KNOWLEDGE


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Loyalty - your way to success
By Doug Dean,
The Tomorrow Group Ltd.

Our wallets are bulging with loyalty cards from airline companies to grocery stores. In addition, our e-mail boxes are full of information and announcements for special deals from a multitude of companies we don't even remember doing business with in the first place. Everyone wants to be our friend and keep our business.

In the process, we have slowly grown to consider loyalty programs as spam. They form part of our daily background noise, something for which we have lost the switch-off button.

What most companies have forgotten on their way to inventing their greatest customer retention campaign and to printing more of those all-important members-only cards, is that loyalty is not a program. It's the foundation to all business.

Understanding business dynamics

Loyalty is what drives a company. Numerous facts back this point, such as:

• It costs up to 10 times more to acquire a new customer than to keep an existing one
• Any given year, 80% of new customer offerings fail - these are products and services for which there is no built-in loyal base
• 70% of lost customers leave due to lack of interest from the provider - not because of bad products or services
• A 5% loss in customers results in a decrease of 25% to 85% in profits, depending on the industry
• In the automotive field, 80% of customers who are satisfied with their experience will repurchase the same brand. Only 40% repurchase if they are not satisfied. That is half of the potential loyal market.

Given how vital loyalty is to business, it is surprising most companies either don't know who their top clients are or have little to no comprehension of these top customers' needs.

The way to success is to:

1. Find out who your top customers are
2. Understand what they need
3. Segment your market according to the needs
4. Adapt your organization and your offer to meet the customers' needs
5. Measure and manage your results

Find the few

Not all customers are equal. Having worked in many industries, I can attest that Pareto's rule is alive and well: 20% of clients account for 80% of business. This ratio may vary from company to company but the trend is always the same.

So, start by identifying your top 20% to 30% customers. To this end, you will need to haul out your records from the past 3 years. Current year figures are too short-sighted. When analyzing the data, concentrate on overall revenue, annual and seasonal revenue, revenue per product and service category. If you have a good cost allocation system, you should also examine your profit figures in the same way. Look at actual numbers and search for trends.

If you track referrals, be sure to look at who is referring you and how much business they have brought you over the past 3 years.

Talk to your customers

After you've identified your top customers, you need to understand why they buy from you. Talk to them. Better yet, pay a professional market research company to conduct interviews. If well managed, this investment always pays off.

Don't rely on your customer satisfaction cards, those forms with smiley faces on them. They never ask the right questions. You want to understand your top customers' decision making process and their reasons for selecting you, whom else they consider, what they like or dislike about you and what else would they like to see you offering.

A quick way to gain customer insights is through Problem Detection Study (PDS). This proven research tool allows your customers to give you clear indications of how well you are performing versus competition. In addition, you get a concrete action plan on how to improve. The Tomorrow Group has extensive experience with PDS, so drop me a line at doug.dean@tomorrowasia.com if you want to know more.

Segment your market

Once you've generated the customer profiles, you'll need to find patterns in the data. Look for common traits in your customers. What are their top priorities? What types of products and services do they buy in combination? Is a certain customer profile more willing to pay more for a given product and/or service?

Segmentation is the most subjective part of your loyalty analysis, so keep it simple. Plot the data in a matrix, as this often helps to visualize clusters. Don't get too detailed. Look for broad lines. A handful of good clusters usually suffice to keep your company busy and your cash register ringing.

Develop your offer

Understanding your segments' needs will allow you to tweak your product and service offer. For example, if quality is the top priority to your key customers, be sure you stress this point when you talk to them. Furthermore, you might want to invest resources into supporting quality within your company to show them you understand their needs and appreciate their business.

Be aware that different customers may buy the same products and/or services for different reasons. You have to look beyond the product itself to the need it serves to properly sell and market it.

A good example is the Sport Utility Vehicle (SUV). Originally conceived for agricultural and civil engineering industries, these vehicles now sell mainly to housewives who will never use the vehicle off-road - the environment for which they are designed. Instead, these vehicles are bought because their weight and height provide a false sense of added security. So the product fulfills an emotional need that was never contemplated when the designers set out to create the product.

Beyond honing your product and service offer, you should also investigate new customers who are similar to your top buyers - finding "twins". It's a very rewarding effort. Your company is already geared towards satisfying certain clear needs, so the conversion rate among these "twin" companies is exceptionally high.

Also, don't forget about cross-selling. If you know what a customer is looking for, go through your product and service portfolio to see what else you can offer them. Remember, these are loyal customers, so they trust you. Again, I am often amazed to see how few companies actively exploit their cross-selling potential.

Measure your progress

The old adage "you can only manage what you measure" applies to your new focus on loyalty. Once you've implemented you new approach, you need to measure results. Are your top 20% customers buying more? Are you recruiting more customers like them? Are they producing strong results?

Beyond measuring actual sales and profit, continue to conduct market research. Make sure you understand your customers and that your offer is meeting their needs.

Once you have achieved this stage, you are well on your way to building long term success.

If you need some directions or assistance along the way, give us a call or drop us a line. The contact numbers are listed below. We'll be glad to help you out.