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Do loyal customers really get treated better?

Posted By Kristin Wong On 04/14/2014 @ 6:00 am In Personal Finance | No Comments

Whether it’s through rewards programs or special invites, companies often tout an appreciation for customer loyalty.

Yet, every few months, I find myself challenging my Internet service provider over a “promotional offer” that has expired, which means I’m paying more than new customers.

It’s become a pretty standard call, and with a little negotiating, I can usually get them to bring my bill back down. But recently, this made me wonder: Do loyal customers actually get treated better?

Customer loyalty undoubtedly has great value for companies. But what about consumers?

Do consumers actually benefit from staying with a company or institution for a long time? Is there any added benefit to your loyalty to a company, or will a business exert the same amount of effort on any customer?

I spoke to a few professionals and experts to find out.

Customer Loyalty is a Rare Commodity

David Lee, Certified Financial Planner and founder of Simple Money Concept [3], says customer loyalty does benefit consumers to some degree. “However, in today’s sales-driven world, it’s becoming a rare commodity.”

Lee says that, unless you have more to offer a company, the new customer will almost always be treated better.
“Remember that Ally ice cream commercial [4] where the new kid gets a chocolate ice cream cone? The old kid asked, ‘But I’m new too!’ The banker said, ‘He’s newER than you.’”

Whether or not customers benefit from loyalty depends on two things, according to Amy Fulford, the managing partner of Enlight [5]:

  • Industry dynamics
  • Individual styles of employees and managers

“In industries where it is costly to acquire customers or where margins are extremely thin, there is much more emphasis placed on retaining customers,” Fulford says.

She uses the example of automakers, which sometimes shift their marketing focus from attracting new customers to retaining old ones and rewarding their loyalty.

Cost vs. Benefit of Customer Loyalty

Essentially, customer loyalty is a question of cost-benefit analysis for companies. They have to consider the cost of focusing on customer retention. In his book, Customer Loyalty: Cost vs. Benefits, Richard Malekian writes:

    “…the process of creating and sustaining customer loyalty comes at a price. The economic benefits that we hope to create via customer loyalty must be offset by the dollar cost of that customer loyalty.”

In other words, if there’s not a dollar value on your loyalty with a company, they’re probably not going to be too focused on keeping you around. This seems like practical common sense, but many times, consumers assume their loyalty is valued.

Marketing consultant Steven Mintz points out that, when marketing to old customers, companies also have to consider how new customers will perceive the strategy.

“You want to be careful when favoring one group because that could impact how you service another group or how the other group or segment perceives your company,” Mintz says.

In many consumer markets, customer loyalty is merely a label.

For example, think of all the stores that allow customers to “opt-in” to loyalty programs. There’s nothing truly loyal about this. Recently, I bought a pair of shoes online. In trying to get a discount, I opted in for their email list and became a “friend” of the company. As a one-time customer, I got my 25% discount, and then I unsubscribed.

Some friend.

I have no loyalty to this company, and they know that. In this case, “loyalty” is just a marketing ploy. Programs like this set “a really low bar for loyalty,” Fulford says. But it still benefits consumers while marketing loyalty.

However, Fulford explains that with true loyalty, it may be less about the discount and more about the emotional draw.

“The individual style of employees and managers can provide a satisfying non-financial reward for loyalty,” Fulford says. “Many consumers enjoy being recognized as loyal customers where employees remember their preferences, sizes, tastes, etc. This type of reward for loyalty is more authentic and, oftentimes, results is more ‘stickiness’ that merely discounting price.”

Small Businesses May Value Customers More

It seems that small businesses are usually more focused on the individual customer attention Fulford points out. “Small businesses tend to value you more,” Lee confirms.

Small businesses are working to build a customer base. It makes sense that they would find added value in customer loyalty. But for big businesses customers, all hope is not lost.

“You can get the same from big businesses,” Lee adds. “You just have to make them value you.”

Customer Loyalty Still Matters

Despite the cost-benefit argument, Mintz says there are plenty of examples of both big and small businesses working to earn customer loyalty.

“Some companies will utilize their telephony software to move their best customers up in a phone queue, so the most loyal (and highest value) customers get preference to be served on the phone first, ” according to Mintz.

He also points to Costco as an example of a big company that plays the loyalty game well-they actually make it beneficial for consumers.

“So not only do customers receive credits when they use the [Costco] card, but they may accrue deeper credits/dividends when they use the card at Costco outlets or with Costco partners.”

How to Use Your Customer Loyalty

Finally, I asked Lee how consumers can use their loyalty to get what they want.

“Don’t be shy,” Lee advises. “Escalate your concern. Try to find somebody who is not in sales.”

Sometimes this means referring to a manager or regional representative, even after a sales rep has turned you down.

Lee offers a personal example. After a technical error, Lee’s automatic credit card payment hadn’t gone through, and he incurred two late fees and an interest charge. While the credit card company waived his late fees, they said they couldn’t do anything about the interest. He emailed someone at the company to explain his situation.

The response: “Be advised based on your loyalty to the bank and your account history we have honored your request and have adjusted…the charges.”

Do consumers really benefit from customer loyalty? The cop-out answer is: It depends. It depends on the company and the dynamics of their industry, among other factors.

At the end of the day, though, it seems that smart businesses do whatever they can to both retain old customers and attract new ones — as long as the benefit outweighs the cost.

For the consumer, loyalty might be a good negotiation chip. But it seems that, if loyalty doesn’t have a dollar value, it may not have much benefit to the consumer overall.

What do you think: Has your customer loyalty paid off, or are there more perks in being a new customer?


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[2] Email: mailto:?subject=http://www.bargaineering.com/articles/loyal-customers-treated-better.html

[3] Simple Money Concept: http://www.simplemoneyconcept.com/

[4] Ally ice cream commercial: https://www.youtube.com/watch?v=pIDaEWwjcC8

[5] Enlight: http://www.enlightadvisors.com/amy-fulford.html

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