Playing the loyalty card
While every business pays lip service to customer loyalty and customer retention, few really do anything about it.
Most businesses spent a lot of time and effort getting new customers. That’s fine – as far as it goes. After all, without a stream of new customers, you don’t have a business. However, far too many companies neglect perhaps the most important source of revenue and profit – keeping existing customers loyal, and getting more business from them.
Many companies seem to have forgotten the simple truth – that in the vast majority of businesses, some 20% of customers account for around 80% of profit.
It doesn’t matter what business you are in: whether you sell products, or sell services, whether you have thousands of customers, or just a few hundred – the same rules apply. You don’t have to be Einstein to know that it costs a lot more to win a new customer than to get more business from an existing one. Equally, we all know that profit from a customer grows over time, as the cost of acquisition is set against income.
Let me tell you a story. Once upon a time, a bank launched a cheque account, spending millions on advertising to attract new customers. It worked: thousands of new customers signed up. The only snag was that most of them closed their accounts after a short while. This went on for several years before someone who knew a thing or two about customer retention asked why the bank spent millions on getting new cheque account customers, only to lose them. It was the equivalent of pouring water into a leaking bucket.
The bank stopped advertising altogether, and put a chunk of the advertising budget into research to find out why it was losing cheque account customers. The research results enabled them to improve the cheque account service immeasurably. The whole operation moved swiftly into profit – without attracting significant numbers of new customers. The bank did start advertising the cheque account again, but only after it had solved the customer retention issue. It was an expensive – but invaluable – lesson.
However, many companies still don’t know the true value of customer retention, and take customer loyalty for granted. This is a big mistake.
The bad news is that dissatisfied customers will almost always vote with their feet. Whatever business you are in, you have to assume that there are other companies who can match anything you can offer your customers.
So how do you increase customer loyalty? One of the best ways is to ask your existing customers some very basic questions: what they think of you; how you are doing; what sort of thing you could be doing better.
The trick is to find out what really matters most to them, and what matters least. However, many attempts to ask customers what they think are useless, misleading, or dangerous, so beware.
Henry Ford once said: “If I’d have asked my customers what they wanted, they’d have said a faster horse.” Enough said.
The secret is to ask open questions, not closed questions. For example, a hotel used to ring customers who had ordered from room service to check if the food was all right. The question they asked was “Was the food you ordered OK?” Most of the time, they got the answer “Yes, it was, thank you very much”. The survey was useless, dangerous, and misleading.
When they changed the question to “What could have been better about the food?” the floodgates opened and customers started to give them a stream of invaluable feedback.
Asking customers the right questions – and analysing the answers properly – enables you to focus your marketing efforts.
I promise that you are currently spending time and resources to deliver certain aspects of your product or service, when they simply don’t matter to your customers. Equally, there will be other things (good or bad) of real importance to customers which you don’t know about.
Another example: a bank spent a lot of money getting monthly statements to customers within 24 hours. The technology and the postage involved were considerable, but the bank thought that their customers wanted statements quickly. However, when they actually asked their customers, back came the response that they were willing to wait for a 3-4 days for their statements. The subsequent saving was several millions over a year.
There are lots of ways for business to get an insight into their customers’ minds. All of them have their advantages and disadvantages, but all need to be carried out professionally. It’s a mistake to try to do it yourself, the best results come from employing a third party specialist who can design the research vehicle, interpret the results properly, and help you use them to improve the business.
For example, large-scale quantitative customer surveys can give a broad picture of how you are doing, what your customers think of your product and service, how it could be improved, etc. This needs to be undertaken on regular (perhaps yearly) basis and include a representative sample of your customers. The results need to be interpreted carefully, and the lessons learned.
Alternatively, for many businesses using an independent company to undertake face-to-face qualitative research with their key customers is a powerful marketing tool. In a one-to- one situation, a professional researcher can uncover a wealth of priceless information, and gain a deep insight into customers’ minds
Equally, a properly conducted Focus Group with key customers can also be time very well spent. Often, an experienced Focus Group facilitator can tease out a vast amount of information which can be used for the business’s benefit.
Complaints – properly researched and analysed – can also provide a unique insight into your business. The Japanese have a word for complaints which translates as “jewel”. Complaints truly are “jewels”, they enable you to learn something valuable about your business, but again, only if they are properly analysed, and action is taken to implement the lessons learned.
The type of customer research used will depend on the nature of the business, its size, sector, etc., but there is an appropriate research vehicle for every situation.
Of course, research results – however they are gathered – are absolutely no use unless the findings are used to improve the business. Incredibly, many companies conduct all sorts of customer research, only to put it on the shelf. It’s as if doing the research means that the job is done. A big mistake.
Once you are sure you have understood what customers really think about your service, and what they actually want, you have invaluable information which can help you build customer loyalty and customer retention into strategic and marketing plans.
Keeping customers has a direct impact on profitability. For example, when a bank increased its customer retention by just 5%, profits rose by 85%. Any company not using research to enhance customer loyalty and retention is almost certainly missing a trick.