It’s a business trend that drives me mad! So many companies have irritated me beyond belief in recent years by not rewarding my loyalty with good service and sensible pricing. It’s become almost par for the course to have to change your mobile phone, insurance and television providers every year in order to take advantage of some “new customer” special. This is another great guest post from Archan Mehta.
In an era of less that satisfactory customer service, I was intrigued by how some companies seem to buck this trend. Later, I found a phrase that finally made sense--customer loyalty.
Most companies focus their marketing efforts on obtaining customers with little attention to keeping them. By contrast, research suggests that there is a high degree of correlation between customer retention and profitability.
Established customers tend to buy more, are predictable and usually cost less to service than new customers. Furthermore, they tend to be less price sensitive and may provide free word-of-mouth advertising and referrals.
Retaining customers also makes it difficult for competitors to enter a market or increase their share of a market. There is a ladder of customer loyalty to climb: prospect to customer to client to supporter to advocate to persuader. Toward the end, the persuader will try to cajole others into buying your product or service. And that's when you know you have done a good job.
Even so, developing customers so they travel up the ladder demands thought, long-term commitment and investment. Well, how does this occur? Let's take a look, briefly.
Customer loyalty programs cover a multitude of activities from magazines to vouchers and even gifts. Basically, a customer loyalty program aims to persuade a person to use a preferred vendor in order to take advantage of the benefits on offer. This could be a trip to Fiji or a price-reduction voucher for a calorie-controlled canned beverage.
These days, companies have become highly organized in attempting to build relationships and customer loyalty. The process can begin even before the potential user is born. Diaper manufacturers, for example, tend to take this long-term view. Prospective parents are bombarded with sample packs, free information and literature about what will be best for their soon-to-arrive son or daughter.
By the time of the birth, the parents already have some degree of loyalty to a company whose product they have never actually bought. Nowhere is customer loyalty more highly thought of than in the airline business.
This is the way a company differentiates its product/service. Frequent flyer programs were invented in the early 1980s. They are now well-established and expanding rapidly in Europe ever since BA founded its scheme in 1991. The beauty of the program is that the concept is simple and cheap to administer. Program members earn "points" or "miles" with every flight which can be redeemed for free tickets or upgraded to business class.
Virgin'sFreeway Programis a bit more imaginative and offers hot-air balloon trips, flying lessons and visits to health clubs. These programs mean an airline attracts and retains customers at a marginal cost while filling empty seats. Clearly, frequent flyer programs work.
One survey estimated that a quarter of Europe's business air travellers decide on their carrier because of frequent flyer points. Frequent flyer programs give airlines priceless competitive information so they can target their marketing more accurately and learn to focus on specific market segments. Technology means that customer loyalty programs are becoming even more sophisticated.
When it comes to creating loyal customers, the database is king. Procter and Gamble and Kimberley-Clark have a database which identifies specific niche segments of the market. Thus, databases mean that companies are able to target audiences more effectively.
A DIY chain, for example, has a discount card which entitles holders to an annual payout: their voucher can be spent to shop. The details of the cardholders enable the store to send out regular mailings to customers giving them advance warning of special offers and giving them an extra five per cent discount on certain days.
However, putting the simple idea into practice has become increasingly complex. Customers are now more demanding and fickle than ever before. They are organized and use their lobbying power more effectively. Expectations are high, but companies are quickly realizing that customers with a conscience create new markets. That's why companies are now developing loyalty programs which are directly related to the conscience of their customers.
There are several products, for example, which pledge to donate money to help save the rain forest or support medical research, if you buy them. A supermarket chain, for example, gives out customer vouchers which they can take to their children's schools to save up for a computer.
Some American supermarkets already give customers a "smart card", which means the company knows the contacts of each customer's weekly shopping basket.
Do these ideas resonate with your own experiences? What have companies done to win you over? What did these companies actually do to compel you to buy their products or services? Feel free to share your thoughts and experiences in the comments.
About the Author: Archan Mehta is a freelancer and hobbyist. Feel free to contact Archan at [email protected] at your own convenience.
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