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Study quantifies bottom-line value of loyalty

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The link between loyal customers and an IT vendor's balance sheet is quantified in a new report by research company Walker Information. The study, published last month, found that nine IT brands deemed "loyalty leaders" had an average 12% profit margin over a three-year period. Companies identified as "loyalty laggards" recorded an average of -11% profit margin during the same period.

"When companies demonstrate or take action to be more customer-focused, there's a definite financial link to success and profitability," said Michael DeSanto, VP-marketing communications at Indianapolis-based Walker. "By creating value for your customers, you are running a business that ultimately creates value for your shareholders."

"Loyalty leaders" in the report were Cisco Systems, Dell Computer, EMC, Hewlett-Packard Co., IBM Corp., Microsoft Corp., Network Appliance, Oracle and SAP.

But the study also found that fewer than half of all customers described themselves as truly loyal, suggesting ample room for improvement in customer relations. According to the report, 44% of customers are truly loyal to vendors, defined as customers who both plan and want to maintain their vendor relationship. This was a decrease from 47% who described themselves as truly loyal customers when Walker conducted an earlier IT vendor loyalty study in 2002.

Other findings from the study: Close to a third of customers (30%) feel "trapped," which Walker defined as "likely to continue to do business with the company but not pleased with the relationship"; about a quarter (23%) are "high risk," meaning they are unhappy and have little intention of continuing their relationship with the vendor.

Room for improvement

"The opportunity exists for companies to improve their customer relationships," DeSanto said. "If companies begin to put more focus and resources on improving product quality, building their brands and providing top quality service, then they can begin to chip away at the leaders and improve their relationship with customers" and expand their customer base, he said.

"When you're a loyalty leader, customers are more willing to purchase more, more willing to recommend you and less eager to look hard at competitors," he said.

The sector with the fewest customers who said they felt trapped was IT services; the sector with the most truly loyal customers and fewest high risk customers was computer software.

The study also revealed that satisfaction does not necessarily equal loyalty. Eighty-four percent of those surveyed this year claimed to be satisfied with their companies, but the number of customers truly loyal to their IT suppliers dropped to 44%, down three percentage points from the 2002 study.

"The fact that companies might continue to use customer satisfaction as a metric to gauge performance is an incomplete measure," DeSanto said.

An industry consultant agreed. "There are companies I'm loyal to, and there are companies I'm satisfied with," said M.H. "Mac" McIntosh, president of Mac McIntosh Inc., a b-to-b sales and marketing consultancy. "Loyalty," he added, "is more of a cumulative effect than a one-time transaction."

The Walker study looked at five IT sectors: computer software, IT services, networking equipment, servers and workstations, and storage systems. The September study was a follow-up to the 2002 "Walker Loyalty Report for Information Technology." Surveys were conducted in March and July; 13,100 brand evaluations were completed by 4,877 respondents.

 

Loyalty by the numbers

Here's a look at how Walker Information defines levels of loyalty, along with the percentage of IT execs who view themselves as such.

Truly Loyal: both plan and want to maintain the relationship (44%).

Accessible: may not continue doing business with the supplier despite being pleased with relationship (3%).

Trapped: commitment to the organization is weak, but likelihood to continue doing business is strong (30%).

High Risk: weak commitment and low intentions to continue the relationship (23%).

Source: Walker Information, 2004

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