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CUSTOMER LOYALTY - The knot that binds
Customers yearn to be loyal, claims Geoff Webb, but there are far better ways of keeping them on-side than conventional loyalty schemes
Let’s face it: most loyalty schemes today are really a confidence trick. The rewards they offer are meaningless to most customers. Do even the major brands that launch these schemes honestly expect them to be effective in winning true, bankable, customer loyalty? I doubt it.
The tiny value of benefits offered by loyalty schemes - typically about one-hundredth of what customers spend - is one main reason why these schemes rarely work. An even more important reason is that the schemes don't address what customers actually want.
Understanding what customers do want, and even more importantly, why they want it, is essential if you intend to be in the leading pack in the customer loyalty stakes, and not just an also-ran.
These are strange, often bewildering, times to live in. What are we to make of an age when hundreds of thousands of different brands compete wildly for people's time and their business – trampling across each other's turf? When the Internet has become all pervasive and so influential? When busy people who like to play global Internet games in their limited spare time are willing - even eager - to pay real money on specialised auction websites for virtual game credits such as game gold? When, if we look at the big picture, customers are confronted by a blizzard of distractions and competing choices for their hard-earned money?
It's a blizzard that may make many consumers feel like staying in their tents until the storm abates. Except that it is not likely to do so.
These are times when instant gratification is no longer seen as a vice. Instead, it is regarded as a major benefit that a product or service can and should offer. These are times when consumers have more opportunities to indulge in hedonistic enjoyment of life than since the days when our species first evolved from the hungry hominids that were the real Adams and Eves. These are times when shopping is not a chore but a hobby, and according to several research sources the most popular hobby of all.
The pleasures offered by our world may be exciting. But it is also a complex, confusing, distracting and bewildering world, and now it has a virtual dimension as well as a physical one. Hardly surprising that we often want to escape from it.
A good way to escape from it is through our imaginations or via the imaginations of others. Historical dramas have never been more popular. One of these, the UK's Dad's Army, which turns up regularly on satellite channels and repeats on terrestrial TV, has a great deal to teach us about customer loyalty.
You'll remember the doddering absurdity of Mr Jones, the butcher, but you'll also remember that Jonesey, ludicrous as he is, always knows what special cuts of meat his regular customers want for the week-end, and what little delicacies they would particularly enjoy getting under the counter as a special treat.
The world of Dad's Army has vanished as completely as food rationing, but Mr Jones the butcher had an approach to rewards and winning customer loyalty that is even more relevant now than it was when Churchill led the War effort. Jonesey knew his customers, and cared about them, and took it for granted that he was in business to look after them. Above all, he made them feel he understood them and that they had a special relationship with him.
Today, an ambitious customer service manager at any organisation that is striving for real competitive advantage could do a lot worse than borrow a lesson or two from Jonesey.
The loyalty challenge today
All organisations - even very successful ones - are facing an unprecedented challenge on the customer loyalty front. Competition for customers is intense. Organisations are only too aware of the financial benefits of being able to win loyalty from their customers at a time when getting a new customer is more expensive than it has ever been.
Disloyal customers are fickle, well aware of their spending power, and demand more and more value for money. And who can blame them for so often being disloyal when the rewards for loyalty are so meaningless?
Winning customer loyalty, making your customers want to buy more things from you and getting them into a frame of mind where they automatically turn to you to buy more things is the reason why organisations exist. You want your customers to stick to you. You want minimal churn of your customer base. You want to see your sales revenue and importance to the customer shooting up as a consequence of that loyalty you are winning.
Yet if the customer loyalty challenge is difficult for any organisation, it is toughest of all for very large organisations, the type with hundreds of thousands or even millions of customers. Why? Because at heart customers still want a 'Jonesey' type of customer service. They want that type of personal service because they are people, and people have a natural desire to want to feel that the organisations from which they are buying things care about them.
People want personal service, relevant rewards and the real service efficiency that should come, they feel, from familiarity. The excuse 'we are a massive organisation and we have too many customers to offer different services and rewards' simply isn't going to wash.
The customer service challenge is especially difficult to meet when an organisation is selling what can be termed non-emotional products.
These are products that do not, at least on the face of it, embody any inherent emotional gratification. These are products that people buy because, basically, they have to buy them. All the customer expects from the product is that it will do what it is supposed to do. Such products might include:
• insurance, pensions, investments and most other financial products.
• domestic cleaning chemicals and any other regular domestic purchases.
• most, if not all, over-the-counter pharmaceutical products. There will be ones you prefer, but you aren't going to be very emotional about buying them.
• basic foodstuffs that you buy regularly.
• most other things that you buy regularly because you use them up.
Research suggests that in practice about 90 per cent of purchases are non-emotional. That leaves ten per cent that are emphatically emotional, meaning that they offer a clear and inherent emotional reward.
It's impossible to be completely certain about which products and services are likely to be emotional for particular people, as the emotional appeal of something will vary from one person to the next. All one can say for certain is that some products and services do have a significant amount of emotional gratification attached to them.
