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Looking for Loyalty

“Looking for Loyalty”

To keep customers coming back, understand what makes them faithful in the first place.

It’s no mystery why you want loyal clients — attracting new customers costs five to 10 times as much as retaining existing ones. What’s more, studies have shown that a 5% increase in customer retention can increase profits as much as 100%.

Yet before launching any loyalty initiative, it’s critical to stand in your customers’ shoes and assess what’s in it for them.

Loyalty breeds benefits on both sides of the fence. For customers, doing business with the same firm over time:

  • Reduces risk. When a customer deals with a company for the first time, there can be considerable anxiety. Will the vendor get it right? As patrons engage in repeat transactions and all goes smoothly, their perception of risk decreases.
  • Reduces effort. With repeat exposure, a customer gains knowledge about the vendor. The customer knows what to expect — how the system works — which eliminates confusion and makes the transaction easier. At McDonald’s, instead of specifying a particular sandwich, fries and beverage, you can simply order a Value Meal. This not only saves time, but it also speeds up the line for other customers.
  • Accommodates customization. Long-term customers often have input into product or service design because vendors have had a chance to discover what’s important to them. When Subaru found out that many customers were pet owners, it created a pet carrier as an option.

Different Forms of Faithfulness

Loyalty is a behavior — not an attitude. And it varies according to your product or service and the amount of effort customers expend while making their purchasing decision. The key is to determine whether your product or service presents a low-involvement purchase or a high-involvement purchase.

Low-Involvement Loyalty

This purchase is habitual rather than one that consumers spend much time or energy thinking about. Take soda crackers. Is it really worth a lot of mental energy to reassess your cracker decision?

If you market low-involvement products, do everything possible to encourage the customer’s habit. Anything that requires more thought during the purchasing process is dangerous. For example, you may not want to change your packaging because people might suddenly pay more attention to the transaction and see what else is out there.

High-Involvement Loyalty

This type of loyalty takes two forms — rational and emotional — but in either case, you’re trying to promote a relationship between the consumer and the brand, rather than encourage a habit.

With rational high-involvement, the customer can articulate why he or she purchases from you — such as buying a Volvo because of its safety record. To fuel the fires of rational loyalty, marketers must present reasons to purchase the product that are consistent with customer values.

Emotional loyalty occurs when the product or service becomes a "badge" for customers; it’s tied to their self-image in some way. A Burberry raincoat doesn’t necessarily repel water better than one from Kmart, but the Burberry definitely has upscale cachet. Keeping the relationship alive with the customer is especially important with emotional loyalty.

Some transactions involve both rational and emotional loyalty: Volvo is not only a safe car (rational), but it enables the consumer to see himself as a good parent or practical person (emotional). Companies often begin by establishing rational loyalty, and then ratchet it up to an emotional appeal.

Common misperceptions: Many marketers mistakenly believe their brand-loyalty is of the rational high-involvement variety, when in reality most are really low-involvement habitual purchases.

Another mistake is equating loyalty with satisfaction. Granted, satisfaction is an important factor, but switching costs — the monetary and psychological costs incurred by the customer — also plays a role.

For example, some companies might charge customers an administrative fee for closing an account. Although customers may be unsatisfied, they will remain loyal if the savings presented by switching to a cheaper service provider fail to offset the cost of closing the account (monetary cost). Similarly, customers will also remain loyal if it’s a hassle to close the existing account and open a new one (psychological). Add to these costs the uncertainty of dealing with a new provider and customers will often remain loyal even when unsatisfied.

And if you’re the only game in town or if there is a steep learning curve to a competing product, customers are going to be loyal whether they’re happy or not. Look at Microsoft, which has a lot of loyal, but unsatisfied customers.

Unfaithfully Yours: Why Customers Defect

Keeping customers true blue has always been challenging, but the stakes are higher in today’s crowded marketplace. It’s a lot easier to pick — and stick with — a product or service when there are a couple of choices. But as more vendors vie for customers’ wallets, it becomes easier to stray.

