What Makes Loyal Customers More profitable? More Profitable Customers over Time Tend to spend more as relationship develops 日 Profit from price customers balances may grow premium may consolidate purchases to one supplier a Profit from references · Cost less to serve less need for information and assistance 口 Profit from reduced make fewer mistakes a Profit from increased Recommend new customers to firm act as unpaid sales people 口 Base Profit Trust leads to willingness to pay regular prices vs shopping for discounts Customer Profits Increase over Time Building Loyalty 350 artnershi 150一 Proactive Accountable Year 3 a Credit card Industrial laundry D Industrial distribution [Auto servicing Basic from Reichheld and sasser21 What Makes Loyal Customers More Profitable? • Tend to spend more as relationship develops – customer’s balances may grow – may consolidate purchases to one supplier • Cost less to serve – less need for information and assistance – make fewer mistakes • Recommend new customers to firm – act as unpaid sales people • Trust leads to willingness to pay regular prices vs. shopping for discounts 22 More Profitable Customers over Time 1234567 Year Profit from price premium Profit from references Profit from reduced op. costs Profit from increased usage Base Profit Source: Reichheld and Sasser 23 Customer Profits Increase over Time Credit card Industrial laundry Industrial distribution Auto servicing 0 (Year 1=100) 50 250 300 350 – 100 150 200 Year 1 Year 2 Year 3 Year 4 Year 5 Based on data from Reichheld and Sasser 24 Building Loyalty Partnership Proactive Accountable Reactive Basic