Customer Loyalty – The Holy Grail
Michael Collins
Customer loyalty is not a myth -- but only if you take into consideration ... all the necessary costs to deploy a customer loyalty program. A few examples might be when an internet provider offers free service for three months to get someone to sign up with them. When the three months are up, the customer leaves. This is a cost that needs to be captured and spread out against other customer loyalty efforts. Or in reverse, the Satellite TV Company that gives away their equipment to a new subscriber, but when that subscriber, 5 years later needs new equipment, that loyal subscriber is required to pay full retail for a replacement. Consider the Cellular Phone Company that signs you on as a new subscriber and gives you one thousand free minutes of airtime for the length of a 2-year contract. Once the contract expires and you continue to use the service, you are charged excessively per minute rates instead of being offered a new contract with the latest deal that is offered to the new subscriber. If a business is not loyal to their customers, can they expect customer loyalty?
As most businesses are painfully aware, consumers may still turn to competitors even after having all sorts of attention lavished upon them. The reasons have to do with a major paradigm shift in our consumer society. Customers have become quite savvy, thanks to the Internet. Awareness of pricing and purchasing options continues to rise. I see it daily in my business.
Switching behavior has become second nature to customers in long distance phone services, with credit cards and other markets. In fact, such behavior has pushed more than one long distance provider to the edge of bankruptcy.
Customer loyalty is the holy grail of any customer service initiative; however, customer loyalty often proves to be elusive in the end. Could it be that the concept itself is flawed? Customers who ought to be satisfied still turn to competitors for what seem like trivial reasons. Where, when, and how do efforts to build customer loyalty actually translate into an improved bottom line -- or do they?
We often hear the much-quoted 20/80 rule. It's the 20 percent of your customer base, give or take, that generates 80 percent of the profit margin. That 20 percent represents the loyal customer core -- those who come back time and again to do business with you, to buy the brand, to continue the relationship. And those are the ones we should love to death. Their dollars deliver more profitability, and their word-of-mouth generates treasured business referrals. As in any good marriage, we should listen carefully to their needs, maintain constant communication, and display our affection and respect by making the extra effort to preserve the relationship and extend it into a lifetime partnership.
That's what loyalty is all about. They give us their dollars and their commitment; we counter with appreciation, acknowledgement, exceptional service and, very occasionally, an attractive deal.
Part of the problem is that businesses often assume that customer satisfaction naturally translates into loyalty. Developing loyalty is a long-term process. Just because a customer is satisfied with a product or service does not necessarily mean he or she will come back for more.
Loyalty programs suffer from the same misconception. When you give a discount for frequent purchases -- that is, operational or transaction loyalty -- it is not long-lasting.
To develop an enduring relationship, a business has to provide satisfactory service -- that is a given. Then it must take the trouble to get to know its customer base. This is where the loyalty initiatives often stop. The next crucial step is to actually take the information you have gained while building this relationship and work on developing a future relationship with the customer. Learn to anticipate their needs and offer it to them before they obtain it elsewhere. That is where loyalty is built.
Respectfully,
Michael Collins President, Twentynine Palms Chamber of Commerce
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