The value of loyalty

When will we learn the value of loyalty?

In today’s commercial world customer loyalty and referral are a critical element of every successful business.

A recent study conducted by FiveStars (covering 14 million store visits from more than 1 million customers, as well as the results of loyalty programs from over 2,000 businesses ) found that loyal customers (those who visited stores at least 10 times) account for about 20% of a company’s customers. The study results have been compiled in an interesting infographic here.

This may sound a small proportion, but critically that 20% drives 80% of total revenue and 72% of total visits to a business.

Loyalty

Interestingly additional findings showed

  • Loyal customers can account for up to 84% of total visits
  • Loyal customers spend 10 times more than new ones!
  • Loyalty program members are 70% more likely to spread the word
  • Up-selling to Loyal customer shows there is a 60-70% likelihood of purchase
  • The chance of getting a sale from a new customer is only 5-20%

Great companies use loyalty to drive sales both immediately in terms of average transaction value but also in repeat business generated. It is the word value that I feel is important here.

We have all experienced the last 4 years of recession and there won’t be many of us that haven’t in some way or other been affected by this. Don’t we all now expect a good deal and shop around on line to compare options, shop in the sales and ensure that we have the best value?

Businesses constantly talk about adding value to their customer base with tangible and intangible benefits, and scarcely a dinner party, casual drink at the pub or even a Facebook entry takes place without a story or anecdote about a bargain which has been had. Twitter quickly spreads the word and newspapers and magazines often have headline offers and deals as key marketing tools.

So, on a recent holiday abroad with my family (admittedly to a very nice Hotel resort) where lunch or dinner was not factored into our pre-payment price, I was shocked and somewhat disappointed to see that the Hotel clearly had decided to use the fact that the Hotel was a short taxi ride from civilisation and blatantly overcharge the guest.

A simple children sandwich was £14, an apple or banana £3 – no wonder families were making rolls and taking pastries and fruit from Breakfast – something which has always horrified me in the past. As a result, we ate out for dinner in the local town – it was cheaper to take a taxi, enjoy an amazing meal and better bottle of wine – In previous years we would definitely have eaten in the Hotel just for the convenience, and I am sorry to have to admit to joining all the other families and making my children sandwiches for lunch from the Breakfast buffet – as I pointed out to my mortified husband (a hotelier) that I would rather use the significant money we saved by doing this going towards another holiday !

Having a Hotel and Hospitality background and constantly working in that environment I do of course understand the terms

‘Captured market’
‘Distress purchase’
‘Paying for convenience’
‘Pay more for the experience’

And of course we all acknowledge that if we buy something at a Train station, or in a cool cafe, we may well pay slightly more, but £3 for fruit? I’m still reeling from it over 2 months later.

The problem is that this is a self fulfilling prophecy, and if we look back at the evolution of Hotels over the last 20 years we can all remember running up horrific telephone bills on overnight stays – because Hotels could get away with it, but of course once mobile phones were introduced (equally expensive of course) we made a stand and would no longer use Hotel phones – which of course means today that Hotels make minimal money on phone charges. If only we had a sensible and long term approach at the time.

The Hotel restaurant business is under pressure with savvy companies and individuals no longer willing to pay for overpriced food and beverages and well aware that there is always a branded or local restaurant / pub near enough to provide a viable alternative.

Hotels focus on driving average spend from their guests, ensuring the reception team ‘sell’ the restaurant, offer meal deals and other enticements, but wouldn’t it be better to focus on cash margins and encourage repeat business or simply offer great food at realistic prices ?

That way everyone wins.

PhilippaPhilippa has worked in the hospitality and travel industry for 20 years, specialising in brand and concept design, operations and implementation. During that time she has worked for high profile brands including NEXT, House of Fraser, Debenhams, Safeway and the Virgin group. Most recently Philippa was New Product Development Director at Virgin Trains, responsible for scoping the customer experience strategy and ensuring its delivery to support the Virgin Brand umbrella. A creative, customer centric and results driven consultant with a passion for delivering real value at all levels of a business.

For more information about EP Evolution please contact Chris Sheppardson,chris.sheppardson@epmagazine.co.uk.

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