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Long-Term Customers Vs.Short-Term Customers
LOYALTY MYTH 1 : Long-Term Customers Are More Desirable than Short-Term Customers
It is a natural extension of the underlying logic in Myth 1 that, if long-term customers are more desirable than short-term customers because they are believed to purchase more, then long-term customers must be better for business than short-term customers. Given that the foundation of this myth is incorrect, it should not be a surprise that this extension is also false.

Reinartz and Kumar's exploration referred to in Myth 1 and re¬ported in the Harvard Business Review found that both long-term and short-term customer groupings were composed of subsegments of desirable and undesirable customers. This is not hard to understand. Imagine being CEO of Home Depot in the United States, or CEO of Homebase in the UK (Home Depot and Homebase are do-it-yourself home improvement retailers). Who is most likely to be a desirable customer for your store: a recent purchaser of a new home or a long¬time customer of your store? Likewise, it is difficult to imagine retailer Babies "R" Us successfully nurturing highly profitable 20-year relationships, given that its products target expectant parents and parents of children two years of age and younger. The tremendous growth rate of this U.S. retailer proves that these short-term customers are good customers indeed.

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The problem with this myth is not just that it is wrong, but that it disadvantages strategic decision-making by managers worldwide. Short-term customers may be every bit as important to a firm's success as long-term customers, and sometimes they are the core of a company's current business.

LOYALTY MYTH 2: Share-of-Wallet Increases as Customer Lifetimes Increase
The belief that loyal customers increase their share-of-wallet as their customer lifetime lengthens also flows from Myth 1; if long-term cus¬tomers purchase more, then it must be because they are consolidating purchases with a single provider. Given that most managers would de¬fine customer loyalty as manifest in the consolidation of purchases with a favored brand or company, this myth seems completely logical.

Without question, loyal customers do allocate a higher share of their spending with a given company than with its competitors. The problem is the idea that customers allocate greater percentages of their spending with a company over time. Nonsense! Why would a loyal customer consistently increase share over time? She is already loyal; therefore, she already allocates a high share of her spending with the firm. Does her loyalty grow even stronger over time, resulting in an ever increasing share of spending? This is what the myth implies.

The reality is that in many categories, time acts as a detriment to the allocation of spending. Take financial services as an example. As earnings increase, so too do an individual's investment needs. As a result, individuals often find themselves allocating smaller percentages of their investable assets with a particular product or firm as they age, even while they may be increasing their absolute dollar amount invested (because of increased earnings and disposable income) with the product or firm.

Source :
Timothy L. Keiningham, Terry G. Vavra, Lerzan Aksoy and Henri Wallard, Loyalty Myths: Hyped Strategies That Will Put You Out of Businessand Proven Tactics That Really Work. You can find this excellent book here

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