A very smart, experienced businessman – a Senior Vice President in his company – told me last week that there is no customer loyalty in his industry. Can this be true? Are there certain industries where customers do not develop a certain affinity or alignment with their preferred providers and behave accordingly?
In this particular case, we had some evidence to refute his hypothesis. We were talking about the semiconductor industry which happened to be an industry where we conducted an assessment of the state of customer loyalty across the industry a few years ago. While customers are generally less loyal to their providers in this industry than what we see in others, there is proof that those companies within the semiconductor industry which excel at building customer loyalty are dramatically outperforming their peers on key financial measures. This chart depicts the difference in operating income – with the orange line showing the operating income performance for the most customer-focused semiconductor companies (growing at 82%) and the red line showing operating income performance for the least customer-focused companies (growing at only 15%). A pretty big difference, and we see the same results across many other financial measures.
Now, I get that customers who are buying semiconductor products are buying based on a lot of (primarily technical) factors. But, when your performance on these factors is in an acceptable range, then customer loyalty does come into play and makes a big difference in how a company performs.
We’ve conducted similar studies in many other industries, and we find the same pattern. We also work with companies in industries ranging from accounting firms to retailers and have yet to find an industry where there is no payoff in building customer loyalty. But, I’m intrigued by the idea – is there an industry out there where customer loyalty or the strength of customer relationships does not come into play?