Customer Retention Strategies: How to Get Uncommonly Loyal Customers
A report by Forrester Research titled Customer Experience Boosts Revenue shows a strong correlation between customer experience and three keys to loyal behavior: intent to buy again, reluctance to switch and likelihood to recommend. The fundamental idea here is that as a customer's relationship with a company deepens and extends, profits increase — and not just by a little. Frederick Reichheld, in his oft quoted article from the Harvard Business Review on loyalty marketing, claims "companies can boost profits by almost 100 percent by retaining just 5 percent more of their customers." One can debate the numbers, but good marketers don't need Forrester or Harvard to convince them of this basic premise: customer loyalty is good and customer churn is bad.
But too often marketers hear the word loyalty and think cards, points, rewards and software-based loyalty platforms. Airline miles, frequent hotel guest programs and credit card incentive programs are indeed the most visible customer loyalty marketing programs around. But true loyalty is deeper than any marketing program.
Loyalty Begins at Hello
Targeting the right kind of prospects for your business is critical to achieving a loyal customer base. Too many companies rely on bottom-feeding tactics to acquire customers at a steep discount, during a big promotion, via sweepstakes or based on a low price. Highly price-sensitive shoppers who are always looking for a bargain aren't likely to be your most loyal customers (unless you're Wal-Mart). Comparison shopping engine SHOP.COM recently released survey results that revealed an overwhelming 76 percent of consumers are price-sensitive and shopping for deals, while 24 percent said they're brand-loyal first. Retaining customers more effectively starts with acquiring the right customers first, then treating them well from the beginning of their relationship with you.
To acquire better customers, start by segmenting and profiling your best current customers. What characteristics define them, and which are actionable and targetable? What are your top acquisition sources for best customers, from direct mail lists to referring websites to top search terms? Use profiles of "best" customers to target look-a-likes. Few companies have customer valuation methodologies — e.g., profitability analysis, lifetime value measures, risk profiles, etc. — to segment and treat customers based on their value to the enterprise. Do the analytics and concentrate your resources on high-potential and high-value customers. Job No. 1 is acquiring the right customers.
Working with the customer file for a client in the for-profit education category, our agency did some audience profiling using carrier route, census and other appended data that revealed "best" customer definitions and sources. This data was easily ranked in a .zip file (ostensibly dropping the bottom performing segments), in turn enabling a geo-targeting test. While it doesn't happen every day, we were able to halve circulation and double response.
That's a good start. But in most businesses customer loyalty isn't even a possibility until after the second purchase. That's the second job — the beginning of a true relationship and the potential for loyalty. Most companies struggle to increase their number of repeat customers. They focus on acquisition to the detriment of customer development and loyalty building. Did you know that customer loyalty poster boy Zappos.com enjoys over 75 percent of purchases from returning customers?
Zappos has very loyal customers and extraordinary word-of-mouth (WOM), yet no official loyalty program. Remember that recency is the most powerful variable in the basic recency-frequency-monetary (RFM) formula for segmenting customers and customer retargeting. Zappos delivers on the power of recency even before its first customer retargeting effort.
Millions of Zappos' customers know that there's no added cost for ordering several sizes of several styles of shoes and returning the ones that don't fit. That's standard for all customers. What earns Zappos stellar reviews and WOM (not to mention one of the highest Net Promoter scores in the industry) is the way it consistently delights customers with free shipping upgrades so their shoes arrive sooner than expected. Zappos is delivering on recency by delivering the order faster. Of course the shoe has to fit (i.e., the product or service has to be good), but great service extends to every touchpoint, including one of the most overlooked: not just free shipping, but free and fast shipping.
Zappos' success is due to its emphasis on repeat customers and customer service. Zappos calls its salespeople customer loyalty reps because they're dedicated to serving customers first, and are encouraged to make emotional connections with customers on the phone.
It's interesting to note that while other companies are trying to reduce time on the phone, move telemarketing services offshore, shift customer communications to automated email, etc., Zappos displays its 1-800 number at the top of each of its web pages. Zappos wants to have conversations with its customers!
As Tony Hsieh, CEO of Zappos, said at a Net Promoter conference, "as low-tech as it sounds, the telephone is one of the best branding devices out there. You have the consumer's undivided attention for 5 [minutes] to 10 minutes. If you wow them during that interaction, that's something they're going to remember for a very long time and tell their friends about."
It's this emphasis on communicating with and wowing its customer, more than anything else, that defines Zappos.
In addition to attracting and starting with the right customers, loyalty is realized as a function of treating them right with service levels that will have them wanting to tell their friends about you. How you say it matters a lot.
Customer loyalty of this order goes beyond the transaction, beyond commerce. Uncommon customer loyalty is earned. It adds a layer of meaning in the customer relationship. It takes more than having the right customer service policies in place. Emotion is involved.
Customers often cite real people, specific gestures of appreciation or go-beyond-the-call-of-duty service experiences as reasons for their loyalty — not automated emails. In a survey frequently quoted in the annals of loyalty marketing 101 on why customers leave, it was found that 68 percent defect because of a company's attitude of indifference towards them. How are you treated as a customer of companies you buy from repeatedly? The great experiences always stand out.
Most marketing communications influence how a person feels about a company or brand. But marketing that triggers emotions in consumers leads to more action. It moves them beyond the first purchase to repeat purchases and long-term loyalty. Interestingly, it was a neurologist who was credited with the aphorism, "reason leads to conclusions, emotion leads to action." That principle applies here.
Of course there are tactics. Advertising gurus have always known that evoking an audience's emotions — love, greed, fear, guilt, pride, jealousy, pleasure — works. But go beyond the clever headline. When service is truly personal, when sentiments of appreciation and thanks are felt, when real people stand out and care, then uncommon customer loyalty can be achieved. "How can this scale?" some may ask.
There are no easy prescriptions for such states of business. Nonetheless, it's worth trying very hard to create and nurture loyal customers. Your business' improving profitability depends on it.