In today's competitive marketplace, customer loyalty is serious business. It's widely known that holding onto an existing customer is far less expensive than trying to gain a new one. It's also well documented that there's a high risk of customer defection following a merger or acquisition. Most buyers anticipate some degree of customer-base erosion post-closing. How can a buyer evaluate the risks associated with a potentially weak customer base?
However, what many buyers fail to do is to get a deep understanding of the behavioral and attitudinal attributes of the target's customers and quantify the acquisition's impact on customer loyalty before shaking hands on a deal. Although most buyers are armed with financial statistics on a target, many lack data on the stability and loyalty of the target company's customer base - an important indicator for forecasting future revenues.
Evaluation of a customer base should be an integral part of due diligence. An objective customer loyalty audit can reveal what drives customer loyalty. For example, customer loyalty may be impacted by the products or services delivered by the company, by the relationships with current staff or by a variety of other factors.
Over the past few years, great strides have been made in customer satisfaction measurement techniques, which help companies identify and understand their customer base, gauge customer loyalty, and develop a loyalty profile. Customer loyalty is an attitudinal metric that captures the strength of a customer relationship, which is strongly linked to critical customer behaviors. Tracking and managing loyalty can help a company understand the reasons why customers defect, and how important they are to its bottom line.
A customer loyalty profile also can be used to place an asset value on the customer base. Using a customer loyalty metric for a broad cross-section of customers allows a company to analyze its customer profile, identify problem situations, and develop a plan for converting neutral and vulnerable customers into loyal ones. Scientifically measuring customer loyalty is a key step to minimizing risk in buying a company.
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