What Drives Customer Loyalty?

What many retailers consider a tried-and-true marketing strategy is quickly going the way of the VHS tape.

The Internet and social media have turned marketing on its head, and it’s my feeling we’re now in the middle of another paradigm shift. Even social media will look different five years from now. Over the past decade, customer loyalty programs have proliferated. As I travel the country, I hear all kinds of feedback from retailers about such programs. Some are effective, but some are seriously deficient, miss the point, can’t track ROI, are confusing, create huge management issues, and eat away at profits without creating a true sense of loyalty. 

In some ways, retailers have conditioned customers to wait for their favorite sale item, for promotions in the newspaper or for discount coupons in the next e-mail blast. These strategies haven’t created loyalty. If at all successful and quantifiable by creating additional sales, these methods have only held the customers' attention for a short time instead of creating true loyalty. Retailers should think about weaning customers off such habits. Retailers and marketers are so stuck on the idea of discounting, coupons and sale ads that they have a hard time seeing a new possibility that can be a whole different strategy to drive customer loyalty.

According to current research, the average household participating in loyalty programs has 14-17 loyalty cards. In any retail channel, it’s common for nearly every competitor to have some sort of loyalty program, whether a simple punch card or a more sophisticated software program. Considering this, it is obvious that such programs don’t create true customer loyalty. Additionally, the way most loyalty software programs work, specific customer behaviors or customer types can’t be targeted.  There’s no way to determine which customers should receive a loyalty card and which shouldn’t since those types of customer metrics just aren’t captured and the Business Intelligence (BI) to identify them just isn’t there. Everyone gets the same discount. Retailers are simply giving discounts to customers who would most likely be buying from them anyway.

Customers are very different from one another in what they want, what they will pay, how they want to pay, what they’ll sacrifice to take advantage of a promotion, what they expect in a product or store, and even if they like to shop at all. You can’t count on any one customer type to shop more often or to spend more per visit.

There are actually two customer types that are unlikely to change their shopping habits because of a loyalty card or program. The variety shopper is consistently seeking what’s new, whether in a product, brand, location or service, and the deal seeker is only on the lookout for the next best deal. Neither type is likely to change behavior because of a loyalty card. Retailers may see a brief uptick in sales, but customers will tend to revert back to their old habits. Retailers need more tools available to analyze these scenarios and find the most sustainable solutions that will maximize ROI long term. Part of the problem is that many retailers (especially small independents) that purchase loyalty programs fall very short of fully maximizing their potential. They fail to devote personnel and time to understand and apply the complex metrics of consumer behavior or to optimize the program as designed. They’ve just purchased an expensive way of giving away more money.

Repeat business or behavior can be bribed. Loyalty has to be earned. ~Janet Robinson

customer loyaltyFurther, most loyalty software programs are not mobile enabled, and are seriously lacking in analytic capabilities that can help measure ROI for the retailer. With these programs it can be extremely difficult to show the retailer how shopping frequency or basket size has increased, or how promotions in one part of the store affect sales in another. Many of these programs create huge operational nightmares and require an inordinate amount of time to manage. I’ve seen retailers start out with a costly program then later abandon it when they became overwhelmed with glitches, confusion and complaints. The combination of ongoing discounts, added labor costs and program fees, and the fact that most customers don’t change shopping behavior long term, means loyalty programs often end up costing the retailer more than they can return. Many retailers are afraid to turn off a dysfunctional loyalty program out of fear of negative customer reactions. I have, however, seen it done successfully when it’s well planned, and with little to no reaction from customers.

So, what creates customer loyalty? There are many myths, but reality is much different. “Happy employees make happy customers.” While it is true that unhappy employees can drive away a customer, create low productivity, ruin morale, etc., it’s not necessarily true that a happy employee makes for a happy customer. There’s much more to it than that. Some retailers may think, “Focus on high-spend customers to drive increased sales and profits.” Yet, many of these customers are already spending most of what they’re willing to spend, they don’t always bring you additional high-spend customers, and they may not be the best ROI for the money spent.

Along with creative marketing, hard work and patience, customer loyalty happens organically. In retail, you just can’t buy loyalty. A customer is loyal because of one or more reasons related to their overall customer experience. Simply giving good service just doesn’t cut it anymore. Some of the most impactful contributors to a positive customer experience are: the importance of perceived value and aspirational value, convenience, choice, relevance, along with service, effective communication and a product or brand’s own merits.