Emotional purchases are particularly interesting features of the customer loyalty stakes. Organisations selling products and services that have a high emotional appeal wrapped up with them often don't need to struggle so much to win customer loyalty. The product or service does the job for them.
People who love Jimmy Choo shoes, or Prada handbags, or holidays from companies such as Abercrombie & Kent, Western & Oriental or Red Carpet very likely don't care too much whether these vendors offer them a free suitcase with every six holidays they take. All these customers want is for the vendor to keep producing great experiences (embodied in specific products and services) that make them feel special when they buy them.
Winning loyalty for non-emotional products
But that is only one part of the story. Why? Because there is compelling evidence that, in fact, it is possible for organisations selling emotionally ungratifying products and services to enjoy real success in winning customer loyalty, if they go about in the right way.
How is it possible to win loyalty for such products and services? Because, at heart, customers want to be loyal. The same blizzard of distractions and choice that makes the modern commercial world seem like one where individual organisations have no earthly chance of winning customer loyalty, has in fact created a situation that is ripe for the winning of loyalty.
When we are in an unfamiliar and even frightening situation we want to find anything that reminds us of home. It follows then that when we are confronted by a vast amount of choice, we love having comforting, special relationships with organisations that we like and which we know like us. It's merely human nature at work.
But organisations need to make a real effort to win this level of loyalty from customers. It takes careful thought. If you want your customers to feel they have a special relationship with you, you need to give them reasons to feel this. Just tossing a loyalty card at them that gives them spending power back equal to one per cent of what they spend with you is never going to be enough.
Instead, you should work to develop relevant rewards that reinforce the special relationships consumers are looking for. Make your customers feel special. Give your existing customers better deals with every new purchase, which return some or all of the money and effort you save when your existing customers make another purchase simply by clicking on an icon on your website or by activating any other method of buying from you. Don't do what most organisations do, which is to reward new customers better than existing ones.
Create categories of customer depending on criteria they will appreciate, and make your best customers know you regard them as that. Create a multi-tiered loyalty scheme (eg. one with Gold members, Silver members etc) that confers not only status but also benefits. The British Airways system where Gold members get a luxury lounge to unwind in is a very real and tangible benefit amidst the chaos and hubbub of the average large airport. It is a more important reward than BA miles, contrary to what most people think.
Make the next incremental purchase easy to achieve. Once you have won a customer, make it as easy as possible for that customer to buy other things from you. Every time you are in touch with a customer, whether face-to-face, via the Internet, by phone, by mail or whatever, ensure that there is some really easy way for the customer, in effect, to 'just say yes' in order to make a particular purchase.
In practice, only a small minority of organisations actually take the trouble to make it easy for existing customers to buy the next product. Most organisations manage this repeat business element of their interaction with the customer so badly that it almost seems they don't really want the new business. Remember: ideally you want each of your customers to buy at least three products from you. Selling one product a year to a customer is not a relationship.
Give customers a relevant reward for their purchase. By 'relevant' I mean something that has a practical use and which also relates directly to what you are selling. Don't offer them the chance of a free hot air balloon trip if they are loyal for four years. That is a mindless and pointless reward. The first thing you should offer is a 'share the savings' discount on the next product or service you are selling them, you know how much cheaper it is to retain an existing customer than win a new one: you should pass some of that cost-saving onto your loyal customers.
It should really be straightforward for you to design the next levels of benefit if you focus on the three things that will make your loyal customer feel special. If you want to be certain of what they want, ask them, and listen to what they say. Add a good dose of common sense and aim to give them things that extend the current relationship. For example, a gold customer of an electronics retailer might be offered merchandise at a reduced cost, or access to a home trouble-shooting service.
Standard loyalty schemes may even be worse than useless because they can so easily distract organisations from the real challenge of getting to know their customers and giving customers relevant and effective reasons to stay loyal. In my experience a poorly-designed loyalty scheme will usually block the business that launched it from improving its customer relationships in more sensible ways for at least three years.
Organisations that rely exclusively or almost exclusively on price for their attempts to win customer loyalty also have reason to worry about their competitiveness.
Competing purely on price is the last refuge of the unimaginative. It is not so much that pure price competition will always fail in the end, though it will, but rather that indulging in it is likely to stifle an organisation's ability to discover and react to what really matters to its customers. Customers don't have time to invest in a hundred brands or service relationships – there is too much going on. A winning brand has to give them reasons to stay loyal that really work.
'Customers don't want to be loyal any more.' Examine that statement against the real evidence available, and you'll find it's a myth. This whole idea that customers today are butterflies who have no other wish than to dart from one flower to another is an idea created by those organisations that can't be bothered to identify and implement the right measures to keep existing customers loyal and bring new ones to the party.
You can do better; you know it. What's more, your customers urgently need you to do better.
Geoff Webb is chief executive of The Webb Partnership, and can be contacted via tel: +44 7767 777 887; e-mail: geoff@gpw.com
www.thewebbpartnership.com
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