Loyalty as a Sales Growth Tool

Why is growth necessary for business survival.?

 It is one of the great business truths that it is very difficult, probably impossible, to maintain a business revenues and costs at a constant level. There is always erosion of revenues that is rarely mirrored by a reduction in costs. So standing still is not an option unless oblivion is part of the plan.

The erosion of revenues is caused by a variety of reasons, one of them being the loss of customers or low customer loyalty. I recently came across again a piece of old research about why customers defect from an organisation which, whether absolutely correct or not, brings into focus the hard edged commercial value of loyalty.

- 1%   Die
- 4%   Move Away
- 5%   Friendship Links
- 10%   Competitor Activities
- 12% Product  Dissatisfaction
- 68% Indifferent Service Performance

These can be subdivided generally into two groups .

Uncontrollable Customer Loss and Controllable Customer Loss.

The first 4 factors (20% ) are more or less uncontrollable. Those that die definitely will not buy much in the future and the others are difficult to manage on a strategic basis. This indicates that an organisation with a customer churn of 20% is likely to have to replace 4% of its revenue simply to maintain the status quo. However. if it does not pay attention to the Controllable Factors (80%) then another 16% of its revenue is at risk and at that rate it is not difficult to see how rapidly oblivion could arrive. Yet it is very rare to find an organisation whose sales or growth plan includes an element that addresses the controllable loss issue. The sales focus usually is very heavily on new business, new sales to new customers. Whereas repeat/additional sales to existing customers (loyalty) figures less prominently.  So if the major strategic growth plan abandons the controllable 16%  of revenue that is at risk by not addressing its root cause, poor product and service performance, and sets sales off to replace the whole 20% necessary to get the revenue level required to stand still is this the most sensible approach? 

If the controllable losses could be entirely eliminated the same sales effort and energy would produce 16% revenue growth, or alternatively the sales costs required to maintain the status quo could be reduced. There is of course a cost to resolving the controllable loss issue but that is usually more of an investment in improved product, premises, process and people performance which when done remains a permanent on-going performance improvement and competitive benefit to the organisation likely to yield protection from controllable losses in the future

Depending on the sector in question It is possible to produce simple or very complicated mathematical models to justify an investment  in loyalty as a sensible business strategy to substantially reduce the sales effort required to achieve a given growth objective.

Many markets are still in uncertain economic times so would it be better to resolve the loss of revenue caused by poor service performance and thereby enable the organisation to focus its sales effort on getting the number and kind of customers it needs to achieve it growth objectives  rather than having to chase the need to get as many customers as it can simply to replace lost revenue?

Many organisations manage sales and loyalty within different functions which  raises the question that if growth optimisation is dependent on maximising the combined effect of loyalty and sales are organisations structured in a way that gives them the best opportunity to grow revenue?

Philip Forrest