MARKETING AND STRATEGY
Building customer loyalty
Customer acquisition is the single most expensive activity a business will ever do. Therefore, it makes sense to ensure customer loyalty through an optimized loyalty loop that enhances the customer experience and satisfaction levels — the emotional levers — and creates incentives through well-designed loyalty based reward programs — the financial levers
While many businesses are complaining about customer loyalty, others have learned how to engage their customers and keep them coming for repeat purchases, and because acquiring a customer is the single most expensive thing every company will ever do, it’s important to foster customer loyalty.
Loyalty is a feeling and emotional bond that customers have towards brands and businesses and it's our efforts that create this feeling within them. Without deploying effective loyalty strategies either accidentally or purposefully, you cannot build customer loyalty. Loyal customers are often not swayed by pricing and they’re not swayed by a sudden mishap or mistake in the delivery of products and services. But if you don’t have the right efforts in place, it’s almost impossible to create this feeling in the customer.
If you want loyal customers, it has very little to do with customer service. The goal should be to build loyalty throughout the entire customer life cycle — from sales to product and service delivery to after the sale. This loyalty focus is the reason why customer-centric companies such as Amazon and Apple and Zappos have been able to stand out and thrive.
The customer loyalty loop — the emotional levers
While you can find different versions online, the traditional customer life cycle generally follows a path like the following:
- Awareness
- Research
- Purchase
- Experience
- Retention
- Loyalty
The problem is that most organizations spend the bulk of their resources on awareness, with recent trends indicating that brands are spending more time on the experience part of the life cycle.
The customer loyalty loop is an updated version of this model applied to the entire customer experience and the individual customers within it. It aims to reframe the way a business looks at creating a better experience better for a customer and make it more likely that they’ll continue to do repeat business. The customer loyalty loop will help businesses look at each stage of their interaction with customers and ask:
- How is the customer feeling right now?
- What could we do proactively that creates a powerful and remarkable memory for the customer?
There are four stages in the customer loyalty loop:
- Imagination: before persuasion. This is where the customer first gets exposed to a business. Even in the early stages of marketing, a business is creating or not creating a feeling of loyalty in its customers.
- Conversion: and not coercion by the way. This is where we’re persuading someone to make a purchase. It’s about moving a prospect to a customer in order to get a customer
- Ongoing experience: this phase is all about delivering on what the customer has bought which is most likely the most important section of all
- Lifetime advocacy: here, the goal is to create a meaningful, memorable, personal, and remaining relationship with the customer.
This process is a loop but it’s not a closed one and it’s about doing the right things throughout each step of the process to ensure a company is creating the loyalty feeling and the customer keeps coming back for more.
Stage 1: Imagination
The customer loyalty loop starts long before the sale has ever been made when a prospect is exposed to a business’s sales, marketing, and advertising efforts for the very first time such as the first time they open their mailbox to find a brochure or find you on Google ads.
The impressions and the memories from these initial encounters are the foundation on which all subsequent actions are based. This stage becomes all about the behavior of the customer in understanding how our actions align with how they are feeling, and more importantly how they’re making decisions.
In this stage, we need to answer questions such as:
- How can we better understand what is happening at this point?
- How can we use this information to improve my sales and marketing efforts?
This stage is about telling a story in a way that implants a positive picture into the potential customer’s mind, so they remain interested in us and ultimately do business. And there are two tips to help on the matter:
- Be sure that you’re not creating expectation gaps, that you’re not over-promising and under-delivering. Don’t make claims that you are not ready to backup. Therefore, you’ll need to review your marketing communications to fix these gaps, if any.
- Use preemptive marketing, as an opportunity to plant the seed of imagination and memory inside the prospective customer’s mind. Don’t obsess with raising awareness through all the noise in the marketplace. A far more effective route is to carefully consider the memory you want to implant, find and tell a relatable and compelling story.
Stage 2: Conversion
Before calling a business for the first time, your experience has already started. You’ve already entered the business’s sales process whether they know it or not. There are two fundamental challenges businesses have in the second stage of loyalty creation:
- A lot of companies make this part of the experience very frustrating for the customer. For example, how many times did the phone ring before someone picked up on the other end? How helpful were the automated message system and call directory? Did someone pick up the call? How quickly can the customer expect to be called back? Did the customer get a voicemail recording? Was the voicemail box full? This stage will be remembered based on how seamless and engaging the experience is, or even something as simple as how the phones are answered or whether your customer-facing people can direct the customer in the right direction.
