We’ve met the characters in the HBO series Silicon Valley in real life. The sardonic, whip-smart software developer Gilfoyle. The dweebie, hoodie-wearing tech entrepreneur Richard Hendricks. The Type A-on-steroids venture capitalist Russ Hanneman. The over-the-top greedy, predacious CEO Gavin Belson. Most of us can name similar people within our own orbits, though maybe as extreme.
While they are believable personalities, we also know them as caricatures. Not all tech entrepreneurs are geeks. Not every VC is a fast-living cocaine addict. And not every CEO gladly sells his or her soul to elevate their net worth. Yet, when it comes to customer loyalty, we mistakenly spin occasional facts into proclamations of consistent truth. This is how myths are spawned.
Three myths. When used as a basis for strategy or tactics, the following proclamations can be deleterious. Just like the caricatures on Silicon Valley, they can be true, but they are not universal, as others suggest. Yet, I see them often:
1) loyal customers buy more and spend more. Loyal customers can be plenty loyal without ever being heavy users or big spenders. An occasional traveler can have a strong preference for a specific car rental agency. That does not mean he or she invents reasons to rent more cars, routinely springs for a fancier model, or splurges on upgrades.
2) loyal customers advocate for the product or brand. To illustrate just one reason this doesn’t always happen, visit your local drug store or pharmacy, and look at every product in the personal care aisles. Then, ask yourself whether loyal consumers of [name or type of product] broadcast that they use this item, and elaborate on their experiences.
3) it costs more to acquire customers than to keep them. Many give this as rationale for investing in loyalty programs. But not every prospect needs an expensive marketing campaign to convert, or to solidify a habitual brand preference. Not every new customer grinds through a tedious, protracted process before buying. Depending on the industry, company, and selling model, some customers can be converted for darn cheap. It’s keeping themthat’s sometimes difficult, elusive – and expensive. While loyalty programs can be strategically valuable, it’s fallacious to cite marketing cost advantages as the reason for having them. Loyalty programs – and the processes surrounding them – must also make sense for business strategy.
Silicon Valley entertains us with more than personality caricatures. It also satirizes companies whose executives become intoxicated on false assumptions and misguided expectations. The show teaches us why it’s vital to maintain clearheaded understandings of cause and effect. That includes what customer loyalty produces, and what it doesn’t.