Loyalty Rules

by Allan Katz

Loyal customers are worth their weight in gold. Once you have won a customer over, he is more likely to buy in the future, even in hard economic times, will spend more than new customers, and will be more forgiving if there's ever a problem.

Loyalty is a state of mind. From a marketing standpoint loyalty helps us increase market share, increases continued patronage and increases referrals.

But we need to remember that building loyalty is an emotional connection characterized by trust, comfort, understanding, forgiveness, attachment and pride - an emotional bond. Customer loyalty is a function of the customer's subjective perception of the value you are delivering, based on what they need and desire at any given point in time. It is a PERCEPTION, based on experience. We need to create experiences worth coming back for. And with new customers getting harder and more expensive to acquire, why not not focus on the three ways to increase your business through loyalty?

Recency, Frequency and Monetary (The RFM formula)

  1. Increase the number of clients you do business with.
  2. Increase your average dollars per sale.
  3. Increase the frequency you do business with your clients. Increasing one or two of the areas will yield substantial linear increases in your gross sales volume. Increasing all three areas will yield exponential increases in your gross sales volume. To double your sales, it only requires a 25% increase in all three critical numbers. To more than triple your sales, it only requires a 50% increase in all three critical numbers.


There are many benefits when you concentrate on developing a loyalty based marketing program:

  • Loyal customers usually spend more. They represent a stream of earnings over time. And even in tough times, loyal customers still represent your most profitable category.
     
  • Loyal customers cost less to serve. Your staff members are familiar with them. Long term customers often learn your "routine" and are willing to help themselves. The more "self service" oriented your customers become, the lower your costs to serve them.
     
  • Loyal customers are less price sensitive - as long as you are providing other kinds of value for them! Your customers are already comfortable with you, they like working with you. Price is an important product consideration, now more than ever, but not the only variable customers consider when they evaluate your total offering.
     
  • Loyal customers are more forgiving. Let's face it, you've built up an emotional bank account with them over time. Their zone of tolerance with you is larger than it will be with others. Hopefully you have proven you are out for their good and you care about their needs.
     
  • Loyal customers have greater profit potential. New customers often have to be brought in with price discounts and incentives. The "break- even" on these new discount oriented customers might be measured in years. Loyal customers are more likely to pay full price, and the pay back is quicker. Acquiring customers without discounting will yield a more loyal customer. Otherwise you're "training" your customers to expect discounts.
     
  • Loyal customers help us improve. They give us feedback about things that are not working, they help us improve our processes, and, if we ask, they will tell us what they might need in the future. They are the most cost-effective "consultants" you could talk to. This is why online and offline surveys are so critical to the future success of your business.

As businesses, we are looking for the most profitable relationships. As customers we are looking to do business with companies that offer the best value proposition and delivers the best experience - one that we might even categorize as CARING.


Allan Katz is a marketing coach, professional speaker, and author. For more information about his coaching services and books contact him via telephone 901-359-8299.

 
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