1 Reason These Companies Continually Succeed

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There’s a reason for the saying “The customer is always right.” Studies have shown that it costs seven times more to acquire a new customer than to retain an old one. Strong customer loyalty makes it easier for businesses to raise prices. Furthermore, existing customers are much more likely to purchase a new product offering.

Today, I’ll take a look at a couple companies that have thrived on strong customer loyalty.

Starbucks

Starbucks (NASDAQ: SBUX) is one of the best models of fostering customer loyalty. It understands the primary factor that drives people’s coffee consumption is convenience.

The 18,000 Starbucks locations around the world virtually guarantee that there is a coffee shop conveniently located near your home or on your way to work. In bigger cities, the company even goes so far as to place shops on the same block on opposite sides of the street.

Additionally, Starbucks trains its baristas to become remarkably consistent, ensuring that a customer’s drink experience will be the same regardless of which location she finds herself or who’s working that day. Consistently quality coffee drinks make Starbucks an easy choice over a less familiar coffee shop.

The strength of Starbucks customer loyalty is probably best evidenced by six minutes of furious sales. On Dec. 6, the company sold $2 million worth of coffee drinks and products in six minutes. What’s more, the company somehow convinced 5,000 consumers to pay an extra $50 for a piece of stainless steel the size of a credit card.

The sales came in the form of a limited edition gift card sold through gilt.com. Yet, the $2 million on those cards is just a speck of the more than $1 billion loaded onto Starbucks gift cards in the company’s first quarter of 2013. Primarily fueled by new app downloads, the My Starbucks Rewards program saw 1.4 million new signups last quarter compared to 778,000 new signups in the same period a year ago.

“It’s not that these new card customers didn’t know where to find us last year,” CEO Howard Schultz pointed out on last month’s earnings calls. “It’s that we are more deeply connected, and even more relevant, to them than any other time in our history.” In other words, Starbucks customers are becoming increasingly loyal.

Apple

Talk about loyalty: customers continually camp out in front of Apple (NASDAQ: AAPL) retail stores just to be one of the first to get their hands on the newest gadget from the company.

Apple has made several developments in the last decade to establish an ecosystem around its products. It started opening Apple stores filled with “geniuses” that are capable of educating customers about all of Apple’s products. It established iTunes, not just as a music player, but also as a hub around which the iPod, iPhone, iPad, and more recently the Mac all operate.

Most importantly, it fostered its own branch of subculture, a certain brand of cool, that companies continue to imitate. Last decade, Apple positioned itself as the underdog. Advertisements centered around Mac (Justin Long) vs PC (John Hodgeman). These simple advertisements, while pointing to the benefits of owning an Apple computer over a PC, also established a social identity for Apple users as calm and cool as opposed to nerdy imbeciles.

The result of all this is seen in Apple’s sales. Apple got its foot in the door of PC users with the iPod and iPhone. Once consumers became familiar with one Apple product, sales took off. Mac sales quintupled from 2000 to 2009, and continue to climb despite the “death of the PC.” iPhone, iPad, and iPod sales have led to the registration of more than half a billion iTunes store accounts.  

The moat

Both Starbucks and Apple operate in industries where it’s relatively easy to produce a similar product. That’s why their customers are so important to them. It’s their moat to prevent new competition from capturing market share.

It’s also what allows them to charge a premium for their products. It’s what enables them to introduce new products with great success time and time again. And it’s a big part of what makes them great investments.


adamlevy owns shares of Starbucks. The Motley Fool recommends Apple and Starbucks. The Motley Fool owns shares of Apple and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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