Business model - Loyalty

Moving further from the blog on Industrialization of Service, we look at the next one in the series of Business Models - the business models built on loyalty

If there is one thing that every business wants to have it is customer loyalty. Every business knows that it is easier to keep an existing customer than acquiring a new one - this is just part of the story. When you extend the loyalty expected from your customer inwards, i.e. to your employees and further backwards to supplier, bankers or even further from the organization to the distributors, shareholders etc we create a network of loyalty which leads to a virtuous cycle.

So the virtuous cycle also called "cycle of success" an ability to invest in your employees through better training leads to enhanced employee satisfaction and increases competency which intern leads to superior service enhancing the customer satisfaction. A satisfied customer is more loyal and gives a higher return through some of the benefits listed below. This higher revenue from loyal leads to higher margins for the companies which could further is invested in training employees and the cycle progresses.

Some of the benefits of this model are:

• The cost of acquisition occurs only at the beginning of a relationship: the longer the relationship, the lower the amortized cost.
• Account maintenance costs decline as a percentage of total costs (or as a percentage of revenue).
• Long term customers tend to be less inclined to switch and also tend to be less price sensitive. This can result in stable unit sales volume and increases in dollar-sales volume.
• Long term customers may initiate free word of mouth promotions and referrals.
• Long term customers are more likely to purchase ancillary products and high-margin supplemental products.
• Long term customers tend to be satisfied with their relationship with the company and are less likely to switch to competitors, making market entry or competitors' market share gains difficult.
• Regular customers tend to be less expensive to service because they are familiar with the processes involved, require less "education," and are consistent in their order placement.
• Increased customer retention and loyalty makes the employees' jobs easier and more satisfying. In turn, happy employees feed back into higher customer satisfaction in a virtuous circle.
• The loyal customers could be involved with greater confidence in your product development, with a better solution to the problem

Loyalty programs that we see in many shops and services today are just part of the business model.

Read in Kannada: http://somanagement.blogspot.com/2011/04/blog-post_13.html