25 years ago, I had the privilege of supporting Bain’s Fred Reichheld in researching one of his first books on loyalty. Fred would soon go on to invent the Net Promoter Score, but at this point he was still calculating the economics of customer loyalty. The math was quite compelling.
Loyal customers are often less costly to serve and buy higher-priced offerings. They are certainly less costly to acquire for a given purchase. They refer other customers. And employees prefer to serve them, too. Loyalty Rules, as the title of that book stated.
What does this have to do with innovation? It tells you where innovation can be most fruitful.
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In a paper that we wrote with Deloitte a few years back, we explored 10 Types of Innovation that companies can pursue. Just 1 of these 10 is solely about the product (and, by the way, that type is often unprofitable). Other types include the sales channel, service, and the customer experience.
It’s often through these other types of innovation that loyalty is won. Ordinary products can underlie an extraordinary business if you excel via different avenues.
When I think about business loyalty, I often consider the commercial printer that our firm uses, Choice Graphics. When we have a print job, we always go to Choice, without seeking other bids. Perhaps we could save a few dollars if we really search, but they’ve won us through their proactive advice, expertise, and super-speedy service in a pinch.
When it comes to printing, I don’t know what I don’t know – but Choice does. Our preference for them has absolutely nothing to do with the type of printing presses they run in the back of the building. Their innovations are in their service and business processes, not in their product – despite the end output being quite rooted in that product.
Have you calculated the profitability of your loyal vs. one-off customers? Do you know what drives their loyalty? Do you know the ROI on investments that build their loyalty?
Contributed to Branding Strategy Insider by Stephen Wunker, Managing Director of New Markets Advisors and Author of The Innovative Leader.
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