The next tier of customer loyalty
It’s not about rewards and discounts
By Allan J. Katz
I delivered a full day workshop on Case Studies in Customer Loyalty in Tel Aviv,
Israel, in early January.
As I researched the latest case studies, I discovered that there is a lot more
to keeping customers loyal than discounting and reward programs.
Customer reward programs are often ineffective because everyone has one and in
today’s market customers shop them just like they would prices.
In fact the current research shows that the average consumer belongs to four
competing programs at any given time. In the beginning they were able to create
a competitive advantage, but that has long disappeared.
Today loyalty programs all look alike and those that are different aren't
creating enough differential to separate themselves from their competitors.
However, if your competition is not offering a reward program you might grab a
competitive advantage by starting one.
Here’s why:
• Loyal customers outspend everyone else 13 to 1. Your advertising costs are in
getting a new customer. Once you have a customer your costs to keep them drop
significantly.
• A 5 percent increase in customer sales increases profits by 15 percent to 25
percent. Again you have no out of pocket promotional costs so the added revenue
is reflected directly in bottom line profits.
• Twice the visits equals double the sales. Consider the lifetime value of your
customer. When you offer additional services or entice them to shop more often
you can easily double your sales.
• A 2 percent increase in sales equals a 10 percent expense reduction.
Customer loyalty already exists in all markets. Marketing to a few really
doesn't make sense if they already are loyal, unless you want to move them to
the customer advocate level. Then it makes sense because these small few are
the most likely to make the move in that direction. Customers at the advocacy
level spread word-of-mouth about your service, quality and trustworthiness.
So bring your loyalty programs to the next tier down. Concentrate on the middle
tier customers who are regular but could spend more; encourage them to spend
more by offering additional income sources they can take advantage of.
Once you begin to increase customer loyalty through the development and
deployment of customer experience strategies, the numbers will have a tendency
to change.
The next great frontier is in customer service development is based on customer
experience management, especially when it is used to provide brand promise
fulfillment.
Consumer behavior research has shown that most customer experiences happen
outside the circle of the sales arena. Decisions to buy are well formed before
direct contact with a sales clerk or store visit is established.
Try all the loyalty programs and marketing tricks you want, but until you are
customer-centered and focused over all company experiences with your product or
service, nothing will change. Recent surveys show that in today’s marketplace, more than 80 percent of businesses are product-focused and so are
the marketing, branding and loyalty programs that drive them.
Customer experience management becomes more manageable when you focus on
selecting customers who are perfect for your business. Dealing with difficult
customers is emotionally debilitating and bad for employee rapport. Sometimes
you will need to fire difficult customers to insure continued employee support
and enthusiasm.
There are four customer types.
1. Bargain Basements: They are customers who want low prices and don’t demand extra service.
2. Carriage Trade: These customers are willing to pay high prices but demand great
service.
3. Passive Customers: These are customers who are willing to pay high prices and
appreciate excellent service.
4. Aggressive Customers: These are customers who want low prices and demand
excellent service.
During the loyalty workshop in Tel Aviv, I made the point that customer service
is not about being perfect. Customers expect problems to occur. Let’s be realistic.
What separates a good customer experience from a bad one is how problems are
handled.
Actually, customers expect good service. So simply giving good service is not
going to build loyalty.
What builds loyalty is when there is a problem and it is handled to the customer’s satisfaction. Then they are more likely to come back and tell others about
their positive experience.)
Allan J. Katz, aka The Loyalty Coach, helps drycleaners attract new customers
and keep them loyal. He is the author of the Ultimate Marketing System for Dry
Cleaners, a complete marketing system for attracting and keeping customers at www.CleanerMarketingResults.com. A free white paper on “Attracting New Customers and Keeping Them Loyal without Constant Discounting: is
available on his website or by calling his office (901) 435-0424.
