Loyalty

     Loyalty.  People like to throw that word around a lot in relation to a business/customer relationship.  Today, I'd like to go over exactly what that is, because in my experience, it seems like a lot of people are unclear on the whole concept.  Let's get started!

     Let's say Angelique owns a business selling home improvement materials.  Angelique knows two people, Barry and Carlos.  Carlos is a long time friend of hers who normally pays someone else to do home repair for him.  Barry, on the other hand, owns a contracting firm that buys all of its materials almost exclusively from Angelique's business, and has for several years.  Angelique buys shingles from her supplier for 50¢ a piece and sells them for $1 a piece.  Our scenario opens when Barry and Carlos both come in one day and need a few packs of shingles after a big storm came through.
     Barry is trying to quickly finish a roof on a house he's building before more rain starts later in the day.  A large patch of the roof of the house under construction were lost during the storm and if he doesn't get the hole patched, its going to cause more damage.  He's running close to budget on the project and didn't count on having to double buy shingles.  Additionally, if he doesn't get the hole patched, he'll have to sink more money and time repairing the extra damage caused.  Carlos is in a similar boat.  He also has a patch of missing shingles and doesn't have time to wait for his repairman to come fix it before the rain comes through later that day.  Because of their loyalty she sells the shingles to both Barry and Carlos for 25¢ a piece.
     Barry is getting business loyalty.  Angelique can't possibly always sell him shingles for 25¢ a piece.  Completely aside from any expenses she incurs from running the business itself, she is paying 25¢ more per shingle than she is charging.  It is literally costing her a dollar for every 4 shingles she sells at that price.  The special price Angelique is giving Barry is a one time exception because she knows he has spent a lot of money with her before and will spend a lot of money with her again, especially if Barry knows this business will take care of him as a loyal customer.  This one time her business can afford to take a loss because it is relatively small and will result in a profit in the long run.  If Barry later said that he's willing to buy shingles for an entire housing development as long as he can get them at the 25¢ price, she would never agree.  No matter how much Barry buys from her, how long he keeps coming back to buy it, or how much total money he spends with her, she still loses money overall.
     Carlos, however, has never shopped there before and, barring another set of exceptional circumstances, will likely never shop there again.  He also got a special rate, but because of personal loyalty.  Angelique is unlikely to ever make money, even in the long run, from giving Carlos this discount, but she's doing it anyway as a favor to a friend.  The discount she offered him was the same as her simply paying for part of his purchase.  She gave him the discount because they're friends, not because he is, or could become, a loyal customer.

     In this example, Barry gets a special discount because this isn't his first time shopping with Angelique and she knows her business has made money off of him.  This also means Angelique needs to have a reasonable expectation that her business will continue making a profit by selling to Barry after this transaction.  If Barry was (for example) a contractor working for the state, and as part of the terms of her business license Angelique was required to always sell supplies to state contractors at no more than cost, she would have no incentive to give him special deals.  Even if Barry were to do absolutely all his shopping with Angelique, she would make more money off of a customer who bought a single hammer with no discount than on Barry's purchase of 10,000 shingles to reroof city hall.

     A lot of people seem to misunderstand the basic concept of how that kind of loyalty works when dealing with businesses they patronize.  People will request special treatment from a business to thank them for their loyalty, when their loyalty consists of coming in and bullying the staff once a week with coupons and threats of lawsuits until they receive a product below cost.  If a customer is not generating a profit, then in the eyes of the business, they aren't loyal.

     "That's just like those cold, calculating corporations today!  They don't care about people!" you might respond.  Well I will concede the point that the corporations are evil as soon as you can point to a service or product you buy where you knowingly and deliberately spend more than you need to.  I'm not talking about when you go to a local butcher to get higher quality meat and a wider variety of cuts than your local mega mart.  You're spending more there for a better product.  Have you ever driven to  a gas station that is more expensive just because you've shopped there for a long time?  If a home internet provider proved to you they offered the exact same everything your current one did for $50 less a month, and your current provider told you they weren't able to match that, how many of you would stay just out of "loyalty"?

     Now there are certainly parasitic companies out there that try to squeeze every available cent out of consumers, but the best companies and the best long term business strategies are symbiotic.  The concept of loyalty, and rewards for it, are supposed to be mutually beneficial, just like the original business transaction.  I cruise with Carnival because the more I cruise with them, the more free extras I get.  They keep giving me better deals because they know I'll keep spending money with them, and I keep spending money with them because I know I'll keep getting better deals.  Everybody wins, and that's the point of loyalty.