Why are loyal customers today often punished rather than rewarded? Why is retaining them a matter of business, not emotion?

Acquiring a new customer costs five to twenty-five times more than retaining an existing one. A loyal customer spends 67% more than a new one. Yet 44% of companies still focus on acquisition and only 16% on retention. This gap is one of the most clearly visible lost business opportunities today. That is because a loyal customer is not a “self-evident phenomenon”; they are an asset that requires attention, understanding, and recognition.

Rewarded or punished?

The world has developed the concept of a “loyalty penalty” – a penalty for being loyal. A British consumer organization has calculated that loyal customers lose roughly 4 billion pounds a year across five sectors: telecommunications, banking, mortgages, insurance, and broadband. Eight out of ten customers pay a higher price to at least one service provider precisely because they have stayed on as long-term customers (1*). New customers get better prices, while loyal ones pay for their choice to stay. Such a penalty is disproportionate and hits precisely the most vulnerable, in particular older people, the group of customers for whom switching is technically more difficult. In fact, this practice erodes customer trust and directly limits the business potential associated with long-term relationships.

The numbers don’t lie; indifference is costly

The research findings are harsh: a 5% increase in customer retention can raise profits by 25 to 95% (2*). The probability of selling to an existing customer is 60 to 70%; for a new customer it is only 5 to 20%. Loyal customers are five times more likely to forgive mistakes and four times more likely to recommend a brand to friends. The main reason people nevertheless stop doing business with a brand they were loyal to is usually not a change in price, but the feeling of “not being noticed” (3*).

Crisis as a catalyst for truth

The quality of a relationship is best illuminated not in everyday interactions, but in the moments when something goes wrong. It is precisely then that a loyal customer observes whether I am treated as a person who has encountered an emergency, or as a fraudster trying to “scheme” something. Research demonstrates an interesting paradox: a successfully resolved problem can strengthen loyalty more than the absence of any problem, but only if the customer senses fair compensation, a fast process, and a genuinely human attitude (4*). A poor response to a loyal customer in a crisis situation can cost more than years of marketing investment.

How to research loyal customers’ true needs

Loyal customers know and feel your brand better than you do yourself; they have a long-term relationship with it. That is why customers’ true needs and expectations cannot be identified through standardized surveys. They are revealed specifically in qualitative research, which makes it possible to capture real experience and to uncover what quantitative data cannot reflect. In Berg Research’s practice, we most often carry out:

• In-depth interviews or discussions with loyal customers – studying their changing needs, unspoken expectations, hopes, and concerns. We examine the experience stories after which a customer’s attitude either solidifies or begins to change. It is precisely these moments that reveal where loyalty and trust are reinforced or lost.
• Service experience audit, or customer journey mapping – following the real customer experience step by step in order to find the places where they get confused in communication, are unaware of their options or of the stages of the service, are unsure how to act, or do not understand where to look for information. Every such weak moment in the service process costs the company time, customer trust, and money

Such research reveals what the numbers do not tell: emotional upheavals, unspoken expectations, the silence that actually means “I will not come back”, and the specific weak stages in the service process that slip by unnoticed in everyday business but cause losses for it (5*).

Start with a single question

Loyal customers are not a “self-evident phenomenon”; they are an asset that deserves regular research, understanding, and relationship development. Start with a simple question: where exactly in our service process is a loyal customer currently losing trust, time, or the feeling of being seen? Berg Research helps identify this gap by researching the customer service experience in depth and in detail, pinpointing the service stages that could be improved. Investing in loyal-customer research and in improving the service process is a deliberate step closer to repeat purchases, profit, and positive customer reviews.

(1*) Citizens Advice. (2018). Super-complaint to the Competition and Markets Authority on the loyalty penalty. Citizens Advice. https://www.gov.uk/cma-cases/loyalty-penalty-super-complaint Competition and Markets Authority. (2018). Tackling the loyalty penalty: Response to a super-complaint made by Citizens Advice. CMA. https://assets.publishing.service.gov.uk/media/5c194665e5274a4685bfbafa/response_to_super_complaint_pdf.pdf
(2*) Reichheld, F. F., & Sasser, W. E., Jr. (1990). Zero defections: Quality comes to services. Harvard Business Review, 68(5), 105–111. https://hbr.org/1990/09/zero-defections-quality-comes-to-services
(3*) NewVoiceMedia. (2018). Serial switchers strike again. NewVoiceMedia. https://www.newvoicemedia.com/en-us/resources/serial-switchers-strikes-again-us
(4*) Smith, A. K., Bolton, R. N., & Wagner, J. (1999). A model of customer satisfaction with service encounters involving failure and recovery. Journal of Marketing Research, 36(3), 356–372. https://doi.org/10.1177/002224379903600305 Hart, C. W. L., Heskett, J. L., & Sasser, W. E., Jr. (1990). The profitable art of service recovery. Harvard Business Review, 68(4), 148–156. https://hbr.org/1990/07/the-profitable-art-of-service-recovery
(5*) Flanagan, J. C. (1954). The critical incident technique. Psychological Bulletin, 51(4), 327–358. https://doi.org/10.1037/h0061470