- Companies try to coerce a sale quickly, instead of providing value or a memorable experience. You want to try to start a relationship with the customer rather than close a sale. For example, when a customer is on the phone, are we courteous and knowledgeable with them? Do we know where to direct the customer to get the information they need? Are we more interested in making a sale or providing valuable information and taking the time to listen to the customer’s concerns? Too many try to coerce and influence a purchasing decision here using fancy persuasion techniques. But we need to spend time on the small details.
A great way to fix possible shortcomings is to secret shop our companies. There always are areas that need a lot of work. Almost any business can get the first sale but will you get the second? By taking a more critical approach to how these interactions are handled, a business will set itself apart and continue to build that loyal feeling.
Stage three: Ongoing experience
Who is the most important person in the hotel experience? If you guessed the doorman, you’ve got it. The doorman is the single most important point of contact in the hotel because he or she is almost always the first person the customer sees and the last person the customer sees. One thing I like to say is that everyone these days could be the doorman. Everyone has the opportunity to be the first impression.
In this stage, the prospect has officially moved from prospect to customer the business is delivering the actual product or service. The first area we need to consider here is how the customer’s experience begins once they’ve made a purchase and how we can make the experience and the first impression as pleasant as possible?
To do this, we need to start by reviewing the customer’s experience and how it begins by putting on our customer hat and see whether the experience is enjoyable. Does it leave them wanting more? One of the exercises a business needs to perform is to map out the first 90 days from when a prospect becomes a client. This is called the ‘customer onboarding process’ or customer nurturing process.
First, we need to assess the beginning touchpoints with customers. Some sample questions that could be answered here include:
- In a brick-and-mortar business, are customers always greeted the moment they walk in?
- In a hospitality business, are your hosts on their phones? Or are they ready to greet new customers?
Next, we can consider the middle touchpoints. Here, we have the opportunity to create remarkable and memorable moments. These are the little things that leave a positive impact on the customer. For example:
- In a B2B business, a brief status update between a product’s delivery can be quite remarkable.
- In the hospitality industry, all the staff can learn the names of all the guests and say ‘hi’ followed by the guests’ names wherever possible, leaving a remarkable and memorable impression.
Finally, the experience ending and final touchpoints. Any great experience can be ruined by a poor ending.
- In the restaurant industry, a great meal can be ruined by a bad experience trying to pay the bill.
- In a B2B business, once the product or service is delivered, you can create a powerful ending by following up shortly after delivery to ensure there are no problems, challenges, or surprises.
Beginnings, middles, and endings. These are the three most important parts of the actual customer experience that impact ongoing customer loyalty.
Stage four: Lifetime advocacy
The more recently someone has engaged in business with you the more likely they are to be interested in doing it again. But it’s not up to the customer to come back and to be more recent or to purchase more frequently. It’s up to the business to bring the customer back to buy more and again.
The issue here is that most companies drop the ball in the later stages of the customer lifecycle because they move back to the thrill and excitement of finding new customers, or signing off as the sale is realized. For example, if you do business with a company and then the first time you hear from them is six or eight months later, then they were likely better off not following up at all. But if you’re contacted within 10 or 15 days after your business, with the right request or outreach, then the customer is more likely to do business again and react positively to whatever it is you have to say as the memory of the experience is still fresh, provided that it was a good one. Therefore, the key question here is:
- How soon after the transaction ends will you be making the next contact with a customer?
The goal of most customer communications should be to serve and add value and enhance the lives of customers. For this to happen, we need to make sure that all of our touchpoints in the later stages of the customer lifecycle are ‘Meaningful’, ‘Memorable’, and ‘Personal’. For example, you might decide that a customer gets a handwritten note shortly after the sale, and in other cases, a personal phone call. It’s tempting to want to get the next sale right away, but if you treat the customer right after the initial sale you can get to a point of lifetime advocacy.
Loyalty programs: the financial incentives
Building relationships with customers shouldn’t be left up to them, businesses need to be more proactive in this area, and that’s why they need a loyalty action plan. The loyalty action plan includes all the steps a business will take to build a customer loyalty program.
