Change Implementation Techniques for Forming Transitional Team, Creating Alignment, Maximizing Connectedness and Creativity
Technique 8.9 Rationales of Loyalty Programs
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To help determine if you have the right rationale for a loyalty program, respond the following statements with a "yes" or "no"
1. Customers make regular high-value purchases and you want to retain their patronage
Yes No
2. Customers are in a specific age group and you desire to retain their loyalty for life
Yes No
3. There is an opportunity to add value to basic support services
Yes No
4. Members pay a single annual fee for a service and you wish to retain their membership
Yes No
5. There is an opportunity to make regular offers and sell related products/services to a special interest group of customers
Yes No
6. There is an opportunity to differentiate a product/service by offering customers added value services that enhance the basic product/service
Yes No
7. There is an opportunity to offer the regular subscribers special benefits
Yes No
The greater the number of "yes" answers, the more reasons to start or continue a loyalty program. Obviously, the reaction to the conditions of the program will help determine its success or otherwise.
Remember: the cost of winning new customers is considerably higher than servicing existing ones.
Price Impact of Customer Retention
Loyal customers will pay more for superior value that they feel they can rely on by virtue of their experience with the organisation. Furthermore, loyal customers
- tend to purchase higher volumes over time as the confidence in the organisation grows
- increase sales through word-of-mouth advertising; thus growing the organisation's profitable customer segmentation
There is an important difference between customer satisfaction and customer value. Customer satisfaction involves doing the things well from an internal process perspective. Customer value, on the other hand, is a higher order of magnitude as it involves doing the right thing well. "Right" is defined as providing value as determined by the customer in terms of both quality and cost attributes. The difference between customer satisfaction and customer value often explains the high rate of customer defection experience by organisations, despite high levels of customer satisfaction. Customer satisfaction mainly pursues quality and price, while customer value pursues quality and cost attributes relative to rival offerings and profitability, ie
"...companies can avoid the satisfaction trap if they remember that what matters is not how satisfied your customers are but how many satisfied and profitable customers you keep..."
Riechheld as quoted by Craig S. Fleisher et al, 2003
It is linked with value creation, ie will the value the customer perceives from doing business with the organisation keep it loyal to the organisation?
Customer retention is best expressed by loyalty, ie customers return to purchase product(s) and/or service(s) on a regular basis; furthermore, they are recommending your organisation, its product(s) and/or service(s) to other potential clients. This is different from a satisfaction rating and is more than customer satisfaction.
Firms involved in repurchase loyalty do not focus on:
- past performance
- their competitors' performances
- market share
- quality indices
- customers' satisfaction
- price.
These firms focus on
- defining the target base customers, ie because they
i) are the most profitable (spend more money, pay their bills on time, require less service, more stable, etc.)
ii) place greater value on what you offer (your service and products are best fit)
iii) are worth more to you than to your competitors. In some firms it has been found that the top 20% of customers not only provide all the profit but also cover the losses incurred in dealing with other customers, and the top 10% of customers are worth 5 to 10 times as much in potential lifetime profits as the bottom 10%
- quantifying the current and full potential value of these relationships
- committing everyone to closing the gap between the current situation and the ideal
This means not treating all customers equally but focusing on the customers who are more important to you. The more you learn about customers' needs and preferences, the greater the chance of gaining a sustainable competitive edge.
The longer a customer stays with an organisation, the more the customer is worth, as they
- buy more;
- take less of the organisation's time, ie. reduce operating costs
- are less sensitive to price
- bring in new customers, ie referrals
- require no acquisition or start-up costs
- provide feedback.
More on customer care
- first-time buyers are classified as triers. These customers are looking for confirmation that their buying decision was correct. If they experience any problems they will regret the decision and most likely not return to do future business with you.
- it is important to keep track of every point at which the organisation interacts with customers, such as billing, returns, post-sales service, toll-free numbers, web pages, etc. At each step, staff members need to understand the customer's perspective and ask themselves
"...how can we coordinate these points to deliver a seamless experience..."
Jill Griffin, 2003
- when customers experience seamless service, they feel appreciated and reassured.
- systematic follow-up of customers is essential. At the same time you need to make sure that you are adding value with every contact.
- you need to show customers that you truly value the fact that they are giving you a few moments of their attention. This can include sending interesting articles, free vouchers, etc
Some Ways to Increase Profitability
Develop customer loyalty
Acquire more customers/business/products and/or services
Enhance profitability of existing customers, eg sell more products and/ or services
Extend the duration of customers' relationships, ie might make them lifetime customers.
