Teresa Serra Rexach – Executive Director Customer Loyalty Chair IE Business School, Marketing Department Head IE Business School IE Business School
“The economic benefits of customer loyalty often explain why one competitor is more profitable than another” (Reichheld, 1993)
It has often been said that customer loyalty helps increase company profits. It has been demonstrated that loyal customers buy more, over a longer period of time and are usually less sensitive to price. This is also due to the fact that loyalty allows the company to reduce its expenditure, given that it costs up to six times less to retain a loyal customer than to attract a new one. In addition, a loyal customer is more likely to recommend their favourite products and brands, thus reducing the need for investment in promotional activities.
According to a recent study published in McKinsey Quarterly, companies that actively pursue customer loyalty also have a higher market value.
Loyalty can be analysed from the point of view of conduct or attitude. While having a positive attitude to a product or brand is very important, the important thing when it comes to sales is that the clients also act on their own preferences by buying the product – regularly – and for a long time.
In recent years, the battle to win customer loyalty has become even tougher due to a number of changes in the environment, and on account of which it is no longer enough to satisfy the customer, one must “earn their love”. These changes are as follows:
- Increased competition and the “commodification” of certain categories. Many products have very similar features and functions and are often differentiated by intangible attributes, such as brand values, additional services, service at the different points of customer contact, etc.
- The ease with which information can be obtained and shared thanks to technology and the advent of social media. The ease of obtaining information allows consumers to compare what is on offer, not only based on the information provided by the company, but also based on the opinions of other customers, which is a much more credible source of information.
- All of this has meant that companies are faced with much more demanding and better informed consumers who have a tool in their hands (smart phones) to check and share information on a product of service, very often in just one click.
And the keys to building customer loyalty? The first step is to determine the type of product or service for sale, whether the relationship entails a contract or not, the decision-making process, competitive environment and the relative position of the company’s products and brands within that environment. These factors will determine the type of loyalty programme to set up. In any event, regardless of the market, there are a number of basic elements that are essential for getting customers to remain with a company nowadays.
- Implement a customer-centric culture. This not only involves the sales department, but all areas of the company that interact with the customer in some way.
- Know your customers. Having a database that gives you in-depth knowledge of your customers enables you to carry out targeted activities, which implies lower costs and higher satisfaction levels. Getting to know your customers better means listening to them and taking their rating of the relationship with the brand into consideration.
- Personalise communications as much as possible. Different studies have shown that by personalising emails, for instance, you can obtain up to six times more transactions than when they are not personalised. What is more, personalisation is another tool for creating an emotional connection with the customer.
- Establish two-way communication. Actively listening to the customer and taking their opinion into consideration is another way of creating a connection. Nowadays, technology allows us to obtain the customer’s opinion virtually in real time.
- Keep your promises. This goes without saying; there is nothing more frustrating for a customer than not living up to their expectations. Ideally, you should exceed customers’ expectationsand make them “absolutely delighted”.
- Make the customer’s life easier. This is not just about providing a commercial transaction; it is about helping the customer with all their needs concerning the product or service you sold them. For example, if you sell garden products, you could give customers tips and advice on the subject. Social media, your website and channels like YouTube are very good tools for positioning your brand as an authority in a particular field.
- Offer a loyalty programme. Do not just set up a routine scheme for earning points, establish a system that enables you to optimise the relationship with the customer throughout their lifetime (CLV) and, moreover, reduce investment in customer acquisition and build a stable customer base. There are many different kinds of programmes. The first thing to decide is whether you want to set up your own customer loyalty programme or whether to join what is known as a coalition programme, where several companies participate in a single programme.
We at the Travel Club Loyalty Chair Cátedra de Fidelización Travel Club IE are currently conducting various studies using real data to measure the effects of loyalty programmes on business results and have found that they allow marketers to better segment customers and customise communications, thus optimising the different communication tools. We have also found that in coalition programmes, cross sales (when the customer of one business purchases at a participating coalition company in order to earn rewards) have a very important effect in that they increase sales and attract new customers at a much lower cost. In short, loyalty programmes do work, and no company in the present day, irrespective of its sector, can afford to have a purely transactional relationship with its customers; it is essential to establish an emotional connection between the customer and the brand.