Customer Loyalty: Making Your Program Excel
By Steve Baxter
The first word in “customer loyalty” is customer. It’s also the first word in customer satisfaction, but is the customer the first place you should start when introducing a program to improve customer loyalty?
Perhaps the first place to start is “you.” How loyal are you to those people whom you rely upon and work for you to create the kind of relationships in your business that will foster a loyal customer base? One of the most important steps you can take is to create a work environment that fosters low staff turnover and promotes continuity in the relationships with your customers.
When you started your franchise it may well have been one of the biggest financial decisions you ever made. Perhaps you put all of your savings into the investment and there’s only one option: to succeed. When studying the importance that you put on the success of your business and comparing it to the importance held by your staff members, is there an imbalance? Putting as much emphasis on both helps align the priorities of all employees with respect to your business.
The next step takes into consideration the relative importance of customers to your business. Ask yourself if all customers should be treated equally. If your revenue is spread evenly over all customers then perhaps that’s the case, but if you’re like many business owners and discover that 80 percent of your revenue comes from 20 percent of your customers, then perhaps a “one-size-fits-all” approach to customer loyalty is not balanced.
To determine who are your preferred customers and how to approach them requires making choices in applying your loyalty program. There are only so many dollars, so they must be used wisely to have the most impact. Measure what you do. If it’s not working, change it immediately.
It’s important to be sure what to measure. Traditional measurements, such as how much a customer spends or how often they frequent your business, don’t always provide an accurate picture. These measurements might help determine who repeat customers are but don’t necessarily reveal who—and more importantly—why, they are loyal.
A Key Point
What is the definition of loyalty? How can a business owner tell when a customer has become loyal?
A “repeat customer” isn’t necessarily a “loyal customer.” There is a difference and it takes time for customers to progress from one stage to the other. Customers become loyal one step at a time. Understanding how, why and where each stands is critical to a successful loyalty program. One can only move customers through these stages they are retained. Customer retention is one measurement of the effectiveness of your loyalty program and a critical component to the growth of your business.
One reason why customer retention should be one of your highest priorities is because as customers progress through loyalty stages they typically spend more. The first time you clean their carpets you do the living room. The second time you’re doing an area rug as well. By the third time you’re cleaning all the carpets in the home and selling them cleaning products.
Customer transition has several stages—first-time, repeat, then loyal. But there’s also one more important stage: advocate. As customers become advocates you will see your business grow significantly. Advocates are those customers who recommend your business to their friends. You don’t need to spend as many marketing dollars for their business or entice them with multiple sales calls or offer higher discounts. Advocates become your best salespeople. The investment in turning those first-time customers into advocates has a huge payback.
What Drives Loyalty?
True customer loyalty, the kind that that survives the test of time, comes from extreme circumstances. You have either overwhelmed them with an experience that far exceeded expectations or amazed them with handling a situation that went wrong. They remember the resolution not the problem, and the conversation is all about how they felt afterward.
To make either of these scenarios occur you have to listen to the customer. How do you learn about a problem when less than one in 10 customers voice a complaint? How do you deal with the negative effect on your business when the majority of customers remain silent?
Communication is Key
True communication actively seeks complaints. The next time you have a bad restaurant dining experience, don’t say everything was fine and leave. How can a manager be expected to improve the service, understand when a menu item isn’t working, or identify a waiter who isn’t meeting the restaurant’s standards without your feedback?
The worst thing that could happen to a business is for a customer, believed to be satisfied, leave and within minutes begin posting negative information on Facebook or other social-media sites to their followers. A customer explaining what went wrong and giving the manager a chance to correct the situation provides an opportunity to rescue what otherwise might have been an unpleasant experience. At the same time, the customer leaves impressed with the restaurant and perhaps even loyal. Although the customer may not have been satisfied, his loyalty to the business has improved.
The Difference Between Satisfaction and Loyalty
There’s a big difference between customer satisfaction and customer loyalty. Many people use these words interchangeably, but the difference should be understood.
