Many companies roll out programs that reward customer loyalty. But how one defines loyalty makes all the difference in whether or not you have “loyal” customers.
In many instances, frequency is mistaken for loyalty.
To examine the difference, let’s look at frequent flyer programs offered by the airlines. Fred Taylor is a traveler who uses one particular airline to rack up his frequent flyer miles. That is, until he figures out how much he’s going to travel the rest of the year versus how many points he’s going to get. When Fred knows he has enough miles for a free ticket that year, but knows he’s not going to reach the next level of the award program, his “loyalty” to that airlines goes out the window and he flies whatever airlines is cheapest.
Frequency programs also exist in sandwich and coffee shops. Buy ten sandwiches or cappuccinos and your next one is free.
In the past decade, supermarket chains have also gotten into the act, usually with “club cards.” Spend so many dollars in a certain period of time and you are rewarded with a percent-off coupon or some other kind of carrot.
The main purpose of these programs is to keep customers returning. Supermarkets go the extra mile (wisely) by tracking buying trends. They use data mining to see what they can change to improve their profitability. But across the board, the common thread of these programs is bringing customers back.
The oft-stated target of these programs is loyalty, but in reality they focus on frequency. To clarify the two, loyalty is deeper than frequency. According to Webster’s, frequency is the number of times something occurs within a specific period of time. Loyalty involves a steadfast devotion to someone or something. Obviously, frequency programs are valuable, especially in the airline industry, where any customer frequency these days is a Godsend. But what are they doing to build loyalty?
In the Spring, 2003 edition of MIT Sloan Management Review, Sumantra Ghoshal and Heike Bruch outline the difference between motivation and volition. Their focus is on internal operations – getting employees to be intrinsically driven instead of being wooed with a carrot – but the same principle applies to keeping customers. When the carrot appears, people appear. When the carrot disappears, so do the people.
Unfortunately, publicly held companies are usually more concerned about how their books are going to look next quarter instead of how their books will look in two or three years. It’s short-term thinking at the cost of long-term growth. In terms of customer relations, it’s a focus on frequency (carrots) instead of loyalty.
Don’t misunderstand: Frequency programs have great value. But what does it take to turn frequent customers into loyal ones?
Loyalty goes beyond price, awards, and rewards. These are all carrots. Once a customer eats the carrot, he’s on to another food source.
To keep customers coming back on their own volition they need to be nurtured with more than a carrot. This includes treating all customers like royalty. Customers can spend their money elsewhere. When they honor you with their business, honor them back.
Also, celebrate repeat business, making sure customers know their business is appreciated. When I lived in Southern California, I drove two miles to a mail boxes store because the owner was always glad to see me. On that two-mile drive I passed two other such stores where the business owners never showed interest in me as a person. I became loyal to the place two miles down the road.
There are many more ways to build loyalty, but for lack of space here, let me lastly encourage you to always resolve customer complaints quickly. One bad experience can drive people away, and fast. About 96% of the time, you’ll never know why they left, so when you get the chance to fix a problem, fix it quickly and to the customer’s satisfaction. We all know it’s much more expensive to gain a new customer than it is to keep an old one.
Frequency programs are needed, but creating loyal customers is key to long-term stability and growth.