There
is an art to keeping customers and it is a mix of well tested strategies
and new methods which have been inspired and developed through technology.
It costs seven times as much to find a new customer as to retain one,
and so you need to explore all possible methods if you want to maximise
your customer base.
How do you keep customers coming back? How do you create fiercely
loyal customers who will turn a blind eye to your competitors?
And what can you learn from successful loyalty programs in businesses
both large and small? Loyal customers represent your business'
goodwill and they are intangible assets that add value to your
balance sheet. Domino's Pizza chain estimates that a loyal customer
is worth about $5000 over the 10-year life of a franchise; the
Ford Motor Company has calculated that a loyal customer is worth
$142,000 over their lifetime.
"Customers
who are loyal are gold because they won't shop around," says Dr
Tim Mazzarol, executive director of Curtin University's Small
Business Unit. "There are very few markets where price is the
only issue in customer purchasing decisions. Small businesses
grumble about price competition but they need to identify loyal
customers and find ways to enhance the ways they build loyalty.
If the quality of service and product and the way they are dealt
with is not there, customers won't stay."
According to Mazzarol, chasing new business is a necessary activity
but it is usually three to five times more expensive to get a
new customer to purchase as it is to get a repeat purchase from
an existing customer.
Questions & Patterns
Critical questions small business owners should ask themselves
are:
- What
proportion of your customers are repeat?
-
What is your customer's buying cycle?
-
How much is a loyal customer worth to your business over time?
-
How much time do you currently spend winning new customers vs.
nurturing existing ones?
"Loyal
customers represent a cushion of potential sales that, if retained,
are almost like having a healthy bank balance to draw upon," Mazzarol
says. "Creating loyal customers requires understanding of the customer
buying cycle - the sequence of stages through which customers move
prior to, and after, they actually make a purchase. Knowing this
can help a business turn suspects into prospects, prospects into
customers and customers into advocates who sell your business for
you.
"You
should encourage your core customers (20% of your customers that
provide 80% of your business) to buy more. Is there a new product
you can sell them? "I often wonder how much research is conducted
before businesses launch their customer loyalty programs," Mazzarol
says. "You are more likely to have a good program if you talk
to customers beforehand. It also depends on the buying cycle.
If purchases are very regular, a loyalty points program can be
of benefit.
"Think
about why you are offering discounts and cutting your margins.
You need to discount to those who haven't come to you yet, not
to your loyal customers. They have already decided to buy from
you regardless. It really ought to be the way you do business
rather than the loyalty program that keeps customers happy."
Loyalty Programs
According to Tony Course of Loyalty Magic, there are two types
of customer loyalty program:
1.
Recognition programs make up 80-90% of loyalty programs. They are
all about communicating with and identifying your best customers and
recognising their support by treating them differently. i.e., the
Ansett Golden Wing program or the VIP programs that many retailers
use.
2.
Reward programs. These give tangible rewards to loyal customers. i.e.,
frequent flyer programs and Fly Buys. The advantage of reward programs
is that a business can use points to motivate desirable buying behaviour.
Typically businesses want to motivate customers to purchase high margin
products at slow times, slow moving products, or to increase spending.
According to Ernie Hug of Loyalty Magic, rewarding with points
lets customers concentrate on building points rather than discounts
and the points have a higher perceived value than money. Most
airlines put one cent for every point into a pool to fund rewards.
This means that if a frequent flyer earns 1000 points, they are
costing the airlines $10. Most people would not be interested
in a $10 discount but will change their purchasing behaviour for
1000 points.
Customer Loyalty programs are synonymous with corporate advertising
and marketing dollars. However, according to Malcolm Bristow,
chairman of Bristow & Prentice Advertising, creating customer
loyalty doesn't always require large corporate dollars.
It can, in fact, be fostered from a single phone call or letter.
The aim is to keep in touch with existing customers so they want
to purchase from you again.
Free flights and points are essentially sales promotions and are
not necessary to run an effective campaign," Bristow says. "In
a true loyalty program, you don't make any attempt to gain a sale.
You are simply out to prove that you are a great company to deal
with."
Your database will differentiate between transactional buyers
(one-off price-related sales) and those who have bought more than
once or who have purchased a product or service that required
a considered purchase. These are the profitable customers who
are worth the investment of a loyalty program.
Even if you have a once-in-a-lifetime product or service, like
a pre-paid funeral, its loyalty program can produce valuable referrals,"
Bristow says. Insurance companies that used to bill customers
once a year now find reasons to contact their customers during
the year to soften the blow at premium time. Car manufacturers
work on service plans and offers to keep customers loyal until
the next purchase, which could be two to four years in the future.
