Small Biz

Smallbiz/24″/dt1st/LK2nd Customer retention is an extremely important part of remaining successful in your business endeavors. Research has shown that it can cost up to six times more to get a customer back than to keep him. Not losing your customers in the first place is therefore paramount. Many companies strive to build customer loyalty. Loyal customers buy from you again and they refer other customers to you. Your chances of maintaining or increasing market share, and ultimately making money, are better with devoted customers. True customer loyalty, however, can be very difficult to achieve. Just because your customer buys from you in a given period does not mean that he or she is actually loyal. You only have loyal customers if they both buy from you and have a favorable attitude toward and preference for your product. Consequently, in many cases it makes little sense to even attempt to build loyalty. This is particularly so if your customers are not very involved in the purchase. As with products like paper clips and salt, chances are slim for active interest in the purchase of your product if it doesn’t pose great personal or financial risk to your customer. In addition, if there is little perceived difference between your product and that of competitors, it can prove very difficult for you to build more than spurious loyalty. As soon as your competitor comes up with a promotional campaign, your customer will switch. In recent years, marketers have taken to new technology to differentiate themselves and stimulate customer loyalty. The idea is to supply customers with a purchasing card to record buying and reward faithfulness. Retailers, supermarkets, credit-card firms, and many other businesses hoping for loyalty have adopted it. By applying two-way personalized communication, using direct mail, and developing “customer clubs,” companies expect to enhance their product offering and stimulate customer preference. Nonetheless, it doesn’t always work as the marketer hopes, as illustrated by the findings of a recent investigation of such a program. In this “customer club,” a credit-card-sized plastic card was used to record purchases every time the customer shopped at one of the company’s outlets. Customers were given progressive bonus points on purchases. In addition, the company offered other advantages in the form of rebates on products that were not made by the company itself. This was done by providing a selection of “premiums,” i.e. non-company products supposedly below suggested retail price. On one level, the club seemed to be successful. It could boast having the largest number of customer members in the industry. However, while careful scrutiny revealed that 70 percent of customers had the same or increased purchasing activity after becoming members of the club, the remaining 30 percent had decreased their activity. And in dollar terms, there had been an overall sales decline of 8 percent after the club was initiated. As a whole, the club had therefore not been able to make customers buy more. The reason? Customers liked the bonus points but were quite indifferent toward the non-company premiums offered in the club. Customers were only favorable toward premiums that were related to the company’s own core products. A majority of club members held similar cards from competitors. This meant that little relative competitive advantage had been achieved with the club scheme. Based on the findings, the company made some radical changes to its program. The company would now make sure that new “premium offers” would be similar or related to the customer’s reason for buying the company’s main product. As with any promotion, in order for a premium offer to have a true and lasting effect, it should be complementary to the main product or service. For example, if you sell toothpaste, it is better to throw in a free toothbrush than a coat hanger. Perhaps the most important change was the creation of more accurate success objectives for the club. Meaningful and measurable objectives were established, and then pursued. The objectives were related to economic and financial factors, such as making the occasional buyer become a more steady user, increasing buyers’ consumption, attracting buyers from competitors, and maintaining a high level of current repeat purchasers and keeping them from buying from competitors. Also, the company behind the club abandoned its hitherto unrealistic expectations of using it to stimulate customer loyalty. By concentrating on new departments to set up and run the customer club, it had almost neglected crucial areas such as maintaining a high level of general customer satisfaction. Maximizing customer satisfaction can lead to repeat purchases, customer acceptance of additional company products, and ultimately greater market share and profitability. By focusing on a more simple and measurable issue such as customer satisfaction, the company could now make its objectives much more operational and manageable. In conclusion, you must take care not to assume that you have loyal customers. Genuine loyalty implies a purchasing behavior and a disposition that is not easily influenced by price and promotion factors. If, for instance, a competitor can use a simple price reduction to lure away your customers, they are not loyal to you. Customer satisfaction is a very important measure and almost always imperative to your long-term success. It is also a good indicator of your possible future profits. Although you cannot necessarily count on loyal customers, by maximizing your customers’ satisfaction you have a greater chance that they will come back to you. Therefore, tracking your customer satisfaction level regularly and setting objectives for improvement is one of the most meaningful processes you can undertake. U. Lindahl is a business consultant with Chatsworth-based Vidac Business Consulting. He can be reached by fax at (818) 885-5599 or by e-mail at [email protected].