
35 Broad Street, Suite 400
Atlanta, GA 30303
Ph: 404.413.7590
Fax: 404.413 7585
Email: dr_vk@hotmail.com
www.drvkumar.com
Nicely written pavi. But there are few more points which you need to put down before you discuss this. For example, take an example of the chip companies, in this case the customers are the end-product-manufacturers. In this case loyalty is the bread and butter. Of course new customers are welcome, but the old ones are the ones who hang in and help the business run. The moment the old guys go off, its either the Customer is doomed or the company is doomed. If ur post is specific to the retail mktg, then it makes sense :D
ReplyDeleteYes Am.. we are talking about retail marketing in a non-contractual setting. In these cases, the very notion of retaining profitable customers forms the basis of the profitability of your business.
ReplyDelete