Is the loyal customer a relic? Isn't customer loyalty dead?

Many think that the lowest price is the only thing that keeps a customer returning. But, take heart. Customer loyalty is alive and well. Look no further than Dell, Harrah's, Starbucks, USAA, Chick-fil-a or Harley-Davidson, to name a few, and you'll find companies that are consistently earning customer loyalty while their competitors struggle.

But, what is this thing called customer loyalty?

How can you recognize it?

Why is it so critical to every company's long-term success?

A loyal customer is one who...

  • Makes regular repeat purchases

  • Purchases across product and service lines

  • Refers others

  • Demonstrates immunity to the pull of the competition

  • Can tolerate an occasional lapse in the company's support without defecting, owing to the goodwill established through regular, consistent service and provision of value

A common denominator runs through all these behaviors and helps explain why loyalty and profitability are so inextricably linked: Each behavior, either directly or indirectly, contributes to sales and profitability.

The financial rewards of loyalty run deep. Bain & Co. research shows that a decrease in customer defection of only 5% can improve a firm's bottom line profits 25-85%, depending on industry. Likewise, in some sectors, an increase in customer loyalty of just 1% is equivalent to a 10% cost reduction, Bain says. The bottom line is this: Loyalty pays.

Consider these proven tips for fostering customer loyalty to your organization.

1. Remind your customers how you add value

My husband, Mack, is one of my best customer-loyalty teachers.

A few days after I returned from a two-week business trip, Mack and I were taking a walk around our neighborhood. Seemingly out of the blue, Mack surprised me by saying, "I fixed three things around the house while you were gone that you'd been complaining about. But you haven't mentioned one of them since you've been home." With a tiny grin he continued, "You've got 24 hours to recognize them or I'm going to turn into an unhappy camper." I love my husband very much, and of course as soon as we returned home from our walk I made it my business to identify his good deeds and praise him for them.

In his own way, Mack was shrewdly applying an often-overlooked loyalty principle: Routinely reinforce your value in your customer's eyes. Good service is not enough. It counts only when your customers recognize it.

The practice of this principle is what prompts the American Airlines pilot to announce, "Welcome to Austin and our on-time arrival." It's what's behind an Office Depot receipt for desk supplies to read, "You saved $7.46." It influences Westin Hotel's "Do Not Disturb" door sign, which reads: "I cannot come to the door now. I'm still in heaven” (referencing the comfort of Westin's signature Heavenly Bed).

Loyalty lesson: Reinforce your value in the eyes of your customers. Doing so helps keep customer relationships strong (and marriages, too).

2. Get congruent

When designing your next customer loyalty initiative, think long and hard about how to achieve staff buy-in. Without it, your loyalty plan will surely fail. Think "congruency": What gets communicated to employees on the inside must agree with what the company stands for on the outside.

Here's how my client from a large utility company (known for its customer service) experienced the power of congruency. As the VP of marketing and customer service, he was leading the charge to transform call center service reps into reps who were also responsible for selling. But the reps pushed backed at the initiative, saying, "You're asking me to be a telemarketer. I don't want to be a telemarketer! That's not what I was hired for!"

My client quickly got it. In his zeal to leverage customer touch points, he had created a congruency problem. The call center reps were extremely proud of their ability to meet the needs of the customer through service. But, "selling" didn't fit.

The solution? The VP reframed the initiative as "Enhanced Service." Call center reps were trained on how to do a better job satisfying customers by recognizing unmet needs and suggesting new services to address them. The results: 12-month revenue goals were achieved in nine short months.

Loyalty lesson: Think "congruency" when seeking staff buy-in. Your loyalty initiatives depend on it.

3. Know your customer's definition of value

I am often asked the "secret" to customer loyalty. My answer: Know how your customers define value and then deliver that value better than your competitors. But knowing your customer's true definition of value takes some digging.

Review your company's current knowledge base regarding what your customers value. Look for these insights:

  1. What is it about your products or services that drives loyalty today?

  2. Which product or service areas most need improvement?

  3. Where are you currently over-investing?

  4. Which areas deserve more study for potential future investment?

Loyalty lesson: Got knowledge gaps? Customer-value research can help.

