One of the important questions in the business field is the identification of the priority of the goals managers should pursue when developing a strategy. Such a question is especially important in light of the downturn that followed the financial global crisis. It can be understood that, ideally, companies should focus on all issues at once, but in reality, such a strategy is costly for companies, and there will always be a difference between ideal and realistic priorities. In that regard, it can be stated that determining the main focus of a company’s strategy is a significant issue for managers, which at the same time might present different perspectives. On the one hand, there is the opinion that focusing on customer loyalty and retention is an essential marketing goal for most companies. On the other hand, there is the opinion that customer loyalty is a misconception, or a myth, as stated in Keiningham (2006), focusing on which will not lead to growth, as opposed to brand penetration. In that regard, the present paper will attempt to analyze the aforementioned views and priorities, according to two articles, “You Need More Customers by John Dawes (2009) and “The Loyalty Effect” by Reichheld, Markey, and Hopton (2000).
Targeting Higher Product Sales
The first contrast between the articles is that they analyze similar terms, i.e., customers, products, brands, etc., where each article approaches the topic of the analysis from the same viewpoint, although differently named. Accordingly, both articles emphasize research as an essential requirement of targeting higher sales. In Reichheld et al. (2000), the focus of the article is based on loyalty as the main concept. In Dawes (2009), on the other hand, the main approach is based on the concept of the brand, brand growth, and brand penetration, which accordingly are the main units of measurement. These aspects are similar in practice, where companies that are targeting a higher average weight of purchase (AWOP), i.e., “the number of units of the brand bought by each household” (Dawes, 2009, p. 30), are mainly targeting the loyalty of customers, which is defined as their repurchase and return rates.
Brand Penetration
Being similar in focus, though, does not imply similar findings, for each article emphasizes the exact opposite view. In Dawes (2009), the conclusion states that targeting brand penetration, i.e., increasing the number of households that buy the product at least once a year is better than targeting an increase in the number of units bought by a single customer. The word “better”, in that regard, implies better brand growth. In Reichheld et al. (2000), the article states that “the best 10% of their customers are worth 5 to 10 times as much as their average customers in terms of potential lifetime profits” (Reichheld et al., 2000, p.138).
The position in Dawes (2009) can be seen as more appropriate to explain the current successes in the business. The loyalty of customers can be seen as an abstract target that does not reflect the company’s success. Such a statement is true when compared to targeting brand penetration, i.e., attracting new customers. Loyalty implies certain behaviors that do not necessarily lead to repurchase and vice versa. Repurchase implies experience, which might or might not lead to a new purchase. At the same time, a company might not base its estimation on the number of existing customers or the profits they bring. A demonstration of the previous statement can be seen in the example of the First National Bank in Chicago in early 1990, in which an examination of the profits of the bank’s customer base led to a situation in which “only one-third of the customer base was generating an adequate return” (Keiningham, 2006).
Reichheld et al. (2000) focus on actual purchases, rather than on satisfaction surveys, as a measure of customer loyalty. Nevertheless, they mention referrals as one of the ways through which the growth in the company will occur, i.e., a pattern in which the best customers build repeat sales and referrals, the costs of acquiring new customers shrink, and subsequently the employees’ retention increases, thereby creating a loop that creates better service by the company. It is stated in Keiningham, Taksoy, Cooll, and Andreassen (2008) that referrals-based systems are not good measures of growth. An example of such a system is the net promoter score (NPS) which is based on recommendations and word-of-mouth, which can serve as an estimate of the company’s growth. Reichheld et al. (2000) prefer such an index over satisfaction surveys to measure growth, which certainly contradicts the notion that repurchase is the only indication of loyalty. In that regard, the NPS reflects only the intentions to make recommendations, as was found out by Keiningham et al.: the correlation between company’s growth and several common satisfaction and loyalty metrics, including NPS, were not good predictors of growth in any of the analyzed industries (p. 56).
Service Quality vs. Distribution and Marketing
In Dawes (2009), the practical implications of the findings focus on distribution and marketing, while in Reichheld et al. (2000), the focus is on increasing customer service, increasing customers’ satisfaction, and collecting their feedback. In the present case, it can be stated that neither of the studies’ findings should be ignored. However, the implications of Reichheld et al. can be seen to have more practical benefits than improving distribution and marketing. They found customer satisfaction and brand loyalty to correlate with behavioral loyalty, i.e., loyalty resulting in actual purchases. A two-year longitudinal study by Lee, Lee, and Kang (2010) found that the more satisfied a customer tends to be, the higher is the actual loyalty of the customer, and accordingly, such loyalty leads to actual repurchase behavior. In that regard, it can be stated that both Dawes and Reichheld et al. focus on the need for research, to identify the opportunities that might exist in the market. In one case, the identified opportunities are linked with increasing the number of customers. In the other case, the opportunities are linked with focusing on existing customers. The rationale of separating those approaches, rather than simply stating that both should be utilized, is based on the costs associated with each approach. For example, the case of the National Bank in Chicago proved that focusing on the customer base can be costly.
This paper has provided an analysis of the different priorities set by managers when developing a growth strategy. The paper contrasted two articles, “You Need More Customers” by Dawes (2009) and “The Loyalty Effect” by Reichheld et al. (2000). It can be concluded that the approach proposed by Dawes is related more closely to growth, although its implications might be limited. At the same time, the implications in Reichheld et al. (2000) should be considered, although they are not a priority that will reflect growth. Generally, brand penetration and brand loyalty are both important concepts that should be considered when planning the business strategy of companies.
References
Dawes, J. 2009. You Need More Customers – The Key Is How Many You Have, Not How Much They Buy. Marketing Research, 30–31.
Keiningham, T. L. 2006. Loyalty Myths: Hyped Strategies That Will Put You Out of Business – And Proven Tactics That Work. Hoboken, N.J.: John Wiley & Sons.
Keiningham, T. L., Aksoy, L., Cooll, B., & Andreassen, T. W. (2008). Linking Customer Loyalty to Growth. MITSloan Management Review, 49(4), 51-57. Web.
Lee, H., Lee, J. & Kang, M. S. 2010. Does Satisfaction Make Customers Repurchase Same Brand Again ? Proceedings of the Academy of Marketing Studies 15. Web.
Reichheld, F. F., Markey, R. G. & Hopton, C. 2000. The Loyalty Effect – The Relationship between Loyalty and Profits. European Business Journal, 12, 134–139.