What’s more, recent advertising has done a good job of convincing consumers to be different, to try new things. People are considered almost stodgy if they don’t try alternatives — something the Internet will only accelerate.

Customers typically leave because they can and because they’re unhappy. Here are four common breaking points that apply to both service- and product-oriented companies:

  1. Management vs. customer expectations. Management’s idea of what the customer wants isn’t necessarily what the customer really wants. This misalignment happens for a couple of reasons: Managers don’t research properly because they’re in a hurry to get to market. Or pride might cloud their perception of market needs. Example: Entrepreneurs often hatch ideas because they weren’t served well or had some problem with an existing product. Personal experience is a good starting point, but don’t forget to ask: "Do I represent my target market?"
  2. Standards. Management may know what customers want, but hasn’t put standards in place to produce the desired results. Take a look at your staffing levels. Are they adequate — even during busy periods? Are physical facilities (or Web site) designed to move customers through easily? Do you have the right equipment? Have employees been trained properly? Make sure employees have appropriate scripts and operation manuals to follow. Standards help your front line understand and deliver what the customer wants.
  3. Standards exist, but aren’t followed. This is usually due to a training problem or employees lacking certain skills. Yet it could also be caused by unclear, ambiguous standards. If employees can’t understand the standard, then they’re going to do whatever they think is best.

    Customers also need to understand how the system works. Suppose you’re renting a car at the airport: You go to the parking lot to find the vehicle, but the numbering system is confusing, and you can’t find it. Not good. The moment the customer is required to go to any effort, an obstacle has been raised.

    To close this gap, create a "service blueprint." Start with an architectural plan of your facilities. Then diagram all interactions that occur between customers and employees in various departments. This helps identify where failures occur and determines whether there is a training problem, equipment failure or a matter of not having the information at the right place at the right time.

  4. Communications that overpromise. Some companies do everything right — they understand customers’ needs, set standards and follow them — yet still lose clients. Why? Because advertising sets high expectations that are unachievable.

    A standout for establishing very clear expectations is Buckley’s Mixture, a Canadian cough syrup with a self-admitted nasty taste. Buckley’s tag line: "It tastes awful. And it works." Indeed, the company makes no bones about its bitter flavor, explaining that ingredients are responsible for both the taste — and fast relief. Ad slogans and campaigns even celebrate Buckley’s unsavory syrup: "Since 1919, we’ve been leaving Canadians with a bad taste in their mouths."

    Besides setting realistic expectations, another remedy is a service/product guarantee. Such guarantees spell out what the customer can anticipate, and what your company will do if the product or service falls short. Remember: Customer satisfaction is the difference between their expectations and what’s delivered.

Leveraging Loyalty

One way to exceed expectations is through "customer delight" — small, but thoughtful gestures or actions that are not expected by the customer. Try to think of actions that show your company cares about customers.

Narrow your focus. This is a tough one for entrepreneurs who are typically teeming with new ideas to try out.

Especially in a crowded market, narrowing your focus can boost customer retention. If you’re dabbling in many areas, customers will regard you as a commodity and be loyal only as long as they get the best price. But by being a master in one trade, you are clear in customers’ minds. And when they want a particular widget, they’ll think of you first.

Case in point: One software provider streamlined his business, eliminating a number of products to focus solely on salesforce-automation software. The first three months, sales dipped 2%, but over the next nine months, business shot up 21%.

Pay attention to the communications process. Keep customers in the loop about what’s happening. Amazon.com wins kudos here. When a customer places an order, he immediately receives confirmation by e-mail. Subsequent e-mails update customers about the status of their order.

Communication is an important linchpin to strengthening loyalty. It keeps customers from feeling like they are in a black hole.

Don’t be defensive. Problems happen. And most companies are very bad at saying, "I’m sorry." A little sympathy goes a long way with disgruntled consumers. Be prepared for problems with guidelines for handling failures and remedies. Research has shown that recovering successfully from a service failure can actually impress the customer more than if the failure never occurred.

When it comes to boosting loyalty, post-sale interactions with customers are crucial. After all, you haven’t won the next sale yet.

Writer: TJ Becker