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Are you Measuring Customer Loyalty?

April 4, 2012

group cheeringCustomer loyalty is an essential piece of a successful business. If you read my last blog post, The Loyalty Effect, you understand that there is a strong correlation in keeping and holding clients through your positive branding experience. You will also see that many agents and brokers have no clear way to measure their customer’s intimacy with their brand.

The fact that only one in ten insurance agencies have a process in place to benchmark customer intimacy, appreciation and loyalty indicates that most do not fully appreciate or recognize the lifetime value of a customer.

It is short sighted to view the value of the relationship in terms of the revenue derived from the initial engagement. Rather, the following must be considered:

  • Repeat purchases over the lifetime of the relationship
  • Cross purchasing of additional products and services
  • Price premium due to the appreciation for the experience
  • Positive word of mouth in terms of referrals
  • Appreciation and enjoyment when interacting with staff

Many growth oriented organizations use acquisitions, aggressive pricing strategies, marketing campaigns and sales blitzes to improve performance. While these strategies give the organization a short term boost, they are not long term solutions. Customer engagement and loyalty is the most solid plan. Real growth occurs because there is a “love affair” between an agency and its customers. And, the customer can’t wait to sing the agency’s praises to friends and colleagues.

Let me use an example. ABC Company becomes a new client with revenues of $10,000 for its initial engagement with your Agency. Because of your outstanding customer management relationship system (i.e., loyalty effect), ABC quickly becomes a “raving fan”. ABC is an advocate because all expectations have been met or exceeded. The Lifetime Value Profitability Chart is shown below:Lifetime Value Chart

Over the course of the relationship with ABC, the following occurs:

  • ABC continues its engagement on its initial purchase yet becomes less price sensitive.
  • Because all expectations have been met or exceeded, ABC is pleased to expand its relationship through cross sell initiatives.
  • ABC becomes an advocate and a key referral source.
  • The relationship is of such value that ABC is willing to pay a premium for the experience.

In the case of ABC, the net present value of its relationship is $350,000 over the 7 year term.  For a $10,000 initial deposit, what a return!

So how do you measure this?

The Ultimate Question!

The following question is used by many of the most admired companies in the world through a metric that produces the Net Promoter® Score (NPS).

“How likely is it that you would recommend Company X to a friend or colleague?”

NPS

The Net Promoter® Score divides a company’s customers into three categories:

Promoter

Loyal   enthusiasts who keep buying from a company and urge their friends to do the   same
 
Passive

Satisfied   but unenthusiastic customers who can be easily wooed by the competition
 
Detractor

Unhappy   customers trapped in a bad relationship

The formula for the Net Promoter® Score is the percentage of customers who are Promoters (P) subtracted from the percentage who are Detractors (D).  P-D = NPS.

How do legendary companies like Amazon.com, eBay, Costco and Vanguard stack up?  They operate at an NPS between 50 and 80 percent.  But the average firm sputters along at an NPS of only 5 to 10 percent.  Many firms – and some entire industries – have negative Net Promoter® Scores.  To learn more about NPS, go to www.netpromoter.com.

Your ability to implement a customer relationship management system will have significant impact to your bottom line.  The loyalty effect is proven to be the most impactful strategy to achieve growth and profitability.  Customer loyalty.  Can you define, measure or manage it?  You bet!

What other ways are you measuring loyalty?  Have you used NPS and if so how were your results?

For more ideas on how to break the commodity trap connect with Beyond Insurance on:

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Scott AddisThe author, Scott Addis is the President and CEO of The Addis Group and Addis Intellectual Capital, LLC (AIC). AIC is a coaching and consulting company whose purpose is to transform the process that insurance agents, brokers and carriers use when working with clients. Scott is recognized as an industry leader having been awarded the Inc. Magazine’s “Entrepreneur of the Year” Award as well as “25 Most Innovative Agents in America”. Scott can be reached at saddis@beyondinsurance.com or 610-945-1019.

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