A loyalty program is not the be-all and end-all to increase profits and organizational growth, but it can offer a tremendous opportunity to gain knowledge and understanding of the customer base and increase the profitability of the current customers. With a properly structured loyalty plan in place, customers will continually move up the ladder of loyalty, in turn, increasing the revenues from the business’s best customers and creating more business motivation in less profitable customers. A loyalty plan can also increase customer retention and referrals.
But it’s also important to build a loyalty plan that adds value, we don’t want to waste anyone’s time offering cheap points and lousy rewards. The loyalty program is a golden opportunity to learn more about customers and what makes them tick. An effective loyalty program uses customer behavioral analytics to deliver a more personalized and specific experience for that customer or a segment of customers.
It is most deserving that a loyalty program is built on rewards, perks, or experiences that would be valuable to each specific customer segment or group. The key to an effective loyalty program is that it allows you to identify the most valuable customers and lower-value ones and to design programs and initiatives that create the types of behaviors you want from both groups. The goal is to continue to enhance the loyalty of the top clients and work to turn lower-value clients into higher-value ones.
You can expect four classes of customers to target in a loyalty program:
- Great customers, who drive a lot of the revenue. The program needs to be structured in a way to keep these customers happy.
- Customers who could be great and who could drive a lot of revenue, but they don’t currently, however, we see promise in them as they show similar characteristics to the great customers. The program needs to be structured in a way to grow these clients.
- Customers who spend a lot of money but don’t currently show much promise to grow beyond that. They’re not necessarily engaged or have an affinity to the brand. The goal here is for the loyalty program to try and get them more engaged and more excited to do business with you.
- Customers who don’t spend much and don’t show a lot of future potentials, yet. The loyalty program needs to get them excited and spending more and more often.
If a loyalty program does not differentiate customers and gives everyone the same swipe card or the same rewards, it’s somewhat worthless. Not all customers are created equal. For example, a thoughtful loyalty program (e.g. Costco) can be built this way:
- You have to pay to be a part of the loyalty program
- Build rewards based on how high up the ladder customers go; the best clients who drive the most revenue can be given access to more features.
- Publish a monthly newsletter that highlights some of the most interesting rewards that customers can get in return for their loyalty.
Building a hierarchical customer loyalty program
It’s best to have a gamified ladder of loyalty instead of a basic loyalty program that may include a simple points program or a card that treats all customers the same. The ladder model will give customers goals to grow revenue and enhance their loyalty to the brand. If you put a ladder in front of someone the only logical decision is to climb it and your customers will tend to do the same. New customers start at the bottom of the ladder and as they become more loyal they climb further and further up the ladder.
There are six steps to creating a successful ladder based loyalty program:
- Defining the objectives. This might include increasing customer value and profitability of various segments, growing the size of customer base, increasing transaction sizes and frequency of spending, or increasing word of mouth and referrals
- Articulating the required data. What do you want to happen as a result of the loyalty program? This will help determine the data you’ll need to build and implement the loyalty program. This can include demographic data, purchase frequency, transaction size, and the recency of the customer’s last purchase (i.e. RFM).
- Contemplating the program design. For a loyalty program to be truly effective it must maintain a balance between rewards, offers, and communication with customers based on their attitudes, purchasing behaviors, demographics, and psychographics. Some questions to get you thinking about how to structure the program include: is it a points-based program? If so, how is the customer rewarded? Do the points turn into a cash discount? Or are customers able to redeem points for rewards?. Do cardholders or members experience additional perks? Do they receive an immediate discount at the time of purchase? Free shipping? Extended customer support? Surprise gifts or bonuses upon achievements? Exclusive offers?
- Defining success and its metrics. Any loyalty program will have costs associated with it to maintain and distribute its incentives. Therefore, we need to know what would make this program a success and it will be measured. For example, one goal can be to increase the customer basket size, and we are willing to spend 2% of the customer’s total spend as cashback to increase this metric by 25%.
- Structuring the program. This can entail how when we will enroll customers? Will there be a fee to join? What will new members receive? Will it have ongoing communications or promotions? Is everyone automatically a member? etc.
- Constant surprise. Any reward program can get stale and boring quickly and with no surprises, it’s the same old year after year. From time to time we will need to refresh the loyalty program and the benefits associated with it. However, do remain committed to the promises you have made previously if you are making changes.
Customer acquisition is the single most expensive activity a business will ever do, and therefore, it makes sense then to ensure customer loyalty through a well-designed customer loyalty loop and loyalty program.
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