The fallacy of averages

Two images, “stolen”, from @rshotton on Twitter which illustrates how averages can be deceiving


Loyalty may not be as important as you think

Customer loyalty is something all businesses desire.  We all know the old adages that it is cheaper to keep a customer than to get a new one, Paretto’s Law and a plethora of others.

But recently some greater minds that mine have set about disproving some of this thinking.  In particular Byron Sharp (here, here and here) makes some strong arguments about the fact that growth comes not from increased frequency but increased frequency and that loyalty (as we have been taught it) is barely existent.

(As an aside, I would recommend anyone in Marketing and Planning to read his book, How Brand Grow, a real eye opener)

But I digress.  Recently a new paper came out, from a company called Cardlytics, tackling this very subject.  The interesting thing about Cardlytics is that they have access to debit/credit card transactions and they therefore have greater insight into people’s buying behaviour.  So whilst you might think Customer A is deeply loyal because of their purchase frequency, actually they are but to the category rather than you.  They are brand promiscuous and (more often than not) will spread their spending across companies and brands.

That is a total mindset switch from current thinking and also puts into question how much effort and resource you should put into customer retention versus customer acquisition. Both are obviously important but it’s a question of prioritisation and allocation of resources when these are finite.

Anyway, you can read it in way more detail (and much better expressed) here.

PS: These findings obviously are skewed to certain categories where purchases are frequent and where time lapse between purchases is relatively small – some of the principles will carry over to longer term purchases such as cars, mobile phones etc.




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