A few months ago I took a new view of Customer Loyalty when I was working on a project to look at data that showed how profitable each customer was to a company. I was amazed to discover that the most loyal customers were not the most profitable. This flies in the face of one of my core beliefs that states loyal customers are the most profitable. What was this new data telling me?

In looking more deeply at the data I discovered that a large percentage of seemingly "loyal" customers were really bargain hunters. Whenever the company ran a low price promotion on a popular product these people bought heavily and loaded up. But, for the most part, that's all they bought. This pattern repeated itself many times in the past few years. We found that many of these bargain basement "loyal" customers were barely profitable and that it was necessary to change the manner in which we view customer loyalty and we needed to create a new strategy to turn these bargain hunters into profitable customers.

We changed the way the database segments customers. Previously the database put all frequent customers into one group. Now it ranks them based upon profitability and puts them into two groups: bargain loyalists and profitable loyalists. We also changed the promotions from a "buy any quantity of these heavily discounted (and thereby unprofitable) products" to "if you buy something at full price you can then buy a limited quantity of a heavily discounted item.

In the limited amount of time since these changes were instituted, it looks like the bargain loyalists are, in fact, becoming more profitable and so are the profitable loyalists. It looks like the change in tactics is working. But the real lesson is to look as carefully as possible at the data to try and see what it is telling us. Don't look only at the obvious assumptions ("loyal customers are the most profitable"), look deeper ("are our loyal customers profitable?"). Look behind and beneath the obvious and you might find critical information lurking there.