4. Watch for signs of an unhappy customer

A typical business hears from only 4% of its unhappy customers. The remaining 96% go away—and, on average, 91% never come back. The sooner you recognize the signs of dissatisfaction, the better. Here are some signs of an unhappy B2B customer:

  • Customer approval of your proposals comes more slowly.

  • Access to upper-level management decreases.

  • The flow of customer data slows down.

  • Plans for future work become progressively more short-term.

  • One (or more) of your products or services is discontinued.

  • The volume of business with you is reduced.

These signs are often symptoms of developing dissatisfaction. When this is the case, it is useless to attack the symptoms directly. Instead, you must discover and address the "root" of the customer's underlying dissatisfaction.

Loyalty lesson: Asking customers questions such as "What are we not doing well?" will help. But don't delay. A competitor is surely lurking!

5. Beware of "no loyalty" customers

For varying reasons, some customers do not develop loyalty to certain products or services.

For example, I know a manager of a travel agency who goes anywhere in town to get a haircut—just as long as it costs him $10 or less, the location is on the way to his next stop, and he doesn't have to wait long. He rarely goes to the same salon consecutively. To him, a haircut is a haircut, regardless of where he receives it. (The fact that he is almost bald may have something to do with it!) His low attachment toward hair services, combined with low repeat patronage, signifies an absence of loyalty.

Contrast this to a friend of mine who lives in New Jersey and drives two hours round trip into the city every six weeks for hair color services. Each trip costs her more than $90 for hair services and $22 for city parking. While less expensive, more convenient hair care services are readily available closer to her home, she feels strongly about getting the "right" hair color service and perceives the Manhattan salon as clearly superior to other service providers.

Loyalty lesson: Avoid investing in "no loyalty" buyers. They will never be loyal customers and will add little to the long-term financial strength of your business.

6. Beware of the "thrill of the chase"

There are essentially three ways to do more business:

  1. Get more customers.

  2. Encourage more purchases.

  3. Elicit more expensive purchases.

Sadly, most companies are far more focused on number 1 at the expense of numbers 2 and 3. Yet, a study by Marketing Metrics tells us that the probability of selling something to a new prospect is only about 5-20%, while the probability of selling something to an existing customer is 60-70%.

Want to boost your sales numbers and your bottom line? Stop thinking simply about chasing new customers and start thinking about how to sell more to existing customers.

Loyalty lesson: Focus on retention.

7. Get advocates selling for you

No doubt, positive word-of-mouth is every firm's best advertising. Here is how one of my banking clients harnesses that powerful tool.

The senior banking executive periodically hosts a luncheon, where he invites 6-8 carefully chosen current and prospective customers. The goal is to get prospective customers rubbing elbows with customer advocates in a light, social setting. He selects his guests with careful consideration to compatible professional interests, hobbies, etc. so that interest in attending is heightened.

This technique has worked so well, he has even used it to woo back lapsed customers. He reports, "We're happy when out current customer says to a former customer, 'We had a few problems too, but boy they have their act together now. We've taken out a new line of credit and we just signed up with them for a 401(K).'"

Loyalty lesson: Word-of-mouth experience is a powerful marketing and sales tool.

8. Serve first, sell second

Today's customers are smarter, better-informed and more intolerant of "being sold" than ever before. They expect doing business with you to be as hassle-free and gratifying for them as possible. When they experience good service elsewhere, they bring an why-can't-you-do-that attitude to their next transaction with you. They believe you earn their business with service that is pleasant, productive and personalized. If you don't deliver, they'll leave.

Consider this: Using your customer list, identify those high-value customers that are most demanding. Next, isolate the needs, expectations and requests that make these customers more demanding than others.

Loyalty lesson: Ask yourself, what can we do to upgrade our systems and processes to better provide this high level of performance? Which of our other customers would likely benefit from these upgrades? Let this thinking help guide your development priorities.

9. Practice the 80/20 rule

In building customer loyalty, the 80/20 rule is alive and well. Roughly 80% of your revenue is being generated by 20% of your customers.

In other words, all customers are not created equal. Some represent more long-term value to your firm than others. A smart company segments customers by value and monitors activities closely to ensure high-value customers get their fair share of special offers and promotions.

Rank your customers according to actual revenue generation. Next, rank your customers by lifetime value.

Loyalty lesson: Compare the two lists and make sure you are adequately investing in customer appreciation programs that provide for high-ranking customers on both lists.

