Sunday, 26 August 2012

Why and how you should improve customer loyalty right now

An impressive percentage of marketing budgets is spent to drive traffic, acquire new customers and increase market share. It’s often the part of the marketing budget where businesses waste most money. Driving traffic is one thing, seeing it as an opportunity to engage the people of flesh and blood behind the stats in a valuable way another.
Low marketing optimization budgets prove it, as do limited customer loyalty efforts. Indeed, businesses ignore a lot of untapped potential in working with existing customers.  Here’s why you should pay more attention to customer loyalty and how.
While getting more customers is an obvious must, it’s important to increase the share of customers as well. Building loyal relationships based on real value, with existing customers works. Growing revenue through up-selling and striving towards brand advocacy works also.

Customer loyalty for customer acquisition: two birds, one stone

Providing great customer experiences and touchpoints across all channels is the basis of customer retention, and a must if you want to be credible and perceived as trustworthy and valuable, a key challenge for most businesses.
In these connected times, there is an increasing focus on customer loyalty and the next stage, advocacy or evangelism. They are drivers of social proof, recommendations, word-of-mouth and the ripple effects of reach in a connected space. Developing and strengthening relationships that focus on what the customer needs to succeed, and having a human and transparent approach are determining factors to get your best customers to that next level.Advocacy is the best form of advertising.
Efficient and channel-agnostic interactions that tap into the power of the existing customer and of loyalty are a fast route to credibility, trust and word-of-mouth. By doing it right, very loyal customers bring new customers to the company and sales cycles get shortened.
Of course, there is a cost involved. However, why not use a portion of your traditional ‘traffic and reach’ budget to enhance customer loyalty? This allows you to kill two birds with one stone. Reduce churn, up-sell and get higher margins on one hand. Acquire customers via peer recommendations, endorsements, credibility and social proof on the other.

The business case of customer loyalty

Customer loyalty was traditionally defined from the perspective of purchasing intensity and the ‘rate’ of usage’. It segments loyal customers as heavy, medium or light users.
The Pareto rule, a.k.a. 80-20 rule, says 20% of customers are responsible for 80% of profit. In practice, the real percentage depends upon many parameters and typically varies between 20 and 40%. However, it’s clear loyalty in the sense of buying behavior and usage intensity is important.
There is also a very strong emotional aspect regarding customer loyalty. Opinion Research calculated that 90% of customers who love a company will repeat but only 30% of customers who like it will do the same.
While you can segment your customers according to repeat buys and customer satisfaction levels, it can be worthwhile to also segment your satisfied and loyal customers from this emotional perspective to identify potential brand ‘lovers’ and advocates.
The business impact is obvious: Reichheld and Sasser calculated that a reduction of 5% of defective customers may result in 80% increase in profitability. Furthermore, an augmentation of loyalty levels and brand advocates leads to undeniable scale effects. And, as said true brand loyalty can lead to average higher revenues through up-selling but also the willingness to pay more for higher levels of service.
On the emotional level, loyalty is related to trust, perceived value, feeling of status, feeling of accomplishment, success, satisfaction, degree of personal attention, sense of exclusivity and credibility, to name just a few. These same emotional dimensions play a key role in word-of-mouth.

6+ steps to improve customer loyalty using a segmented approach

We often talk about customer loyalty programs. While loyalty can indeed be planned, you should remember that some conditions such as a sense of exclusivity and emotional attributes are essential for successful customer loyalty programs.
Enhancing customer loyalty
Enhancing customer loyalty
  • Identify the segments and their needs. Look at emotional and rational elements. Identify how you can better educate and inform so your customer succeeds better thanks to your help. Take into account several pains. Look at ways to take them to the next level. Analyze what leads to higher loyalty by tracking customer behavior, conducting surveys and having personal interactions. Don’t underestimate emotional benefits and attributes.
  • Define the right mix per segment and identify potential sub-segments based on behavioral analysis and other patterns such as which channels are preferred. Analyze media consumption and content/information needs.  The mix can consist of tactics such as community marketing, email marketing, segmented content programs, etc.
  • Create tailor-made propositions using the channels your best customer segments prefer. Look at propositions across the value chain of your customer (including his customers) and ask how you can help him succeed by making his customers and peers succeed of these indirect segments.
  • Detect segments that might be undetected potential loyal customers, passing under the radar of your teams. Build more personal programs to identify untapped potential.
  • Design for customer loyalty. List what you need to be able to build a relationship culture across your organization and within the departments that come into contact with loyals. Make sure your collaborators understand the importance, train, develop different strategies per segment and prepare.
  • Involve and highlight your best customers where possible and collaborate with them on recommendation and advocacy programs, for instance, using content, that are beneficial for you and them.
And of course: constantly optimize customer experiences across touchpoints.
Obviously, this list of steps is not exhaustive and should be adapted to your context. What matters is that you start focusing more on loyal customers. They deserve it, your bottom-line demands it and your brand reputation can’t live without it.
About J-P De Clerck
J-P De Clerck is a customer-centric marketing consultant. You can follow him on Twitter via @conversionation. Connect on Google+ via +J-P De Clerck.


  1. [...] Brand advocates are among the most powerful sources of social recommendations, word-of-mouth and sales in this social era. However, businesses ignore or forget many possibilities to get more brand advocates, including loyal customers. [...]

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