Profiting From Loyal Customers

profitLess than one (1) month ago, I blog about rewarding your loyal customers. This time we will discuss about retaining or keeping your loyal customers. Is it advisable to always aim to keep your regular or loyal customers? Are they making you more money than the ones who may have just walked-in? Are your loyal customers worth retaining in  your café business?

Let me first refer you to an online business column entitled “Are loyal customers really profitable?“. In the article, the author discusses one old theory and a new one regarding how loyal customers affect the profitability of a business. The older theory, circa 1990, says that it is really profitable to cater to loyal or repeat customers but the study was based on the experience of manufacturing firms. The old study said that profit margins are high for repeat customers because operating costs to serve loyal customers will decline over time. It said further that as the company gains experience with its customers, it can serve them more efficiently.

Take note that the 1990 study drew its conclusion from the concept of the “experience curve” (or “learning curve”) where the experience curve makes it possible for the costs of products to decline about 20 percent to 30 percent with each doubling of accumulated experience. Also, note further that this generalization came from studies in the manufacturing sector.

The Internet café business belongs to the service sector and, hence, the old theory on profiting from loyal customers does not apply. The new study conducted in 2005 can be said to apply more on the situation of Internet cafés. The newer study found that “loyal customers are all more expensive to manage than ordinary customers.” In the high-tech service sector (Internet café belongs to this), loyal customers are even much more expensive to serve.

Now, tell me if the new study is not applicable to I-Cafés. Isn’t it true that you continuously upgrade your computer workstations because your so-called loyal customers request for new games that your current units cannot handle? You give in to your loyal customers only to find out later that they are no longer playing the new games because they are not as good as the old ones.

This issue of whether you are profiting more from loyal customers than the new ones is subject to debate. Many of you would argue that it is best to keep them all but the advice of many marketing experts is customer selection before customer retention. It’s only after you’ve segmented which café customers truly represent assets to you that you should target for loyalty.

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