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For most businesses, few things are more valuable than a loyal customer.

Fortunately, thanks to technology and the internet, there have never been so many options for businesses looking to build long-term relationships with their customers. And these options are growing by the day. Customer loyalty solutions, for instance, look like they'll be playing a big role in the emerging market for location-based services.

But despite how important customer loyalty is, there a lot of myths about it floating around, and a lot of investment made with the goal of increasing customer loyalty is wasted because of them. Here are five harsh truths about customer loyalty that every business should keep in mind.

Many businesses don't know who their loyal customers are

For all the talk about customer loyalty, a significant number of businesses have nothing in place to accurately track and identify repeat customers. For obvious reasons, that's a problem.

You usually can't discount your way to loyalty

How do you acquire loyal customers? Looking around today, one might get the impression that deals are a pretty good technique. While they're easy, and there is a place for them, deals aren't a sure bet when it comes to creating loyalty. It is often particularly difficult to develop customer loyalty when discounts are provided up front to acquire new customers.

After all, enticing customers to come back by constantly offering a deal that's too good to ignore is really no different than lowering your prices -- sometimes unsustainably. Additionally, it should be noted that your most loyal customers may very well value intangible rewards far more than they value than tangible rewards, like discounts, that are far from 'exclusive'.

Not every customer can be turned into a loyal customer

 Plenty of customers, for many legitimate reasons, will never become 'loyal'. Some, for instance, may be price-sensitive bargain hunters. Despite the fact that loyal customers can't be found under every rock, a lot of money is spent on loyalty programs that not-so-strategically try to turn everyone into a loyal customer.

You can't take loyal customers for granted

Most businesses love loyal customers. After all, customer acquisition can be difficult and very costly, and a reliable base of loyal customers can reduce the pressures that come from needing to constantly engage in efforts to acquire new customers.

But keeping customers loyal isn't always a walk in the park either. Growing and maintaining a loyal customer base usually requires a decent investment in, and appropriate use of, CRM. Without it, you may create the worst type of customer: the former customer who you gave good reason never to come back.

Loyalty doesn't always equal profitability

Just because a particular customer is a 'regular' doesn't necessarily mean that he or she is profitable. At the end of the day, loyal customers are great, but it's the profitable customers who keep the lights on. Identifying loyal, profitable customers and making sure that they remain loyal and profitable is really what 'customer loyalty' is really all about.

Patricio Robles

Published 5 November, 2010 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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Anonymous

Loyalty doesn't always equal profitability - too true... I would go further and say some loyalty schemes are so overly complicated that they themselves make the cost of loyalty difficult. Naming a few culprits would be unprofessional but seriously - commoditising markets should innovate and maybe not spend fortunes of immitation loyalty schmese that don't work!

almost 6 years ago

Ian Tester

Ian Tester, Senior Product Manager at brightsolid online publishing

Very true, especially the part about discounting to new customers: loyal customers hate this (as do I as a consumer) and people are now so used to bargain hunting that this can prove a very expensive and self-defeating strategy. Far better to offer the best discounts to loyal customers (and if you can, tying this to profitability) - the payback is instant and the overhead in offering it is very low. Getting the metrics in place to measure purchase history RFM, LTV and profitability is one of the best investments you can make - it will also help with your overall customer and business management as from necessity you will need to create a single customer view - this is only a good thing for any business.

almost 6 years ago

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Jim Henderson

In my experience, Loyalty is a characteristic many businesses aspire to, without necessarily understanding how it can be achieved.

Loyalty is the measurable (your Loyalty factor) likelihood that an existing client or customer will purchase from your business again.

Research shows that the more purchases (different products or services) a client makes with you, the more likely they are to buy again – as long as they are happy with the experience they had. When loyalty is maximised, you will have developed a (profitable) client for life.

So having a client purchase multiple products from you builds loyalty, and increases the likelihood that they will buy from you again. Importantly, the only sustainable way to develop multiple sales is by consistently delivering value through your business, not only to clients but to all internal and external stakeholders – including staff.

Have a look at your client base. How many have bought just one product and how many have bought 2, 3 or 4? List them out – either by name, if you have a boutique client base, or by category if you want to generalise a larger client base.

What is your current Loyalty factor? Do most customer categories purchase one product or service from your business? Two? More?

When you have calculated your Loyalty factor, you are now in a position to design your loyalty strategy. How can you encourage your existing clients to purchase additional products? Here are some tips:

Awareness – Sometimes your current clients may not be aware of all the products you have on offer. What marketing activities – for example, a one-page brochure explaining each product – can you do to increase awareness of each product and its specific value?

Packaging – Perhaps you could combine some of your products in an offer (limited time or ongoing) that encourages your clients to purchase more of them. Remember that loyalty requires your clients to be making separate purchasing decisions for each product, although revenue can be increased through a packaging strategy independent of a loyalty build.

Client Induction – Often the best time to build loyalty with a client is immediately after they make (and appreciate) their first purchase. Do you communicate with your new clients about the range of products you have on offer? After all, if they don’t know, they won’t buy.

Value your Staff – This may not seem immediately linked, but it is. If you value your staff and demonstrate to them how valued they are, then they will be more likely to demonstrate value to your clients. And it’s through feeling valued that your clients will make future purchases and increase your overall loyalty factor.

Finally, here’s a key to fast-tracking loyalty - you don’t necessarily have to deliver all of the products you offer. Forming partnerships, alliances, and business relationships – formalised or not – can allow you to build purchasing loyalty without needing to build out your deliver skills. If you work out how you can sell these additional products to your existing client base, your loyalty factor will build and they will be more likely to buy from you directly again.

almost 6 years ago

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Dean Procter

The big retail shopping mall operators seem to offer a consistenty hassle free experience, with parking and a predictable product range. The customers aren't neccesarily being attracted by discounts are they? Those in search of discounts go to the 'factory outlet' centres offering the same goods, sometimes at lower prices (and often not in the right size or style) a little later than the same brand in-mall.

When was the last time you switched malls because a single brand store disappeared?

Perpaps:

loyalty = convenience, consistency, choice and a dash of price/perception in that order.

There may be one other key factor. When was the last time you switched stores in a mall or switched coffee shop or bar? My bet is that it was human related. Those humans are best at building loyalty. They're more flexible and adaptable than any corporate loyalty reward scheme. If you have convenience, consistency, choice waiting for customers, the humans behind the counter are probably the best place to invest those loyalty chasing dollars.

almost 6 years ago

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Database Marketing Solution

Thanks for pointing out the reality of earning customer loyalty.Treating each customer as if they are the most important client you have would seem to be a way to garner loyalty in the long-term compared to offering short-term deals for specific services.

almost 6 years ago

Ian Tester

Ian Tester, Senior Product Manager at brightsolid online publishing

and thank you, Mr Solution, for the inane spam.

almost 6 years ago

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Anonymous

Simple question does loyalty = behaviour of unquestioned repeat purchasing? or are we talking about loyalty in terms of advocating to others? Whereby the customer can say "I am a loyal suppporter of product/service x?" Lindsay Keith Bronze Digital Marketing Consultant Canvas Perspective

almost 6 years ago

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Ben

Interesting point re not being able to discount your way to loyalty.  Discount seekers and regular customers are almost completely seperate groups in our experience.  This is why people are questioning the Groupon model etc.

over 5 years ago

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