Developing A Plan ...
After deciding on the particulars, you need to develop a plan
that will carry out the campaign. Keep in mind that once you have
started a loyalty campaign, it is difficult to remove it from
your business strategy. Customers will come to expect your high
level of service and customer care. Loyalty campaigns require
ongoing investment of time and money. Be aware of what this will
cost your business and balance this with the expected increase
in returns.
There is nothing worse than sending out the first issue of your
newsletter and neglecting to follow up. Ensure you start with
a minimum program that you will be able to continue. After the
initial period you may find you can increase expenditure and in
turn reap the benefits of recurring sales from loyal, happy customers.
Before deciding which type of loyalty campaign you will use, take
a look at what your competitors are doing. How can you differentiate
your activities from theirs?
Establish objectives that you wish the campaign to achieve. Increased
customer retention? More referrals? Make sure these are measurable
objectives and implement some sort of ongoing evaluation that
can track how your campaign is going. This could be as simple
as looking at the database and tracking the performance of customers
who are receiving the campaign. After this planning, it will be
important to do a cost/benefit analysis that will determine if
the campaign can be run at an acceptable cost to the company.
Remember to keep fine-tuning your database, the most important
tool in the success of your loyalty campaign. Watch your small
business grow from strength to strength, as you build lasting
relationships with customers. Marketing consultant, Bob Pritchard*
says many loyalty programs don't do anything to show that the
business cares about the customer. "We all know that it is five
to seven times more expensive to obtain a new client than to retain
one," Pritchard says. "It has become very fashionable for marketers
to build loyalty programs for customers to entice them into continuously
buying your product.
"There
is no question that loyalty programs work for many businesses.
However, the majority incur high costs and administrative burdens
which are prohibitive to many small businesses. Very few actually
develop heart share and permanent loyalty. When the program stops,
so does the loyalty."
Heart Sharing ...
According to Pritchard, people make decisions with the heart or
with the head. If they use their heart, the decision comes down
to how much they care about you. If they make the decision with
their head, it comes down to how well your product or service
stacks up against the competition. "Winning with heart share can
easily be a slam dunk! It comes down to caring, empathy and building
relationships, a natural attribute of most people."
Pritchard travels internationally every couple of weeks and so
he has a high frequent flyer mileage. "My airline gives me a stack
of points just for driving past an airport so I always fly with
them when I can," he says. "But have they built loyalty or heart
share? They have done nothing over all these years to show they
care about me one iota. If they stop the program tomorrow, I will
leave."
Loyalty programs can be expensive and temporary, while heart share
is inexpensive and permanent. Every quick decision is made using
the emotions. It doesn't matter whether you're buying Coca-Cola
(because 112 years of advertising has convinced you that Coke
is fun) or a house (because you 'just love it'). These decisions
are made almost without thinking because of the emotions attached
to them, and they evoke unwavering loyalty.
A Cut Above ...
Pritchard visits many large cities but he always gets hair cut
at the same salon even though it is not the most convenient. So
what is so special about his favourite hairdressing salon?
"They
genuinely care about me as a person, not just as a client. They
show it both during and between salon visits. They make me feel
special, like I'm their only client, yet I'm sure they make every
one of their clients feel special too.
"When
I arrive I receive a glass of my favourite champagne or wine and
a few trade magazines to read. They inquire about my work and
my family. They'll send a junior staff member to park my car,
pick up my drycleaning or a gift if I'm running late. They send
and take phone messages for me to ensure that my business routine
isn't interrupted. They send small gifts and cards for my birthday
and Christmas and even a Hannukah card for my son because his
mother is Jewish. And I get a good haircut!
"Do
I care if going to the salon is a little inconvenient some days?
Do I compare the haircut I get or the price I pay with thousands
of other highly competitive hair salons? Never. Because they have
developed heart share."
Following Up ...
"John,
the owner of the shop where I buy my shoes, also cares. He gleaned
sufficient information about me in a short period of time in order
to really understand me. After giving excellent service in the
store, he sends a follow-up thank you card and occasionally a
gift certificate. If I go into the store with my son, he gets
a small gift or sweet every time.
Within a couple of weeks of the purchase, a representative from
the store turns up at my office with a shoe shine box and cleans
the shoes of everyone in the office at no cost. He knows the names
of everyone in my team and has become a friend. It costs him surprisingly
little to provide these services. Where do you think all my people
buy their shoes now?"
