Building customer loyalty

The Small Business Company

TSBC are the experts in small business - they help Government agencies, Banks, Accountants, Large businesses, & Industry associations deliver small business improvement tools to their own small business customers.

As a business owner, is customer loyalty or customer satisfaction more important to you? If you think about it, a loyal customer is always better than a satisfied customer, because a loyal customer is less likely to switch to another supplier (even in the face of discounts and special offers) than a satisfied customer.
Customer service
If you are dissatisfied with your hairdresser, you're more likely to be lured away by promotions, while as a loyal customer you're likely to keep using your hairdresser even if it costs a bit more.

Customer loyalty also matters because selling more to existing customers is easier and cheaper than finding and selling to new ones. Loyal customers tend to buy more, and buy more regularly. They give your business secure revenue streams that raise the value of your business, and they will frequently recommend your business to others. So it's worth spending time and money on building and maintaining customer loyalty.

Before you design a customer loyalty programme

Before you rush ahead and start designing loyalty cards, the first step in designing a customer loyalty programme for your business is to learn as much about your different customer segments as you can. Find out what, when, and how your customers buy, and use this information to improve the service you offer. Pinpoint those aspects of your business that encourage loyalty, and aim to duplicate them.

For example, if customers are loyal to you as the owner, or to your manager, then it is important for you or the manager to get out, meet customers and build the business's profile and loyalty. If your customers are loyal to the business brand, then advertise in the media, sponsor events and build the reputation of the business. Don't forget your employees - you might have key employees whose service encourages many customers to come back.
Listen to your customers

The more you know about your customers, the better you can meet their needs. Look for opportunities to generate feedback, such as quick email or online surveys, or a few questions staff can ask at the time of purchase, such as: "Is there any aspect of our business you'd like us to improve?"

Here are some more tactics:

    * Ask new customers why they chose you over the competition and ask existing customers what you could do better.
    * Set up a customer hotline and ensure the number is on every communication you send out.
    * Get feedback online by putting an email response form on your website. If the feedback is positive, ask customers if you can put their testimonial on your website.
    * Encourage customers who have a concern to contact you. You then have a chance to rectify issues before they escalate to a complaint, or turn a loyal customer into an unhappy customer, or an ex-customer.
    * Carry out regular customer satisfaction surveys. Keep the questions brief and specific, and offer an incentive or a donation to charity as an incentive to complete the form.

See through your customers' eyes

Think of ways to make life easier for customers. For example, a retailer might provide customer car parking, or a simple procedure for returning goods. You could also:

    * Concentrate on providing quality service in key areas. For instance, customers often complain that deliveries or maintenance people fail to arrive on time. Implement an on-time guarantee.
    * Try to save the customer inconvenience. For example, keep the right spares so you can fix products or equipment quickly. Can you offer a loan item while equipment is being repaired?
    * Exceed your customers' expectations. If you promise delivery in 10 days, try to deliver in seven. Always keep your promises.
    * Keep customers informed about any problems, and make it easy for them to contact your staff. Provide a toll free number and the direct email address of the employee responsible for their account.
    * Use your website to give customers the services and information they want. Develop a simple ordering system including useful information such as answers to frequently asked questions (FAQs), technical advice, and a tracking system for orders placed.
Deliver a consistent service

Strange as it may seem, consistently poor service is better than inconsistent service. A local copy centre had poor service. The employees were not interested in interacting with the customers and their job seemed 'boring'. But as long as they were consistent, customers could deal with it. They could drop off their printing, and know that the employees wouldn't waste their time with discussions about the weather. (Of course, that business missed out on business from all the customers who DID enjoy some form of interaction.)
Define the level of service you plan to offer

As part of your sales and marketing strategy, set out the levels of service you plan to offer your different customers. Ideally, you'd aim to design and deliver a consistent customer experience that could include personal visits, phone calls, letters or email correspondence. Draw up a set of procedures and guidelines for your staff to use. For example, should they address customers by their first name or use a more formal form of address, or is this up to their own discretion?

Your most important customers might receive more personal attention, and it is a good idea to identify those customers who enjoy a lengthy chat and those who prefer a shorter sale conversation.
Keep in contact

The key to customer loyalty is maintaining  contact with your customer. Yes, there are privacy laws to consider, and yes, more and more people do not want spam or junk mail. But at the very least, you should be able to offer customers the option of opting-in to get more information about product launches, specials and promotions.
Make the most of your customer database

A good customer database and a strong database management system add considerable value to your business. These can help you record, organise and plan your contact with customers. The ability to set up automatic emails and reminders to keep in contact will make it easier for you and your staff to implement a customer loyalty programme.

Use your database to record information about your customer's buying habits so you can tailor your sales or service offer to meet their needs. For example, a travel agent could send customers information about their favourite resorts a few weeks before they normally book their holidays. You will achieve better results if you record and automate this rather than relying on chance, or your memory.

Invite customers to events

Another way to develop a business relationship and customer loyalty is to invite your customers to events. When you entertain customers, choose events that reflect your company image and set you apart from your competitors. Entertain your most important customers on a one-on-one basis. Find out their interests and indulge them. While an occasional lunch or an after-work drink can be fitted into most people's schedules, you might also include an outing to the races, a fishing trip or a round of golf, depending on their interests.

If you have to entertain large numbers of customers, consider holding an annual event. This need not be expensive. For example:

    * A specialised travel company could hold a video or slide show each year, combined with an exhibition of customers' photos.
    * An injection moulding company might combine a presentation on state-of-the-art plastics technology by a suitably high-profile speaker with some popular entertainment afterwards.
    * Although widely used, tickets to sports games, theatre, concerts, art exhibitions, and charity auctions all provide a reason for your customer to like you more than your competition.

Loyalty schemes

Most loyalty schemes offer rewards to loyal customers based on the amount they spend. Retail businesses often use loyalty cards for this purpose, offering discounts or a free product when customers reach specified spending targets.

If you offer discounts based on specific buying targets, then make sure you accurately track the purchasing activity of each customer and flag the discounts as they are earned. You risk losing loyalty if customers have to ask for their discount.

Use discounts wisely

Some loyalty schemes offer customers a discount off their next purchase. For example, discount coupons that are only valid for a limited time can encourage prompt action. However, be aware that discounts may cheapen your product in the eyes of the customer. This is why some businesses prefer to make offers such as '20% extra free'.

One danger of discounts is that you are gathering a number of 'satisfied' customers and not loyal ones, and discount customers are more susceptible to being lured away by a bigger discount somewhere else.

Give a percentage back

Customer loyalty is something that develops over time and has a price tag. Whether you take time out to go visit them, offer a special discount, invite them to an event, set up a database tracking their behaviour, train staff to be more consistent, or implement customer service guidelines and training, it all comes at a cost.

Since your loyal customers are often the mainstay of your business, it is a good idea to set a budget (for example, 2% of sales) and spend this on developing customer loyalty ideas.
Next steps

    * Research customers' wants and needs and use their feedback to improve service levels.
    * Visit the  Marketing Association site for information on loyalty and rewards.
    * Examine all aspects of your current customer service and set standards and improvements for all customer contact points.
    * Progressively empower staff to deal with customers, so buyers or successors will feel more secure about customers remaining when you depart.

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