Customer loyalty is like motherhood and apple-pie – a good thing that no-one would criticise.
But can high customer loyalty be a problem?
The thought was provoked by a couple of discussions at the Geneva Motor Show.
I interviewed Paul Philpott, the chief operating officer of Kia Europe, and a man who really does embody his brand – young-ish, eager and on top of the situation.
One question was about the level of Kia’s customer loyalty and he rightly pointed out that it was a concept that had little meaning for his company.
Kia’s European sales have increased from 90,000 10 years ago to 330,000 today, and all the customer loyalty in the world cannot achieve that by itself.
In addition, the sort of person who could afford a family-sized Kia in 2002 probably could not afford it now – the cars are a long way upmarket of where they used to be.
Similarly, John Edwards, global brand director of Land Rover, said that 80% of Evoque buyers are new to Land Rover and 70% are new to the SUV sector.
Meanwhile, another brand said it was pleased that more than 70% of its customers had previously bought one of its products, so it clearly had happy customers. True, but does that mean that the company is only preaching to the choir?
So what is the right level of customer loyalty?
For a long-established range (say, a Volvo V70), it should be high – it is a stable product in a stable segment.
However, for a new entry into a segment, the whole point is to attract new customers, so a fall in the proportion of repeat customers is a good thing.
Similarly, if the manufacturer wants to move upmarket, it is going to have to lose some customers at the bottom end of its range, in the hope of attracting new and more valuable buyers at the top.
The point is that a fall in customer loyalty is neither good nor bad in itself – you have to figure out the reasons for it.
The fact that the sort of person who once bought a Kia Pride or a Kia Mentor is not going to return to buy a new Rio or Cee’d is a profound relief to Kia.
On the other hand, the fact that Alfa Romeo’s customer retention fell to just 22% in 2005 was a crisis – Alfa was hardly driving into new segments at the time.
Just one final thought: if you believe your range is better than the opposition, the very last thing you want is a market place full of brand-loyal customers.
A free market full of “brand promiscuous” buyers favours the most competitive manufacturers. Brand loyalty only favours the complacent.