Bob Pritchard is the author of Marketing Success Stories, Complex
Marketing Made Simple and Sponsorship Made Simple. They are available
for purchase through the DSB Bookshop.
Loyal Facts ...
-
68% of consumers change their place of business for little or
no reason.
-
It costs between five and seven times more to find a new customer
than to retain one.
-
A 5% reduction in lost customers can increase profits by up
to 75%.
-
Only 3% of businesses have a 'lost customer' reactivation program.
-
Existing customers are not as price sensitive as new ones, they
require less sales time, administration and advertising.
-
A first-time customer has a 30% chance of becoming a long-term
profitable customer. If they buy three times relatively quickly,
their chance of becoming long-term more than doubles to 67%.
Source: Loyalty Magic
Contact Tips ...
- Birthdays
and anniversaries are a special time for everyone. In any business,
these occasions are great opportunities to build on your customer
relationships by writing to them and offering an exclusive offer
for that day.
-
Send a 'thank you' letter or an incentive to customers who refer
new customers to you.
-
When a customer purchases a product, there is often a certain
period of time after which they will need to purchase another.
Contact them then and when their warranties are about to expire
and offer a service agreement.
-
Holiday accommodation businesses could contact customers who
took holidays in previous years to make special offers for the
same holiday period.
-
Bookstores could contact customers who previously purchased
a particular author when their new book is released.
*Source: Loyalty Magic
Case Study 1 - An Underwater Passport …
Successful diving franchise Pro Dive has over 5000 customers who
belong to its Pro Dive Explorer Club. Modelled on UK department
store Harrods' card program, the Explorer Club aims to engender
customer loyalty and give customers exclusivity of certain deals.
It offers the diving community the ability to use their card as
a credit facility to purchase diving equipment or pay for holidays.
Benefits offered to members include savings on boat dives, regular
social activities including diving trips overseas, monthly newsletter
to keep members informed of upcoming activities and a 90-day interest-
free repayment plan. Membership costs $50 per 12 months.
According to Russell de Groot, chief executive office, Pro Dive
International, 60-70% of Pro Dive's business comes from Explorer
Club members, although they may not use their account to pay for
their purchases. One of the major benefits to divers is that they
don't have to take cash with them when diving, thus preventing
the common problem of theft from possessions left ashore while
diving.
Case Study 2 - Virus Protection …
Australian anti-virus developer, Cybec has a 90% customer retention
rate, according to marketing manager, Frances Ludgate. Many of
Cybec's customers also come from referrals. Subscribers of the
VET Anti Virus products are mailed upgrades and can access technical
support for one year at no extra cost. Although they can now download
upgrades from the internet, many customers like the mailed service.
Cybec also contact customers regularly. "They feel like the organisation
really cares about them and that they're part of the Cybec Club,"
Ludgate says. "Twenty per cent of our customers feel like we're
there just for them. They ask for the same technical support people
every time. We also encourage customers to email technical support
or access the web site to solve common problems."
Cybec welcomes feedback, whether positive or negative. "We'd rather
our customers tell us so we can fix a problem, than get a bad
reputation," Ludgate says. "We'll track a client's problem until
the case is solved."
Case Study 3 - Software Magic …
Retailer, Neal Withington, improved his sales by 40% after he
installed direct marketing software program Loyalty Magic in his
Jurlique franchise in Doncaster Westfield Shopping Centre.
Loyalty Magic is Australian developed software that assists in
running loyalty campaigns by analysing existing customer information
and making it easy to produce highly targeted direct mail.
As well as managing relationship marketing campaigns, Loyalty
Magic has an optional loyalty points module that rewards top customers
for their business by keeping track of their loyalty points and
sending them updates. The software uses triggers to determine
which customers are due for a mailout each week. There are hundreds
of triggers to choose from based on sales histories or particular
events such as customer birthdays, when they make referrals or
when warranties are about to expire.
Withington has now set up a Jurlique customer card program in
conjunction with the Loyalty Magic system. The aim is to make
the customer feel valued and appreciated, like they belong," he
says. "I think the name of the customer is the key and there are
advantages to having the customer card when the customer enters
the store environment. When they hand you the card, you can address
them by name. I don't know how to measure that but it counts a
lot in personalising the atmosphere of the store.
"Our
customer cards have been an interesting evolution and we've learned
a lot. When we first tried to implement a customer loyalty program,
our cards were cardboard and we recorded the buying details on
the card. And so the important information was not in our possession.
When we moved to the current plastic cards, the information was
suddenly accessible and useable."
Smart Cards ...
