The Value of Loyalty
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It’s the best-known non-statistic in the marketing world: it costs 5 to 7 times more to acquire a new customer or client than it costs to retain an existing one. |
Actually, some estimates range as high as 30 times the cost, a testament to the impossibility of pinning down such a slippery metric, but the underlying truth is self-evident: you can retain an existing customer for much less money and effort.
And retained customers are more profitable. Domino’s Pizza estimates that a loyal customer is worth $5000 over 10 years; to Ford, a faithful customer adds up to $142,000 over a lifetime. But of course customers are not automatically loyal.
Is the customer always right?
The importance of customer satisfaction has been understood since the first customer. The earliest expression of the fact that there might be some effort involved was the old saying, "The customer is always right".
It’s easy to put this philosophy into practice if you’re selling, say, ice cream cones. When, having asked for chocolate, the customer brings the cone back and insists he asked for chocolate chip, you throw the cone out and give him a new one, end of story. A returning customer is worth more than a scoop of ice cream.
It gets more complicated when your product or service includes your own expertise as part of the package, and your professional recommendations are an important added value. Sometimes you know the customer is wrong, and it’s your responsibility to disagree with him — courteously and respectfully, of course.
Occasionally, these customers insist on having their own way — a lose/lose situation, since the product or service won’t work as desired, and the customer won’t be satisfied, and may defect. But customer defections are inevitable in any business.
Banging the table
Every businessperson dreads the prospect of a customer complaint or, even worse, a customer banging the table in anger at some perceived failure on your part.
Actually, you should look at these as opportunities. Even the angry customer is at least showing some feeling, indicating that he or she cares about your relationship. And a complaint is a chance to get some information and maybe make changes in your operation.
This is a situation where the customer is always right: don’t argue with the complaint or try to dismiss it.
- Thank the customer for bringing this up;
- Apologize;
- Explain what happened (to the extent that you know, and that the explanation will reassure the customer);
- Assure the customer the problem will be fixed; and
- Make some restitution (a credit, an upgrade, a free breakfast, etc.).
In addition, resolve complaints right then and there, if at all possible. It’s cheaper for you than having another interaction later on, and more satisfying to the customer. Of course, this means you have to empower whomever has received the complaint, giving them the authority and flexibility to resolve it. It’s essential to give your employees an active role in your customer loyalty program.
They just go away…
Most dissatisfied customers don’t give you the opportunity to resolve their complaints: they just go away. (They also pass along their complaints to others, in an estimated 2:1 ratio over compliments from satisfied customers.)
In long-past small-town days, you would see the lost customer on Main Street and say "Where’ve you been?" If there was a problem, you’d hear about it right there.
Today, mega-companies rely on data. This has led to the creation of an entire industry known as Customer Relationship Management (CRM). Reams of data on customer transactions are collected and ‘mined’ for clues to trends and problems, using multimillion-dollar software systems installed by multimillion-dollar consulting companies. Out of this have come books, countless articles, and a blizzard of discounts, incentives, reward programs, value packs and points.
Most of us don’t need all that. As a first step, ask your customer. We did that at Sullivan Creative a few years ago. We were making some changes in the way we did business, and decided to survey our clients. To our surprise, some of them didn’t like some of the changes, important news that enabled us to make critical mid-course corrections.
Make a point of checking in with your customers or clients at the end of a transaction or project, to see how they think it went… and to demonstrate that you care about them.
Satisfaction is not enough
A satisfied customer likes your soap. A loyal customer will buy your brand of soap every time. Customer loyalty should be your goal.
In a 1988 survey, Rockefeller University found that almost 70% of retail customer defections occurred because of perceived rude or indifferent behavior by employees. Another survey by Acumen Research Group found 43% of defections occurred because of a negative experience with a staff person, and 30% because of not being treated as valued customers. Simply put, these companies were not demonstrating that they cared about their customers.
The key to customer loyalty is, for most of us, not about incentives, discounts or promotions: it’s about positive feelings between us and our customers or clients — a caring relationship. (In contrast, consider how you fly particular airlines because of the frequent-flier miles; do you feel that the airlines care about you? If the miles went away, chances are we’d drop the airline in a moment.)
You demonstrate to your customers that you care about them by doing a few basic things. You are:
- Responsive (return calls or e-mails the same day)
- Flexible
- Clear in your communications (good news or bad)
- Fair and transparent in your pricing
- Committed to making the engagement a positive experience for all concerned
Prove to your customers that you’re a great company to work with. Give them encouragement to remain engaged with you — send out a thank you note, a birthday card, a newsletter. And — a critical piece — make sure every employee who touches a customer is with the program, and understands what’s required of him or her to demonstrate customer care.
Loyal customers are profitable customers. An added benefit: they’ll be your best advocates and sales reps all across your marketplace.
Loyal Customers Toolkit
There are many tools available to you to build customer or client loyalty, from the cheap (a follow-up phone call) to the very expensive (an enterprise-wide Customer Relationship Management [CRM] system).
Phone Call
At the end of a transaction or project, give the customer or client a quick call to make sure they’re happy with everything. Tip: Don’t overdo it by asking for too much information or making too many calls, or you may be perceived as a pest.
Customer Survey Card
Can be useful when you have a lot of customers. Make sure the postage is paid. Keep the questions simple. Also figure out in advance a) How you will quantify the responses, and b) How you will figure out how to act on the responses. Also see Tip under Phone Call, above.
Follow-up Issue Call
Follow up on any report of an issue with a call, an e-mail or (even better) a handwritten note, to let the customer know what actions you plan to take in response to his or her suggestions.
Invite Advocacy
If you’re confident about your relationship with a customer or client, invite them to supply a testimonial. This is an indication that you value the customer, and of course a great component for your marketing materials.
Issue an Invitation
Invite a client out to dinner, or to a ballgame. If appropriate, invite them to a seminar or presentation at a professional organization.
Send Info They Can Use
Send your customers a periodic newsletter with tips and industry trends, or links to online articles, or mail or fax them hard copy reprints of interesting stories.
Collect Data
This can be a good option if your customer/client base is medium-sized (50+) or bigger. You need to figure out what numbers are important to you, how to build a workable database, and what to do with it once you have it. Jim Novo is a consultant in this area, and his website (www.jimnovo.com) is a good place to start; it offers a lot of free articles before you venture out into the services for sale.
Customer Relationship Management (CRM)
Now you’re heading into the big time. Expect big costs. Consult an expert (not a salesperson) before you commit to anything. www.crm2day.com is a good place to get your feet wet.
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