By: Constance Lee Menefee

My five year old nephew already has a good grasp of brand loyalty. I thought of him as I read "Learning from Customer Defections" in the March-April 1996 issue of Harvard Business Review.

The author, Frederick F. Reichheld, specializes in understanding customer loyalty, a problem for both large and small companies. He says that, on average, U.S. corporations lose half their customers every five years. They probably are unaware of their loss rate because few bother to measure defections. But if you ignore defections, you may be ignoring the best guide to improving your company.

Who cares if old customers leave, aren't there always new ones? That attitude is expensive, because you have spend more to attract new customers than keep old ones. You make less in the long run, because loyal customers tend to spend more money, more often than new ones.

My nephew requested that the family go to a well-known national restaurant chain for breakfast. He ordered pancakes and was not happy with what he got. He remarked, in earshot of the waitress, that this was a very small portion and that next time they should go to another restaurant, which he identified by name. The waitress ignored him.

Reichheld says that businesses don't learn what they should from customers because customers, especially desirable ones, are often hard to define; customer defection is hard to define; and, companies aren't alarmed soon enough by customer defections because they don't understand the relationship between loyalty and cash flow and profits.

Are five year olds desirable customers?  You bet. A lot of cash flow is generated from the mouths of babes. If family members stop going to the offending restaurant, the cash flow from them stops: this is defection, pure and simple. They'll tell the story to others, too.

The chain and its customer service representative, the waitress, act as if streams of customers are unending. But, each customer you keep is one more you don't have to spend money to find and win over.  Five years old or not.

  Article originally appeared in the Cincinnati Post, July 1, 1997