The importance of earning customer loyalty cannot be overstated. It is, after all, a good way for companies to stay profitable. But to the authors of Loyalty Myths, placing loyalty above all other business concerns can actually have an adverse effect on a customer retention program.

Timothy L. Keiningham, Terry G. Vavra, Lerzan Aksoy, and Henri Wallard identify more than 50 “loyalty myths” in several categories — including customer behaviors and referrals, as well as employee and manager loyalty — and explain why customer loyalty programs rarely lead to the kind of customer behavior that creates profit. Much of the authors’ premise is based on the belief that a large portion of a company’s profits comes from a relatively small percentage of customers. Using documented customer research and real-life examples, they show how unfocused efforts to retain all customers are misguided and often counterproductive. “Managers must make reasoned decisions about which customers truly represent assets to their firm’s financial health,” the authors contend.

Based on their analysis of traditional loyalty myths, the authors present seven new “truths of customer loyalty.” They include:

• Customer selection is more important than customer retention.
• Loyalty requires mutually beneficial interactions, whereas most loyalty programs today are tilted in the company’s favor.
• Customer loyalty is very closely connected with brand identity.
• Developing true customer loyalty takes more time and planning than managers and loyalty programs generally assume, and the chain of cause-and-effect from loyalty to profits is complex.

Ultimately, the authors say, the solution rests on using all available customer research — customer demographics, purchasing history, share of spending — to identify and focus on those customers who are the most profitable.

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