The Forte Newsletter: Tips for Growing Your Business
A New Look at Customer Loyalty
What's happened to customer loyalty? There's an increasing trend for customers to drift away no matter how much we spend to keep them faithful. More and more they're making their 'buy' decisions on the basis of price and other factors like convenience rather than tradition.
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Don't give up on loyalty programs just yet, although it is time to take a closer look at what the business is doing to retain customers beyond just giving them things like 'bonus rewards' and a free gift every now and then. Too often these are used to compensate for customer service failings elsewhere.
The first place to look is at the business culture. Is there a genuine customer focus? Does everyone on the team accept that the customer is the reason they get paid every week? A business is only going to stay in business if it wins the acceptance of its customers, so their satisfaction comes first.
Remember the point where customers interact with the business. Unless a manager is doing everything from answering the phone to handling sales there is a team to be managed. Be sure the team is given all the training, development and other resources they need to give customers their very best.
Customer service includes being flexible in the application of policies. Credit policies are good examples of opportunities for flexibility; every situation is different and must be seen as an individual case to be judged by a greater number of factors than simply time and money. The business is dealing with a customer it already has and should want to retain.
The same thing goes for customer complaints. Experience shows that a complaint is an opportunity to create an even greater bond between the customer and the business if properly handled. This doesn't mean simply giving into unreasonable demands; that can be a quick way to lose a customer when their respect for the business goes out the window.
A business needs to tell its customers what it's doing for them. It's surprising how many businesses have customer-friendly policies that their customers don't know about. Even if it's something as basic as free delivery or a discount for multiple purchases be sure they're getting the message. Tell the customer something about the business with every contact.
Listen to customers. Everybody likes to have their opinion valued and customers will share their opinions about the business if they're asked. Whatever they say, whether it's good or bad will be useful information. If a business doesn't know what its customers are thinking, how can it know for sure if its products, pricing and policies are as good as they need to be?
A customer focus goes well beyond simply giving good over-the-counter service. It extends into every aspect of the ways in which the business deals with its customers and requires ongoing monitoring and management if genuine customer loyalty is to be built.
Retaining loyal customers is becoming a challenge with the advent of so many 'loyalty' schemes and extra points that can be replicated throughout an industry. We said not to give up on loyalty programs, but what's their point if every competing business offers a similar loyalty program? All that happens is that customers accumulate points or credits from every competitor and no genuine loyalty is created.
Sometimes rewarding the high-value customers can backfire. The UK's Aberdeen Group found in one study that ".High-value customers no longer view customer reward and loyalty programs as nice perks.They now expect and demand them."
To be effective a company's loyalty program needs to be correctly targeted so that it rewards only those for whom a reward will serve as an incentive to repurchase. A truly loyal customer that will return regardless of whether or not a loyalty program is in place represents a waste of money if rewards are doled out to them. The cost would be better spent in finding out what makes them loyal and giving them more of it.
At the opposite end of the customer scale is the 'disloyal' customer for whom loyalty programs hold no appeal. They're in it for the price and only show up for loss leaders or other low-profit items on special. Again, it's a waste to give them a reward for loyalty; they don't have any.
This highlights a problem with many businesses' databases. Unless a value has been assigned to each customer they all receive the same treatment. It's amazing just how many catalogue-based firms still send their expensive annual production to everybody on their mailing list without reference to purchase data. The printing and postage costs are greater than the profits made from a substantial portion of the mailing list.
One Australian retailer learned its lesson several years ago and stopped sending its expensive catalogue to the full mailing list. Instead it segmented its customer database into three groups based on the dollar volume of their purchases during the previous year. The highest-spenders received the catalogue as before. The next group was sent a reply-paid postcard offering them the catalogue on request. The third and lowest-spending group was sent a flyer with several special offers and offered the catalogue if they made a purchase from the flyer.
This was fairly simple marketing but it worked so well that the retailer still uses the system, although with a lot of subsequent fine-tuning over the years. The catalogue now goes out only to those who are proven catalogue shoppers and the costs of production and postage have dropped significantly. A relationship program was developed specifically for catalogue customers and has been successful in increasing the frequency of purchases and the value of each order.
Sending a flyer to the lowest spending customers has become a surprise success with the development of a distinct customer segment that looks forward to its bargains each year. Although this group has been found to visit the company's retail outlets only occasionally at other times of the year it enthusiastically orders its 'specials' from the annual flyer.
Research has also shown that purchases from the company's catalogue made by this group are profitable, indicating a degree of customer loyalty has been established. The company is now working on ways to better deal with the middle customer segment that receives their catalogues on request.
Customer loyalty is a commodity that can't be bought. It must be earned, first by gaining a real understanding of the company's customers, then by creating a culture that will please customers and encourage them to return. Only then will there be a place for a customer loyalty program.