Small Business

How to Generate Real Customer Loyalty


Points and perks expire. What lasts is the company's "personality," as well as a two-way relationship with the customer that reinforces the brand

Last month I wrote about how relationship marketing programs measure loyalty primarily by transactions, which can hinder companies' efforts to identify, understand, and nurture their most truly loyal customers. I made the point that if a company focuses on share of heart it will get share of wallet but the reverse may not always be true (see BusinessWeek.com 5/10/07, "The Problem with Loyalty Programs").

But how does a company ensure that its loyalty program achieves effective share of heart? Here are five principles to consider:

Roots of Loyalty

The first principal may be counterintuitive to those who work so hard trying to create committed customers: Loyalty is natural. Think about it. We're loyal to sports teams, actors, and political parties. We're loyal to cars, shoes, pubs, and pizza joints. When we identify with someone or something, we want desperately to reinforce the credibility of our beliefs and one way we do that is by forming loyalties to them. So we give them repeat business and brag about them to our friends.

If a company serves its customers well and meets their expectations the old fashioned way, then some amount of natural loyalty will result. And attempts to "buy" more—the functional equivalent of paying someone to go on a second date—might actually backfire. We need to look for ways to stimulate the growth of natural loyalty rather than taking shortcuts that focus only on behavior.

Appealing to the Heart

I reflected a moment ago on the fact that people are loyal to musicians and sports teams. But why? Where's the rationale in caring who wins American Idol or the World Series? There really isn't one, which leads to the second principle: behavior often comes from the heart.

We care about performers because we empathize with them. They lay themselves out for us—whether it's an actor demonstrating raw emotion, a musician performing passionately, or an athlete leaving it all on the field. The common thread is vulnerability, the willingness to expose themselves and take a risk. And that creates a heartfelt response which makes us want to attend the movie, buy the CD, or sit in sub-zero temperatures watching the game (at full price, mind you).

Our behavior arises not out of rationality, but personality.The Nikes (NKE), Targets (TGT), and Starbucks (SBUX) of the world understand this and have built their brands accordingly.

Take Your Time

Which brings me to the third point: Love takes time. It's as true in business as it is in romance. My firm recently hit the annual fee renewal cycle for our company credit cards and we decided we should shop around to see if we could avoid paying an annual fee. It didn't take us long to find three good options offered by Visa, MasterCard, and American Express (AXP).

At first I didn't have a preference, as all three cards included loyalty program benefits. But then I got to thinking about how we use our cards. When we buy office equipment or books online it doesn't matter what type of card we use. But when I take a client or prospect out to dinner and reach for my wallet, there's a certain statement that I want to make. Once I thought about the decision that way my choice was easy: American Express.

I'm not saying the other brands don't have value, or that rewards programs can't be difference-makers. What I am saying is that a physical reward can be a lot more easily matched than can the cachet American Express has built up over decades, at least among my generation. (Oddly enough, they seem to have lost their edge in nurturing that identity among younger people.)

A Two-Way Street

The fourth principle may be the most significant because of the damage that can be caused by ignoring it. Put simply, relationships are reciprocal.

Think back to when you were a kid confiding in your best friend. "I'll tell you a secret if you tell me one." You wouldn't reveal yourself or give out the dirt without collecting some dirt on your buddy. That was the only way to ensure he didn't use the information to humiliate you. It was the doctrine of Mutually Assured Destruction writ small.

In that context, consider this quote from a senior manager of one of the better known loyalty marketing programs: "When they call us, the customer isn't a commodity, but a member of our family." Or this one, from a loyalty marketing practitioner: "Remember, these are people who have come to expect a more personal relationship from the companies with which they choose to do business."

Family? Personal relationship? Come on. True relationships develop along the lines of give-and-take. Relationships develop only so far as trust develops. And trust develops only by mutual disclosure and the circumspect protection of valuable information. The more data you collect on your customers, the greater the danger that the give-and-take balance will get out of whack. I receive a birthday card from Southwest Airlines (LUV) every year, and even though I'm a fan of the brand I find it a little creepy. What else do they know about me and why do they know it? There are plenty of other things Southwest can and does do to enhance my loyalty; birthday cards aren't one of them.

It's More than Numbers

Fifth, just because you can't precisely measure something (or measure it easily) doesn't mean it's not working. We don't know how poetry moves the heart but our lives would be much less fulfilling without it.

Behavior tends to get measured because it can be measured. But measurement can create its own reality and cause the loyalty marketing focus to become too narrowly defined. It's not that behavior isn't important (repeat transactions are ultimately the point), but efforts focused on the "why" of behavior rather than the "what" are more likely to be successful in the long term. Attitudes and beliefs can be difficult to grasp and impossible to track in a spreadsheet, but they lie at the root of true loyalty. Michael Donnelly, the director of global interactive marketing at Coca-Cola (KO), understands this. As he puts it, "Brand value and brand love are our key metrics."

Technology has changed a great deal over the past several years, enabling a whole new world of customer intimacy and communication. But human nature doesn't change—people still want to be valued as individuals and they want to protect their privacy. Just because a company can do something doesn't mean it should. As you work on generating incremental transactions, I encourage you to keep these principles in mind and consider the long-term effects of your efforts.

Remember that it's not just about points or miles. Instead, ensure that every contact with your company offers a psychic reward, not just a physical one. Give your customers something of value that isn't a coupon in disguise—something interesting or funny or touching or inspiring that reinforces the essence of your brand. Most importantly, never violate their trust or sense of security.

Be polite, be respectful, and be patient with your loyalty marketing efforts and you'll find that they not only increase short-term transactions but drive long-term affection as well. That affection will pay off for years to come, long after the points and perks expire.


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