Loyalty rate is misleading

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To the Editor:

An article in your Nov. 12 issue (“Polk study: GM has most loyal customers to date”) says that the General Motors loyalty rate of 66.5 percent is currently the highest among manufacturers as measured by R.L. Polk & Co.

That reminds me of the 70-plus percent loyalty rate of a major domestic luxury nameplate whose loyalty rating increased consistently during the late 1980s and early 1990s while its market share declined.

Informed observers knew the nameplate was on the decline, but the manufacturer continued to use the loyalty rate to promote the brand.

It is critical to recognize that a loyalty rate of 66.5 percent means that 33.5 percent of the customers are lost each time the customer base goes to market for a new vehicle.

An increasing loyalty rate can indicate a shrinking customer base. We expect the loyalty rate to increase when a brand fails to bring in new customers. What else could happen if only the most loyal customers are responsible for the brand’s sales? That was the case for the domestic luxury brand.

During the past few years, a leading Asian brand has been obsessed with driving further increases in its loyalty rate in the United States. That nameplate risks its share position by allocating a disproportionate share of the budget to increasing an already high loyalty rate rather than spending to achieve conquest sales to replace the sales it necessarily loses from inherently disloyal customers.

To spend money in an effort to increase an already high loyalty rate is to succumb to a siren song. The market offers loyalty not much higher than 70 percent for a brand or corporation that is doing everything right. To dedicate funds to improve loyalty beyond that is to rob the budget for critically needed conquest sales.

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