A R T I C L E S

WHY ALIENATE YOUR MOST LOYAL CLIENTS?
by Martin Grunstein

I was sitting on a Qantas jet bound for Hawaii with my wife on holiday. I should have been happy but there was something making me angry. I could see at least 30 empty seats in business class!

No, I wasn’t so concerned about Qantas’s profitability that seeing revenue seats unfilled would upset me. I was angry because I tried to use the mountain of frequent flyer points I have accrued through my business travel on one of my few leisure trips only to be told that because the flights around Easter are so heavily booked that there was no way I would be able to use my frequent flyer points on that flight even though I booked well in advance and I am one of the “goldest” frequent flyers Qantas have. I even used all the influence I had by asking one of my clients in the travel industry to speak directly to the Qantas state manager and plead my case - all to no avail. I was told that the flight was too heavily booked to make an exception for anyone. And on the plane, a sea of empty seats and I still have enough frequent flyer points to get a seat on the next space shuttle.

I have heard Qantas’s CEO speak at conferences on a number of occasions and his message has been “there are no rules for our gold frequent flyers. These are the customers we can’t afford to lose”. Yet, in practice, like so many other companies, Qantas alienates the travelers who put most money in their pocket. The quick $5000 they made from me by getting me to pay for my ticket rather than allowing me to use my frequent flyer points could cost them half a million dollars in recommendations to my clients that they fly me (and their people) Ansett rather than Qantas.

Sadly this practice of alienating the most loyal of customers is not restricted to Qantas. It is a commonplace occurrence.

How often do we see retail stores offering huge discounts to attract new customers not realising how irritated the existing customer base must be who have been shopping there for years and not received the same courtesy. It seems as if it is the objective of some businesses to reward disloyalty rather than loyalty educating consumers to be loyal to the discount rather than to the provider of the goods or services.

A classic example of this is in the mobile phone industry.

These days you can get a brand new mobile phone for very few dollars (zero dollars in some cases) if you sign a contract to stay with the provider for a 15 month period. At the end of that period it is actually cheaper in some cases to get a new phone and sign a new contract with a different provider than buy a new battery for the mobile phone you are happy with. How stupid is that???!!!

It’s almost as if companies go out of their way to alienate the clients who have made them successful. And worse than that, when these customers leave them, their response is to seduce more new customers with “cheaper than ever” prices that embarrass the loyal throng who paid full price and some of them take their business elsewhere. If you’re looking for a strategy for bankruptcy, here it is!!!

I often ask businesspeople why they don’t say “thank you” and generally keep in touch with their existing client base, especially the “gold” clients and their response is almost always the same: We would love to but we’re just too busy to do that stuff. When you ask them what they are too busy doing, they say they are doing quotes, putting out fires and generally trying to get new customers.

From my outside perspective, they are so busy doing low payoff activity that they haven’t got the time to do they highest payoff activity of all and that is to keep the existing customers “more than satisfied”.

I believe the reason this is happening comes down to a fundamental flaw in the way management tracks marketplace results. We track all new business and gross sales versus last year but most businesses have no measure of client loyalty and if our sales are up over last year it appears good news even if we have gained ten new clients and lost nine existing clients through neglect. The logic step that has been forgotten and why so many companies since the recession of the nineties have increased their turnover but not increased their profitability, is the fact that there are great marketing costs associated with attracting the new clients and far less is needed to be spent to keep the existing clients happy yet, in most cases, NOTHING is done to foster the loyalty of the existing client base and companies wonder why their profitability is under threat!

I encourage my clients to take a percentage of their marketing and advertising budget and invest that in a post-sale client recognition programme (“CDs with your Lexus” for those that have heard me present) and they will need to spend less and less on marketing and advertising to maintain and increase their profitability.

There are two reasons for this.

Firstly, because you are recognising your existing clients, you won’t be losing key customers who experience the frustration of believing they are not as important as your new customers (like me after my Qantas experience). Therefore, the new business you create through your marketing will lead to incremental profits.

And secondly, the word of mouth of your “oversatisfied” clients will lead to new customers that your marketing would never have been able to reach.
Remember, turnover is not the vital variable. You can’t bank market share, you can only bank profits.

Martin Grunstein’s outstanding results with over 500 Australian companies across 100 industries has made him this country’s most in-demand speaker on Outstanding Customer Service. He is contactable on (02) 96623322 or by email at martin@martingrunstein.com.au.

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