How should marketers measure loyalty?
The gloves are off
President, MarQuant Analytics?, more than 15 years ?in marketing?
In today's market, no single metric reliably predicts customer loyalty for every company. The recency, frequency and monetary measurements used by many companies for decades don't reveal the entire picture.?
Customer satisfaction scores, tracked over time, can reflect how customers' views of the company changes. Net promoter scores indicate the likelihood of a customer promoting the company/products to others, thereby identifying a degree of loyalty.?
However, a loyal customer may not be a profitable customer and may, in fact, be unprofitable. Customer lifetime value (CLV), which is the net present value of today's customer's current and future contributions to profit, is a better managerial and long-term measure for customer loyalty. The calculation includes profitability, so customers can be ranked by the amount of money they contribute to a company's bottom line. ?
Customers may be unprofitable because they cost too much to acquire or too much to keep loyal. An increasing number of public companies mention CLV in their SEC filings, as it becomes popular and important for measuring a company's success.?
Although CLV measures profitability, the missing variable is the share of wallet. Is the customer loyal enough to spend all its allocated money with the company? ?
The best metric may be a combination of qualities which can be weighted according to efforts required to gather accurate data at a customer level, analyze and create results.
CEO, Cerado Inc., more than 15 years in the marketing industry?
The assumption that for a customer to be valuable he or she needs to visit a vendor's Web site and stay there, or at least come back to the vendor time and time again to purchase is no longer the case — if it ever was.?
The undeniable trends toward mobile devices, highly networked customers, and distributed content make recency, frequency, monetary value an anachronism. The best customers don't go to Web sites of their favorite vendors; they bring the vendors to them.?
Customers who want an ongoing relationship rather than a transaction install brands' applications on their iPhones or put the brand's widgets on their iGoogle start page. They want the latest information about the brand in the places they frequent most. ?
Also, don't look at an individual customer in isolation, like an insect under glass. A highly networked customer — the archetypical connector from Malcolm Gladwell's book The Tipping Point — has the ability to inform or influence hundreds or thousands of other customers. These customers are highly influential, even if they are not recent or frequent visitors to the brand's Web site, or if they don't make frequent purchases. A customer who has a well-worn set of shoes, a favorite sweatshirt, or a laptop that just keeps on keeping on and tells others about the great experience is an incredible asset to the vendor.?
Today's — and, more importantly, tomorrow's — customers engage in ways that aren't represented in traditional measures. ?
Does the value of a customer come from who they know or what they spend? Carfi's argument justifies social media investments — but is hard to swallow if you don't factor in your company's bottom line. Lewis's more traditional stance cuts to the chase: Your customer's worth boils down to how much of their wallet they share.?