Product Managers Need To Understand That Loyal Customers Are Not Always Profitable Customers

by drjim on June 11, 2012

Product manager be careful – just because a customer likes you doesn't mean that they'll give you their money

Product manager be careful – just because a customer likes you doesn’t mean that they’ll give you their money

Every product manager out there would like to have more customers. In fact, the best kind of customer that we’d like to have are those rare and elusive loyal customers. When we are working on our product development definition, we all figure that the more of those that we’re able to pick up, the more profitable our product will be. Good guess, but you’d be wrong…

Why Loyalty Doesn’t Equal Profitability

What does it mean to be a “loyal” customer? I think that we can all agree that it means that a customer feels some sort of bond towards either your company or to your product. We all believe that the more of these that we can get, the better it’s going to look on our product manager resume. However, studies have shown that this is not enough for a customer to be a profitable customer.

Timothy Keiningham and others have been researching what makes a customer both loyal and profitable. What they have discovered is that a large number of customers that product managers believe are loyal are not even profitable customers. It turns out that how your customers feel about your product is a poor predictor of how they’ll behave towards your product (like buy it).

Here’s the harsh part. Studies have shown that over half of your so-called loyal customers’ loyalty is driven by expectations that they can get a great deal from you. These customers turn out to not be profitable customers for you to have.

If you ran the world, then all of your customers would be both loyal and profitable. However, you don’t and it turns out that a lot of your customers are not fitting this description. In fact the researchers have discovered that the customers that you want, the profitable ones, generally only make up about 20% of your customer base, break-even customers make up 60% of your customer base, and unprofitable customers make up the remaining 20%.

How Product Managers Can Get More Profitable Loyals

So there you are – you’ve got a whole bunch of customers that prior to reading this article you thought were both loyal and profitable. Now you know that just because they are loyal customers doesn’t mean that they are profitable customers. What’s a product manager to do?

It’s pretty simple really. What you are going to want to do is to increase the number of profitable loyals – those customers who are both loyal and who are profitable for you. That means that you’re going to want to have more customers who feel positively about your product while at the same time have a positive value to the company (they spend more on your product than you spend on servicing them).

In order to transform some of your loyal customers into profitable loyal customers, you are going to have to take action. You’re going to have to do some research in order to determine what is holding back customers who think highly of your product from spending more money on your product.

Don’t forget that conducting a survey of your existing customers can yield additional results. You may be able to determine what is holding your profitable loyal customers back from spending even more money on your products. If you are able to find ways to make your product appeal more to both sets of customers, then your product’s bottom line should benefit.

What All Of This Means For You

We all know that getting new customers for our products is both time consuming and expensive. However, we used to think that if we could identify a customer as being a loyal customer then we had it made – our product would have to be profitable. In fact, getting more loyal customers is often a part of a product manager job description.

Research has shown that this is not the case – many customers who we would identify as being “loyal” customers turn out to not be profitable for us. What this means for product managers is that we need to take steps to work with our loyal customers in order to turn them into profitable loyal customers.

The first step in making your product more profitable is understanding who your best customers are. Loyal customers can play a big role in the success of your product. However, first you need to make sure that your loyal customers are really your profitable customers!

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Product Management Skills™

Question For You: What do you think that product managers should do with their customers who are loyal, but not profitable?

Click here to get automatic updates when
The Accidental Product Manager Blog is updated.

P.S.: Free subscriptions to The Accidental Product Manager Newsletter are now available. It’s your product – it’s your career. Subscribe now: Click Here!

What We’ll Be Talking About Next Time

I can’t tell you how many times I’ve been working with clients who are trying to enter new markets by copying products that are already being sold. If you want to be a “me-too” product manager, you can do this. However, if you really understand the way that product development definition should be done and want to be a breakthrough product manager who rules your market, then maybe you should take a lesson from the handgun manufacturer Glock…

Be Sociable, Share!

{ 0 comments… add one now }

Leave a Comment

Previous post:

Next post: