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Building customer loyalty: nine FAQs

  1. I can always find more customers, so why will it pay to invest in customer loyalty?
  2. What makes customers loyal - and how can I measure it?
  3. What are the most effective ways of improving customer loyalty?
  4. What do I need to know about my customers?
  5. Who should I give key account status?
  6. What are the key skills for employees in direct contact with customers?
  7. How should I deal with complaints?
  8. How can I monitor customer service?
  9. Should I provide loyalty schemes?

1. I can always find more customers, so why will it pay to invest in customer loyalty?

Selling more to existing customers is easier and cheaper than finding and selling to new ones. It typically costs five times more to win a new customer than it does to get repeat business from an existing one (and in some industries, considerably more). Loyal customers tend to buy more, more regularly. And they will frequently recommend your business to others.

The exceptions occur in businesses where repeat purchases are unlikely, for example if you are selling double glazing. Here, you must continually work to develop banks of new prospects.

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2. What makes customers loyal - and how can I measure it?

If you lose customers, it pays to understand why. The majority of customers who take their business elsewhere, do so because of the attitude of their supplier or because they feel a little ignored. Only a small percentage stop buying because of dissatisfaction with the actual product or service. So the first step towards building customer loyalty is to make sure that your customers feel valued. Train all employees who come into contact with customers - face-to-face, over the phone or through the mail - to understand that customers are important to the business and to their own job security. It is not only in employees' interests to treat customers in a friendly and efficient way, but it's more fulfilling too - everybody wins.

Measuring loyalty is simply a matter of identifying repeat purchases over a set period (look at the sales ledger) and monitoring new enquiries, so that you know when a new customer has reached you via a recommendation from an existing one.

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3. What are the most effective ways of improving customer loyalty?

Few suppliers can offer products or services that are substantially different from those of their competitors. So the best way you can develop customer loyalty is usually through offering better service, and building closer relationships with your customers than your competitors can achieve. Rapport is key - if punters enjoy the experience and feel valued they will keep coming back.

Define the two or three components of customer service that are vital for success in your type of business. Depending on your sector, these might be prompt delivery, efficient technical support or adapting quickly to new customer requirements. Once you know what's important, provide it and amplify it.

One fundamental step towards improving customer loyalty is training staff to understand that customer retention is the main goal of your business. Make customer needs the centre of what you do. There are several tried and tested methods you can adopt. These include:

  • Asking your customers for feedback and ideas for improvement.
  • Train front-line employees to be welcoming, without being overwhelming. Ideally, they should be warm, but not gushing, and show real enthusiasm for the job.
  • Product knowledge is vital, as it underpins your image of competent professionalism.
  • Keep your promises. If unavoidable delays occur, make sure the customer is told as early as possible.
  • Honesty is the only policy.
  • Offer a no-quibble guarantee.

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4. What do I need to know about my customer?

Learn as much as you can about your different customer segments. Find out what, when and how your customers like to buy, and use this information to improve the service you offer.

Find out which people are involved in making the purchase decisions about your products or services. Get to know them and make sure you take into account their individual preferences and concerns in your future dealings with them. Try to discover what problems the customer is experiencing with other suppliers, and find ways of demonstrating how you will avoid making the same mistakes.

It depends how far you want to delve. A shop dealing solely with cash customers would be hard pushed to build anything more than a snapshot, but in a business-to-business situation where you are dealing with key accounts, you can often build up an intimate knowledge of the client's needs. Addressing customers by name is a good start. It would then be helpful to keep notes on file covering:

  • Buying pattern, seasonality, products purchased.
  • Payment record or credit rating.
  • Links with other companies.
  • Potential (and purchasing trends).
  • Dealings with your competitors.
  • What you need to do to secure more (or all) of the business.

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5. Who should I give key account status?

Who these customers should be demands careful consideration. Your decision ought to be based on a number of factors that make a particular customer more attractive than the rest. Current sales volume, by itself, is not enough. You also need to consider the potential for future business from the customer, in terms of volume growth, quality, delivery expectations and the support services they need.

Another factor to consider is the extent to which you believe you can develop a 'partnership' relationship, one that goes beyond the usual customer/supplier relationship. Awarding key account privileges should mean more than just offering volume discounts.

Key account customers will expect to get a fast-track service that is unavailable to others. Part of the package often involves providing each of them with a single point of contact who becomes their champion who can pull out all the stops on their behalf. Equally, you may have to be prepared to adopt some of a key customer's systems and ways of doing things to demonstrate your commitment to the relationship.

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6. What are the key skills for employees in direct contact with customers?

The first is the ability to recognise that for those brief moments of contact, they ARE the company. This means that everything they say or do could create a good or bad impression of the company as a whole.

Secondly, your employees should be highly competent in their particular fields, so that they can deal with each customer professionally and not waste the contact's time. Customers do not like having to deal with people who cannot give answers on the spot, so empower your employees to make confident decisions - this will also send reassuring signals to customers.

Make sure employees have good basic communication skills. For example, poor spelling and grammar will ruin the credibility of letters, emails and faxes. The same principle applies to the spoken word.

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7. How should I deal with complaints?

Ensure that your company has a defined complaints policy. Some employees will handle complaints naturally and effectively, others may need to feel able to defer to a higher authority. To defuse heated situations first apologise, be sympathetic, listen, establish the facts, agree what to do, and then do it.

Try to put yourself in the customer's shoes and see the situation from their point of view. Never say the customer is wrong. Apologise for any inconvenience that has been caused. Ask questions so that you are clear about the complaint. Try to find out what the complainant expects you to do, bearing in mind that you cannot simply put the clock back.

Every complaint is giving you a very strong signal about where you can improve your company's performance. From this point of view, it is good business to encourage customer feedback, so that you can take action, rather than waiting for them to vote with their feet and take their custom elsewhere.

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8. How can I monitor customer service?

Before you start monitoring your customer service, you need to be certain that you are providing the right elements of service. You can check this by asking customers for their views about the service you currently provide. As well as finding out how your level of service compares with other suppliers, this can provide an opportunity to get customers to identify which aspects of service are most important to them.

Once you know exactly what people want, monitoring the delivery of it becomes a relatively simple job. It may involve making spot checks on customer transactions, measuring how fast orders are dealt with, checking on the punctuality of deliveries or measuring complaint levels.

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9. Should I provide loyalty schemes?

A successful loyalty scheme pays for itself by minimising defections and encouraging more frequent purchases. The most common loyalty schemes are based on offering rewards to loyal repeat customers.

Consider offering a cumulative discount whereby you give customers a cost discount whenever they reach specified spending targets. For example, retail firms can offer loyalty cards which work in this way.

Alternatively, some schemes might offer customers complimentary goods or a discount off their next purchase. For example, you could issue discount coupons. If they are only valid for a limited time, you also encourage prompt action.

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For more information and advice on this topic, see the Resources box on the right.