Loyalty marketing ... because companies live or die by repeat business

Telemarketing, Nov 1995 by Tehrani, Nadji

Historically, when upgrading customer service first appeared as a business strategy, it was perceived as something you might be obliged to do if your quality was inferior. Remember, customer service became a business priority in the '80s, when American products were being overshadowed by high-quality counterparts from Japan and elsewhere. Yet, now that American products are seen as having caught up in terms of quality, customer service is still a hot topic.

In fact, approaches to customer service have been elaborated to form customer care and customer retention strategies, which in turn are leading to relationship marketing and loyalty marketing. All these strategies have one thing in common: They all recognize it is far more expensive to gain a new customer than it is to keep an old one. But what about quality? If you have top quality, do you still need to pursue relationship and loyalty marketing schemes?

In a word, yes. In the emerging world economy, where high quality is more and more taken for granted, customer retention and customer loyalty promise to be important competitive differentiators. Perhaps the best way to keep the importance of customer loyalty in perspective is to remember that 75 percent of the purchasing decision is based on emotion. Now, few emotions are as potent as those aroused by loyalty. If you can cultivate customer loyalty, and combine that with high quality, you will have an unbeatable combination in today's super-competitive world market.

What Is Loyalty Marketing?

There are at least two general approaches to loyalty marketing:

I. Focus On Your Customer's Customer. This method is particularly appropriate for a service provider. To be successful at this, you'll need to understand your customer's business exceptionally well so you can recommend methods and innovative ideas by which your customer can impart loyalty to its customers. If you can do this, you will keep your customer for life.

II. Focus 100 Percent On Your Customer, There are many things you can do to impart loyalty to your customer. Among them are the following:

1. Relationship building. To the extent that 75 percent of the buying decision is based on emotion, there is no substitute for relationship building.

2. Systematic individalized customer care. You can let a customer know you care by being aware of his or her interests and paying attention to important events in the customer's life. You can, for example:

* Send a birthday card to every customer.

* Send a thank-you note after every major order.

* Send flowers on happy and on sad occasions.

* Send appropriate gifts. (For example, if your customer plays golf, you could give him or her a set of golf balls or a free subscription to a golf magazine.)

I could go on and on. Let your imagination take over, and you will figure out similar appreciation techniques.

A Practical Example

I will now offer a detailed scenario for how a company might cultivate customer loyalty. For purposes of argument, let's assume we are dealing with a rug-cleaning operation.

After a rug-cleaning job is completed, the company could follow-up a week later to ask if the service was performed satisfactorily. If the customer is unhappy, offer to do whatever is necessary to satisfy the customer--free of charge. If the customer is pleased, you could ask him or her to recommend your service to others. For every referral, the customer would get 25 percent off the next cleaning job. And, after every four referrals, the customer would get a certificate for a free rug shampoo to be used anytime the customer wanted it.

Of course, managing such a program could increase overhead, but the investment would be well worth it. After all, it costs four times less to keep an existing customer than it does to gain a new one.

The Inevitability Of Loyalty Marketing

In the future, loyalty marketing will no longer be the exception, but the rule. Why? Because companies that ignore loyalty marketing will go out of business, to be replaced by competitors who know how to take care of their customers.

Here is a simple example of how quickly customer loyalty can be undermined by careless customer service. While attempting to buy coffee at a fast food restaurant, I had a dispute over the amount of change I should receive. Evidently, the cashier had made the mistake of thinking the twenty dollar bill I had given her was a five.

What happened next? Well, the restaurant's employees handled the situation about as badly as you could imagine. I was kept waiting for about half an hour while they counted all the money in the cash register. When they finally found that the register did, in fact, contain fifteen dollars more than it should have, they begrudgingly gave me my change. Yet, despite having kept me waiting because of their mistake, and despite having subjected me to surly behavior, no one saw fit to. offer me an apology. And no one thought to give me a fresh coffee, the first one having long gone cold. Clearly, this is the nadir of customer care, and--needless to say--I will never patronize that restaurant again.