The Loyalty Flywheel: How to Benefit from Customer Loyalty
The term loyalty swing wheel may be new to many of you. It therefore needs to be explained. When most people think of loyalty, they first think of consistency. The term “flywheel” triggers dynamic associations. And that’s exactly what it is: adding new momentum to the loyalty that companies have built through long-standing relationships with their customers.
How does it work? By strategically expanding its service and product portfolio.
Product management is dead, long live customer management!
A well-known rule of thumb says “Attracting a new customer is 5 times more expensive than retaining an existing one”. This rule has prevailed among many executives. That is why they pursue the goal of building a sustainable business model based on lasting customer relationships. This increases the profitability of these relationships. This increases the value of the customers and accordingly also of the company. This also changes an outdated way of thinking: “I have a product/service idea. To whom can I sell them?”. The new thinking is: “I have good relationships with customers. What else can I sell them?”.
This paradigm shift means in plain language: Product management is dead! Long live customer management.
Examples of success for the principle of the loyalty flywheel
Let’s look back a few years, to the beginnings of Amazon: At the start, the group initially pursued only one strategic goal: to build customer relationships with many frequency articles that appeal to a broad masses. Hence the start with the books. From the mass resulting customer relationships, a full-service provider in the e-commerce sector has grown through intelligent assortment enrichment or cross-up selling. Meanwhile, many customers are so firmly tied to the “Amazon” brand that they buy “virtually” everything – even fruit and vegetables – from the international group.
If you are also a Prime member, you hardly make any price comparisons. Supposedly, that’s over 60% of Prime members.
The company Haufe realized in the 90s that the offer of loose-leaf works has no future. In the context of increasing digitalization, the product loses its usefulness. At that time, the software house Lexware joined the now renamed Haufe Group. Through the consistent reorganization and alignment of goals, tasks and processes to target and customer groups, the Group gradually expanded its product portfolio. It was able to benefit from targeted acquisitions and thus from the better attractiveness and loyalty of its customers. Today, the company generates 95 percent of its revenue from digital products, such as online services or apps. In 1990, the Haufe Group reported a turnover of 50 million euros – today it is just under 300 million euros.
Tchibo has also made a virtue out of necessity. At the end of the 90s, a price war began in the coffee segment. The reaction of the coffee supplier, namely to buy the toughest competitor Eduscho, did not solve the problem. The world market price for coffee came under increasing pressure. A profitable customer relationship or sustainable corporate development was hardly possible.
In 1999, Dr. Thomas Vollmöller became Managing Director of Tchibo. The manager, who was then CEO of XING AG for many years, wrote an unprecedented success story. His basic strategic idea: “Every day, at least every week, millions of people come to the Tchibo branches. What else can we sell them?” The employees then analyzed the existing target and customer groups. They explained through market research what else could be interesting for these people to buy besides coffee.
This is how the motto “A new world every week” was born, under which Tchibo offers its customers new consumer goods on a wide variety of topics every week. Overall, it was a strategic masterpiece: A business model under pressure based on existing customer relationships is being renovated and led into a successful future.
Other successful examples of the loyalty swing wheel are…
the ADAC, which has developed from a club into a commercial enterprise. Glöckle Lotterie sells electricity through the E.Vita brand. A power tool manufacturer now also sells flowers, jewelry and cosmetics to its craftsmen.
The approach of a plastics industry company is downright extraordinary. If a customer wants to have a certain product that he cannot deliver himself, the company buys it on the market from the competition or the dealer and sells it to “his” customer. In this way, it remains in possession of the customer relationship.
So the mother of all questions is:
What else can I sell to the customer?
Abstracted, these experiences can be mapped into a strategy with a loyalty swing wheel (see figure). In the middle (in the core) lies the existing customer relationship. And now comes after the actually banal cross- and up-selling idea (behind which a strategic category management stands) the question: “What else can I sell to the customer and in what order?” In this way, more and more, complementary product ranges are created. Companies should make sure that they also have the customer trust for them.
The flywheel symbolizes the positive forces of an outward movement that creates more and more dynamism – for example, by the fact that existing customers buy more, but also more new customers are added.
According to Dr. Vollmöller, today CEO of XING, Markus Reithwiesner, CEO of the Haufe Group and our experience, the great challenge is to trigger and keep this dynamic running throughout the company through a CRM strategy and philosophy.
Getting the loyalty swing wheel and thus the company moving or running with positive energy is a management task that we are happy to discuss with you and in which we support you optimally.
So don’t wait until the business model comes under pressure! Instead, let us define the necessary management tasks and goals together and implement them with your team! Have you become curious? Are you in the mood for customer-centric, dynamic corporate development through the loyalty swing wheel? Our customers already recognize this flywheel strategy as a megatrend. Therefore, do not hesitate to contact us for too long!
Other companies that have recently announced that they will follow this example: H&M and Airbnb (both articles can only be read in full for ZEIT subscribers).