There are also other factors, such as: being always being in stock, cleanliness and having a knowledgeable and friendly staff. Studies indicate that in most industries, the greatest driver of new customers is word of mouth (WOM). Often, as many as 80-90% of customers find a business through WOM and not through traditional advertising. Create an exceptional, meaningful customer experience and you’re beginning to understand what creates positive WOM. WOM can be your most powerful tool in a marketing arsenal, but is often forgotten. It’s not available in any loyalty software program.

brand loyaltyIn business, there are customers who are complacent, would change stores in a heartbeat, and may even speak poorly of your business no matter how often they shop, how much they spend, or how nice your employees are. And, there are also those who are loyal who may shop often, may spend more than average, are nice enough when they come in, seem happy, and will try new products. Some retailers would say these are the best customers, their most valuable. However, a lot of them are not likely to spread much WOM on your behalf, because it’s either not in their nature, they don’t network much or they just aren’t the types to advocate for a product or brand unless prompted.

There’s a different group of customers who are more truly loyal, but you still can’t categorize them by “spend value,” number of visits or how long they’ve been shopping. They are loyal because you’ve created an experience that is personal and meaningful to them. They aren’t likely to go anywhere else without a serious change in that experience.

Within this group, there is also a select group that I call Brand Ambassadors. You can’t identify them by spend, visits or other commonly used metrics. These are your rabid fans. They are in love with the product or brand, and love to share their opinions, experiences and passions. They are more apt to have larger networks of friends/associates, to use social media more, like to write reviews and share promotions and to engage a brand much more than average. In terms of effective marketing strategies and increasing WOM, these Brand Ambassadors are the customers to target because they’ll market for you, sell product for you, defend you and will bring you more customers without asking for anything in return. This is who they are. They can be encouraged and nurtured, but they will spread WOM anyway. The opportunity is to capitalize on and optimize that behavior.

The purpose of a business is to create a customer who creates customers. ~Shiv Singh

Satisfaction can be defined as when a customer feels content as the result of their purchases. The retailer has met some of their expectations, but this doesn’t mean they will continue to shop at your store.

Loyalty can be defined as when a customer’s experience is consistently satisfying on a deeper level, thus creating the incentive for the customer to repeat the experience. Retailers should strive not only to meet basic customer expectations, but also to build relationships with their customers and leave a lasting impression.

Loyal customers; they don’t just come back, they don’t simply recommend you, they insist that their friends do business with you. ~Chip Bell

A few of the key ingredients I’ve seen for creating and harnessing truly loyal customers are:

  • Stop trying to be all things to all people and focus on what you do best.
  • Ensure all the right things are done first then develop other programs or buy into “fixes” you think might increase loyalty and sales. Examples are: training staff for exceptional service, running a clean store, being price competitive, staying in stock, and finding ways to differentiate your model from competitors.
  • Build relationships with your customers. One of the most effective ways to retain customers is to build relationships, to remember their name, to ask about their family and interests, etc. Such customers will feel a part of your business and not want to shop elsewhere without a very compelling reason.
  • Identify your products and services with an ironclad guarantee. Then, honor it, no questions asked. Buy, market and sell quality, and build trust into everything you do.
  • Focus on creating a unique and meaningful experience for your customers. The shopping experience may be seen differently by different customers, but the more convenient, service-oriented and comfortable the experience a customer has beyond their basic expectations, the more likely you are to create loyalty.
  • Develop a program designed to identify, appreciate and give value to the top 5-10% of your customers. These are your Brand Ambassadors. These customers will give great WOM and become excellent marketers of your business for you. Give them simple tools they can use to help you review products, launch new products, increase sales and profits, bring you new customers, and even defend you in a crisis.

In the end, be very wary of a “loyalty program” that’s built around discounts and rewards points alone, requires expensive subscription fees, and can’t clearly or easily quantify your ROI. Rather, put more of your staff, marketing dollars and productivity into creating the ultimate customer experience and courting the Brand Ambassadors who love you and sharing your story. Encourage them and give them the tools they need to be your larger marketing team.

Do what you do so well that they will want to see it again and bring their friends. ~Walt Disney



geoff robinsonGeoffrey Robinson is the founder of Digital Earth Network, a leader in the emerging world of mobile and digital marketing content and associated applications. Geoffrey was the former founder of Eye Force Productions, a web based advertising company, and has an extensive professional background. Particularly in the Natural Foods industry, in sales, marketing, business operations, consulting, Point of Sale technology and other related verticals. Geoffrey can be reached at 941.366.8282 or through e-mail at info@digitalearthnetwork.com You can also visit http://digitalearthnetwork.com/


Posted 10/30/13