Customer satisfaction is the measurement of a transaction. How “satisfied” were you with that dining experience? Customer loyalty is the measurement of a relationship. Although you’ve enjoyed numerous wonderful meals at this restaurant before, your most recent meal was bad. Did this one unsatisfactory experience affect your decision to return?
In making this decision, you will consider how the manager resolved the situation. That will, have a big impact on your answer. Everyone wins when there’s good communication between the business and the customer. However, not everyone likes confrontation. This is one of the primary reasons why so few people give candid feedback to the business owners. Therefore, a non-confrontational method of soliciting feedback is another key to a successful customer loyalty program. E-mail, for example, is one non-confrontational method.
E-mailing customers after you have provided a service is an excellent method of soliciting feedback. It works because it’s non-intrusive, non-confrontational and cost-effective. E-mail response rates are generally higher than those of customers who visit a Web site to provide feedback. They provide more accurate information, plus additional opportunities to provide the resolution required to foster loyalty.
What is said in an e-mail is crucial to the success of this program and the response rates. Most companies conduct surveys, but with varying degrees of success. The problem with surveys is they are always written from the perspective of the business asking the questions instead of the customer. You can ask 10 questions that you think are important for feedback, but the 11th may be the most important thing for that customer.
Predicting customers’ definitions of value ahead of time is difficult at best and a trap that many companies fall into is to just add more questions. Adding more questions means less people respond, and that means less meaningful data.
Another issue with surveys is that they often lead to inaction and confusion. What happens if 50 percent of the customers respond that the pillows in your hotel are extremely comfortable, but the other 50 percent say they’re extremely uncomfortable? Do you get rid of them? Buy more? Or buy multiple pillows for each room? And even if you did that, would it result in more business?
More importantly, once you have the information, how should you respond? The World Wide Web and social media have completely changed customers’ perceptions of acceptable responsiveness. Responsiveness is directly tied to customers’ perception of good service. How does the information you’re collecting affect your ability to be responsive to what the customers are saying?
Find the Balance
A successful customer-loyalty program must also consider the balance between the questions being asked, rate of feedback, and the ability to act within a time that is acceptable to the customer and short enough to not affect customer retention or spawn bad publicity.
One way to achieve this balance is to introduce the concept of measuring customer loyalty using specialty software, which begins with a single question: “How likely is it that you will recommend this service/product to a friend?”
The response is given on a 0 to 10-point scale and each response categorized as a “promoter, passive, or detractor.” It’s a best practice to then ask each customer why the company was rated that way. For example, promoters might be asked, “What is it you like about our products/services?” Passives could be asked, “How can we improve?” And detractors: “Why were you disappointed and what can we do to fix it?”
From these responses, a score is calculated. It’s important to know your company’s score at the brand level, but also knowing the score of each franchisee enables you to hone in and improve the entire network. With the right software system it’s possible to calculate the score of each aspect of your business: region, master, franchisee, manager, product or service line, technician, and every attribute you care to track about customers. For example, what is your score for new customers compared to those who have been frequenting your business for three years?
This approach also addresses the concern about surveys and response rates. Asking one question is going to result in more responses than asking many. Further, by asking how likely it is that the customer will recommend—put their own reputation on the line-—you get a bottom-line perspective on how well you’re doing as the customer considers numerous experiences from the comfort of the pillows to the friendliness of the staff, and ultimately what they think of your company. This will provide you a clear indication if a customer plans to return or recommend you to friends.
As one of the best indicators of growth, many companies have adopted this system as their preferred method of measuring customer loyalty, but have struggled to turn this into actionable events or tasks that need to be performed to improve their businesses.
Knowing your promoter score is one thing, understanding why it is at that level and knowing what to do about it is something different. As one of the best indicators of growth, many companies have adopted this system as their preferred method of measuring customer loyalty, but have struggled to gain an understanding of what’s necessary to improve their business. The right software solution will prevent this from happening.
Steve Baxter is founder and CEO of Systino, which is a leading provider of customer retention, loyalty and referral software to the franchising industry.