Customer Loyalty Without the Points

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The CEO wants you to create a program to increase customer loyalty. He is familiar with frequent-flier programs because he is a frequent flier himself and suggests that you create a program along those lines.

Your instincts tell you there is more to building customer loyalty than points and prizes - and the expense of such programs has you worried. But a points-based program is the only type of loyalty program out there, right?

Actually, there are many ways to build better customer relationships and increase loyalty without having to take on the legal fiduciary responsibilities of issuing promotional currency in the form of points.

Customer loyalty is not a static condition but rather a continuum, with the customer's rational interests at one end and his emotional interests at the other. Customer incentives, such as discounts or the ability to accumulate and redeem points for products or services, appeal to a customer's rational, more mercenary side. Recognizing a customer's status and thanking him for being a best customer appeals to his emotional side.

The most successful loyalty initiatives encompass both ends of this continuum. They create ties that emotionally and rationally bind customers to your organization.

Here are 10 things you can do to build customer loyalty without starting a points-based loyalty program.

Look before you leap. Getting a three-dimensional view of your customers will go a long way toward telling you what could make them more loyal. For instance, discovering what they like and dislike about your service, your products and the buying experience can lend important insight into how you can add value. These likes and dislikes may vary by customer segment, so do not rely on averages across your entire customer base.

One retailer found that it had several very different seniors segments (a group frequently and mistakenly lumped together): an active, affluent retired couple it called Burt and Marylyn; modest-income grandparents (Elwood and Willamae); and a sedentary and somewhat homebound widow (Hazel). Each segment had different emotional and rational interests that the retailer could use to create benefits that would increase customer loyalty.

Know who your best customers are and focus your resources on them. It is not unusual for a company to discover that 75 percent of its profitability comes from 20 percent of its customer base. In the financial services world, this ratio can be even more dramatic.

Build aspirational momentum. Points system or no, you need to create benchmarks that reward customers at certain pre-defined levels. The easiest benchmark for both you and the consumers is cumulative dollars spent within a given period, say one year. A customer learns that if he does X, he will receive Y benefits. If he spends 2X, he will receive even more benefits. This will generate what is called "aspirational momentum" for your program.

Start the program on a warm note. It is critical that you motivate customers to be active in the program as early as possible. This is especially true if you automatically enroll customers (they do not actively "sign up"). Pier 1 Imports sends a certificate that customers redeem in the store for a welcome gift of candles. This gesture engenders active customer participation and builds positive feelings about the program from the start.

Add meaningful value/convenience to the relationship. In the example of the retailer provided above, Hazel really appreciated home delivery and curbside parking when she did get out to shop. Elwood and Willamae liked special best-customer shopping events that included activities for their grandchildren. Burt and Marylyn appreciated the way store associates recognized them as best customers and thanked them whenever they were in the store.

Be spontaneous. Unexpected "just because" rewards make a huge impression with best customers in a way that can affect your bottom line.

Say thank you. Recognition is the most powerful but frequently underused benefit in your arsenal. One major Canadian company lifted sales by 20 percent for eight weeks after mailing a simple thank-you card.

Create a feedback loop. Include mini-surveys in your program materials. Ask customers to participate in online polls. Create a way for field-level personnel to report on what customers are saying to them. One business-to-business credit card company has consistently generated 40 percent or better response rates on its quarterly fax broadcast survey. The company's secret? It quickly incorporates the learning from these surveys into its current activity. Customers who see that their input is used are much more likely to continue providing input.

Communicate. You probably have the promotional communication down. But what are you doing for existing customers that adds value and thereby builds loyalty? Newsletters and magazines have been used for years; but when companies tamper with the balance of product content versus audience-appropriate value-added content, such publications frequently fall short of engaging the customers for whom they were created. Clearly, the Internet can play a big role in offering a channel for value-added information - especially because it facilitates the two-way dialogue so crucial to understanding your customers.

Integrate your data. "You have to make your decisions based on total customer behavior and experience," said Harry Egler, Eddie Bauer's vice president of customer relationship management. "When we started to look at customer behavior across channels over the course of a year, we saw some interesting patterns that made a case for keeping all the data in one location." The resulting data warehouse shows each customer's total Eddie Bauer purchasing behavior in one cohesive picture. "It's worth it," Egler said. "When someone comes in with a return, they don't have a big sign on their forehead that says, 'Hey, I'm your best customer!' But in the lion's share of cases, the only reason they're returning something is that they've bought so much from us, the odds simply caught up."

Egler added, "If I profile our customers, based on which channel they use to buy our merchandise, multichannel customers prove more bonded to Eddie Bauer. And the more bonded your customer, the more they buy from you."

The bottom line: Any loyalty program should rely heavily on your unique selling proposition (aka your brand) - and on a deeper level, it should be rooted in why your customers are listening to you in the first place.


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