10. Learn how to comfort an angry customer

When dealing with an irate customer, remember that his anger often masks a different emotion: fear. He may fear he is being taken advantage of, or perhaps he fears that this problem, left unresolved, will make him look foolish in front of his coworkers or friends.

Next time you are fighting the urge to react to an angry customer's irate behavior, just picture a scared kid trying to find his way out of a dark room. Stay calm and see yourself as the customer's beacon of light. This may make the process less intimidating to you.

Loyalty lesson: Nurture an angry customer, don't confront him or her.

11. Learn from lost customers

A lost customer does not have to be a lost cause. Even after the account is irrevocably lost, there is a prize to be won: the knowledge of why the customer stopped doing business with you. Customers who leave you can give you a perspective about your business that is not available elsewhere. Though often unpleasant to hear, this information can save you from losing customers under similar circumstances in the future.

Feedback from lost customers can be concrete and specific. They can respond to direct questions such as "What made you leave?" with information that pays a big dividend. For example, the discount office supply giant, Staples, carefully tracks customer purchases, and when it sees a lull or a customer no longer buying certain items, the company calls and solicits feedback.

Loyalty lesson: The information offered by lapsed customers is extremely valuable because it allows you to regularly pinpoint noncompetitive products and fine-tune pricing, rather than making costly pricing adjustments across all products.

12. Make it easy for customers to complain

"One of the sure signs of a bad or declining relationship is the absence of complaints from the customer," reports Harvard Professor Theodore Levitt. "Nobody is ever that satisfied, especially not over an extended period of time. The customer is either not being candid or is not being contacted."

If you are not receiving complaints from customers, something is wrong. Do not be fooled into thinking there are no unhappy customers. Instead, it means that rather than complaining, your customer is probably leaving or, at best, reducing the amount of business he is doing with you.

Loyalty lesson: Review all customer contact processes and list the current ways in which customers can voice a complaint. Using this list as a starting point, brainstorm with staff on how to make it easier for customers to complain. Implement the best ideas.

13. Head off negative word-of-mouth

For most companies, only 10% of complaints get articulated by customers. The other 90% are unarticulated and manifest themselves in many negative ways: unpaid invoices, lack of courtesy to your front line service reps and, above all, negative word-of-mouth. With the Internet, an unhappy customer can now reach thousands of your would-be customers in a few keystrokes.

Head off bad press before it happens. Make it easy for customers to complain, and treat complaints seriously. Establish firm guidelines regarding customer response time, reporting and trend analysis.

Loyalty lesson: Above all, make customer complaint monitoring at the front lines a key input tool for identifying loyalty improvement initiatives.

14. Say thank you

Companies often overlook an important loyalty building technique: thanking the customer after a purchase. A customer can be a first-time buyer only once. Passing up the chance to thank the customer for his or her purchase—especially the first one—is a big opportunity lost.

Want to stand out from your competition? Send a letter of thanks to your new customer. But don't fall in the trap of sending a generic letter addressed to "Dear Valued Customer." All written communication should be personalized.

Loyalty lesson: As marketer Stan Rapp so aptly states, "Winning share of mind is giving way to winning share of heart." Thank-you letters can be an effective first step for doing just that.

15. Rev up your loyalty engine!

A recent client project took me to the Big Apple. I was walking down Madison Avenue and came upon the Easy Spirit shoe store. On the window, stenciled in a beautiful cursive font, was a customer quote that read, "I got compliments on my Easy Spirits the very first time I wore them."

The quote got me thinking about the importance of velocity in earning customer loyalty. Yes, we need to design products and services that quickly deliver results for customers. But that's not all. We must constantly be on the lookout for ways to build more velocity into our firm's internal systems and processes so would-be buyers can be more quickly transitioned into customers.

Just ask Dell. Dell found that people who went to its Web site first and then called its 800 number from the site were more likely to buy than were those who called the toll-free line first. Given this insight, Dell increased the number of reps who handle calls from prospects who are calling the 800 number from the Web.

Loyalty lesson: Start now to carefully monitor the paths that your prospects travel to become your buyers and repeat buyers. No doubt, velocity opportunities await!  

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image of Jill Griffin

Jill Griffin is an executive trainer ( and author.