Does your brand create loyalty?

Photo of a chart showing the circular structure of customer loyalty.

Customer loyalty is perhaps the most cherished of all business acumen.

Did you know that it costs five times as much to attract a new customer than to keep an existing one? The first rule of any business is to retain customers and build a loyal relationship with them and thereby avoid customer acquisition costs.

Statistics show that the probability of selling to an existing customer is 60 – 70 percent, while the probability of selling to a new prospect is 5-20 percent. Even more interesting, is the finding that existing customers are 50 percent more likely to try new products and spend 31 percent more when compared to new customers. And increasing customer retention rates by just 5 percent can dramatically increase profits by 25 percent to 95 percent.

In a survey of companies, 89 percent see customer experience as a critical factor in driving customer loyalty and retention, often referred to as Customer Lifetime Value (CLV). And while 76 percent of companies see CLV as an essential concept for their organization, only 42 percent are able to measure CLV accurately.

Given the statistics, it is not surprising that having the right people interact with customers is a significant factor in customer satisfaction. Almost equally important is making smart decisions that involve the direction of the company.

To that end, a corporate decision that will test customer loyalty is starting to be played out at the cash register of a major retailer in Nevada and six other states.

Those of you who are regular shoppers of the Smith’s grocery chain, owned by Kroger, have no doubt seen the signs at the entrance and each of the check stands. “Beginning April 3rd, Smith’s will no longer accept VISA credit card purchases.” This decision is the result of a business dispute with the VISA corporation. Kroger is responding to the growing popularity of premium cards, which come with higher swipe fees for merchants. Banks including JPMorgan Chase & Co., American Express Co., and Citigroup Inc. have been offering ever-increasing rewards on their high-end credit cards as a way to entice affluent customers.

According to Kroger’s Chief Financial Officer Mike Schlotman, “When you’re in a business that has a margin of 2 percent or less, a 1 percent higher fee has a meaningful effect to the bottom line.”

Kroger Co. is the biggest U.S. supermarket chain and its Smith’s brand employs more than 20,000 and operates 142 stores in Utah, Nevada, New Mexico, Wyoming, Idaho, Montana, and Arizona. Kroger first rolled out the VISA ban back in August of 2018 at their Foods CO markets which has 19 stores and employees 249 employees in the northern California area.

VISA is the most popular credit card network, with 335 million cards in circulation followed by Mastercard at 200 million.

“It is unfair and disappointing that Kroger is putting shoppers in the middle of a business dispute,” Amanda Pires, a spokeswoman for VISA, said in a statement. “VISA provides merchants access to more customers, increased sales and fraud protection, among other services,” she said. “Kroger enjoys all of these benefits, and there is a cost for these services, like any other.”

It should be noted that Smith’s will still accept debit cards with the VISA logo as long as the customer puts in their debit pin number to complete the transaction. That is because, despite the VISA logo, debit transactions are processed directly through your bank and not through VISA. However, the downside is that debit transactions are withdrawn from your account; almost instantaneously, and do not have the security of the credit card transaction.

With Smith’s and Albertsons having store locations that are fairly close to each other combined with the popularity of VISA credit cards over all others and the dwindling use of cash, it will be interesting to see how this battle ends. Will customers switch payment choices or grocery stores?

Over the years, there have been examples when customers have had a major influence over the path a company takes. One example is Coca-Cola.

To hear some tell it, April 23, 1985, was a day that will live in marketing infamy. That was the day the nearly 100-year-old (at that time) Coca-Cola company changed the formula on its flagship brand and introduced “New Coke.” The company didn’t set out to create the firestorm of consumer protest that ensued; instead, The Coca-Cola Company intended to re-energize its Coca-Cola brand and the cola category in its largest market, the United States. That firestorm ended with the return of the original formula, now called Coca-Cola Classic, just 79 days later.

Photo of the Coca-Cola Classic can.

However, while customers are not big fans of change, there may be a legitimate reason to change things up. Your target market may grow uninterested, you may develop a questionable reputation, or new competitive forces may put pressure on you to adapt. One of the most successful rebranding examples is Old Spice.

Prior to 2010, Old Spice was seen as a brand for older generations, a somewhat uninteresting and stagnant brand that wasn’t especially bad or especially good. Then, in a massive rebranding stunt, they came out with a new advertisement (and a series to follow) featuring athlete Isaiah Mustafa in a strange, funny, “random” video implying the deodorant to be something sexy, surprising, fun, and youthful. The rebranding effort was a success, in part, because it convinced a new demographic to try a traditional product. It capitalized on new trends, like non-sequitur-based humor and online videos, and ended up being a massive boon for the brand.

Shirtless man riding a white horse while holding a Old Spice deodorant.

McDonald’s took a big public relations hit when the documentary Super Size Me was released and the resulting scrutiny put McDonald’s as a central player in the obesity epidemic, causing sales to slip. Rather than be dragged down by this undesirable reputation, McDonald’s decided to evolve and has since poured tons of money and effort into changing its image. The chain now offers healthier options, including salads, fresher foods, and is dramatically overhauling the appearance of its physical locations to appear cleaner, more modern, and chic. So far, the brand is recovering well—keep watch as it continues to develop.

MacDonalds advertisement showing a healthy menu choice.

If you are battling brand recognition problems because of a lack of funds, let Business Finance Corporation help you turn receivables into cash. Call us at 702-947-3800 or go to http://bfc.vegas/

Your partner in success,

David Cabral