Did you ever wonder if some of those age-old sayings about marketing are true? For instance, we have all heard “it costs five times as much to gain a new client as it does to retain an existing one.” But does anyone really have proof of that?

That is what four consumer loyalty experts with widely respected Ipsos Consulting set out to provide in Loyalty Myths: Hyped strategies that will put you out of business — and proven tactics that really work. Timothy Keiningham, Terry Vavra, Lerzan Aksoy and Henri Wallard have applied their knowledge (and extensive database) to dispel common myths‚ such as “we should do everything we can to encourage people to keep doing business with us.”

Although exhausting in its ana-lysis of 53 “myths,” the book has real relevance for financial advisors who are always being told that the secret to growing their businesses is to deepen their relationships with existing clients. In fact, Loyalty Myths emphasizes a very important point: 80% of client relationships are probably not worth maintaining. However, you have to do your research to determine the client relationships that are valuable and deserving of your resources.

We are all familiar with the 80/20 rule, wherein we acknowledge that 80% of our revenue is derived from 20% of our clients. The book suggests your research dig deeper. What you are looking for is profitability. Although you generate the majority of your revenue from a fraction of your client base, you in fact earn all your profits from an even smaller number.

The book has an appealing format: the first six chapters are devoted to dismissing 53 common myths. Some of the myths may have made sense to us intuitively. Examples include Myth No. 1: the top goal of a firm should be customer loyalty; Myth No. 9: companies should focus on their “high share of wallet” customers; and Myth No. 20: repeat purchase equals loyalty. The authors employ solid historical data to dispel each myth and show the negative business effects of continuing to believe it.

Here is part of the debunking of the example cited in the opening paragraph: it costs five times more to acquire than to retain a customer (Loyalty Myth No. 8). This myth is so pervasive and seemingly so intuitive that it has stood unchallenged for 20 years or more! But, say the authors: “The x-factor that makes this myth seem plausible is the costs associated with advertising and promotional expenses. Although it is believable that they represent enormous expenses that would far more than exceed the costs of retaining existing customers, there is one fatal flaw with this assumption: advertising and promotion are not simply about inducing first-time purchases. Much of advertising is about reinforcing brand imagery and maintaining awareness among current customers of the brand.”

The final two chapters attempt to educate us on why clients are loyal and how any program to enhance client loyalty should be managed. They contain seven loyalty “truths” rather than “myths.” Here are brief descriptions of a few examples:

> Loyalty Truth No. 1. Don’t manage for customer retention; manage for customer selection. Not all customers want a more pleasant relationship. Others are just plain unprofitable. It’s imperative that customers’ value is assessed — prior to attempting to retain them.

> Loyalty Truth No. 2. Customer loyalty takes more time to grow than most management teams have to give. The foundation of any good loyalty initiative is information. Few companies today have the correct information to launch a proper loyalty program.

> Loyalty Truth No. 3. Consumer polygamy is today’s economic reality; therefore, focus on customers’ share of wallet. The challenge to marketers is to appreciate whatever loyalty is offered and to strive to increase the share spent by existing customers.

Despite its statistical foundation, the book is a fast and entertaining read if you keep an open mind and spend a little time thinking about how the concepts apply to your practice. Translating the corporate examples in the book to the financial advisory world should not be difficult.

Despite the notion promoted by the book’s title that all client loyalty development programs are misguided, there is no doubt that deepening relationships with the right clients in an appropriate and meaningful way is essential to long-term success in your practice. The advice contained in this book can help. By applying your efforts in the correct manner, you will differentiate yourself from the competition, save money and grow your business profitably.

@page_break@Loyalty Myths earns four Hartman’s Hurrahs. IE