Week 10: Customer Loyalty, Profitability & Brand Value

Activities this week:

  I have completed the recommended reading – The mismanagement of customer loyalty and Brand Valuation. In addition, I took the quiz and have also started working on the Branding project.

Customer Loyalty and Profitability:

  The article on mismanagement of customer loyalty is indeed eye-opening. We often say that the past behavior is a good predictor of future behavior, but that seems to be the basis of building loyalty strategies. I confess that I was one of those who believed that customer loyalty is synonymous with profitability. In the wireless telecom industry, there are contracts that the customers are asked to sign to discourage them from switching to other wireless providers and to force loyalty in a way. So most of the efforts are focused on retaining customers and I have not heard or paid attention to very many discussions about the profitability of these customers. But after reading this article, I was reminded of an exercise at Sprint that took place in 2007 where Sprint sent out letter to some of its high-maintenance customers cancelling their contracts with Sprint and requesting them to move to other wireless providers within a month. (A link attached with details on the same)

http://news.cnet.com/8301-10784_3-9739869-7.html

  This had caused a lot of hue and cry at that time, especially since Sprint’s customer service was struggling and already had a bad name, as can be seen by the following article.

http://hearusnow.org/posts/146-sprint_to_customers_complaining_will_not_be_tolerated

  But thinking from Sprint’s perspective, especially in the light of the new wisdom gained from this article, it can be clearly seen that this was a very bold move from Sprint to identify the “Strangers” and get rid of them to reduce the impact to the bottom line. Evidently, these customers were unhappy with their service and hence their repeated complaints to customer service. Also, it can be imagined that these very same customers would be bad mouthing Sprint and its customer service every opportunity they got in this regard – So obviously Sprint believed it was better to lose these customers to improve profitability as well as to better serve the other customer categories of “True Friends, Butterflies and Barnacles”. I also assume that they considered the gains from these actions to be greater than the adverse impacts from the additional bad press and complaints about poor customer service that erupted from this incident!

Brand Valuation:

  The brand value seems to be another key metric that determines profitability and even customer loyalty. Needless to say, Apple is one of the most popular brands. The brand value that has been created over the years helps to retain customer loyalty even when glitches happen, like in the case of Apple with the introduction of iPhone 5 and associated problems. I had alluded to the ‘pratfall effect’ in one of my other blogs. Similarly the Disney brand helps to add value to many products. To take a simple example, we can see different brands of fruit snacks at the stores – some with plain packing, whereas some others that show the Disney characters (Mickey, Winnie the Pooh etc) on the packaging. The price is usually more for the packs with the Disney brand on it and I am sure that if we have our kids with us as we shop, they will pick the fruit snacks with the Disney characters on them. This shows a simple example of the value of the brand and the extra premium price that customers are willing to pay for their preferred brands. So it definitely makes business sense in investing in creating brand value and assessing the financial impacts on brand value.