Should You Punish or Reward Current Customers?

Is it better to reward existing customers for loyalty — or spend your marketing dollars on attracting new ones? Here is a framework to help you decide.

BY JIWOONG SHIN AND K. SUDHIR

CHARLIE, A LOYAL CUSTOMER of his local bank, had never thought of taking his business elsewhere, but the offer from a competing bank to refinance his mortgage at an extremely low interest rate seemed too good to pass up. He asked Rick, the loan officer he had been dealing with for years, if the bank could match the offer. Rick knows lowering Charlie’s mortgage rate won’t be good for the bank’s bottom line, but he thinks making a long-time customer happy is worth the investment. Should the bank match the offer, or should ...