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3 Ways to Build Customer Loyalty Using Love, Not Lawyers

Some companies use legal force to lock out the competition and lock in customers. But know this: Arm-twisting doesn't build loyalty. Here's what to do instead.
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Enjoying that cup of coffee from the office Keurig brewer? Better brace yourself, as Green Mountain Coffee, which owns the brand, is about to change its technology in an attempt to block competitors.

Patents that kept others from offering those little cups of coffee beans expired in 2012. Once that happened, the great unwashed competitors were able to offer substitutes for 15 percent to 25 percent less. That makes GMC nervous. According to the company's last annual report, it estimates that there are more than 16 million Keurig brewers active in the U.S. right now. As GMC has folded its business unit reporting into domestic and Canada, it's impossible to know exactly how much the Keurig business brings in, but as of 2012, it was already bigger than the company's traditional coffee business.

And, chances are, an important part of that business is the coffee packs. Even if the machines aren't sold at near-cost, it is likely that the Keurig brand uses a "razor and blades" business model, in which the real profits in the long run are made off the coffee concession.

There are lots of reasons for GMC to come out with its next-generation machines that will only use coffee from approved sources--that happen to pay royalties for the privilege. But this is setting up a conflict with the customers, no matter how much GMC CEO Brian Kelley says that consumers will welcome with open arms a chance to buy a more advanced system. This is similar to what printer vendors like Epson did, installing chips to prevent customers from using third-party inks.

The problem with such tactics is that customers perceive the move as the company trying to shackle them into place--which it is. Some people probably won't mind and have enough brand loyalty to stay. But many more won't have a compelling reason to stay.

Keeping customers close and loyal is important for any business. However, taking an action that can appear to be a form of arm-twisting is dangerous. Remember, customers don't owe you their trade. Here are three steps you can take instead of trying to force customers into a relationship.

Reach out to customers.

Don't fall into the trap of presuming you know what your customers want, or even running focus groups so someone else can tell you what they want. Instead, speak directly to customers. Get top management on the phone or out on visits and listen. How else are you supposed to know what customers want? By divination? By doing so, managers get the direct feedback they need to help direct new products and services and customers start to get a sense that someone cares.

Provide value beyond price.

Look at GMC's proposed model: Sell machines that force customers to buy licensed coffee. Effectively, GMC is saying that it can't be sure that people would want to buy the branded products because of price. But customers know the markup they pay for the official coffee. Either it's worth it to them or it's not, and they can find some other way to make or obtain coffee.

Offer a level of quality that people cannot refuse, and they'll do business with you. And for the ones that would rather save the money, why not make it possible for them to buy one of your new expensive machines anyway? At least you make some profit, and with a campaign to send them samples (back to the previous step), you might lure them into spending more with you on the coffee capsules at least some of the time.

Offer top customer service.

Bad word-of-mouth as a result of inadequately resolved problems is a killer. But do your best to make people happy, and you get them to spread the good word. (Luckily, the customer service bar is set absurdly low in most industries.) Let them try the product and return it if it doesn't suit their fancy. Make replacement parts available so it's possible to--horror of horrors--repair a product instead of replacing it. Offer tutorials on how to use products better. Do everything you can so customers are happy.

In other words, love your customers up. Love is the most valuable thing in the lives of most people, and most appreciate it when they receive it. Let your competitors come, and top them in ways they can't duplicate. Customers know when they're being loved--and when they're being manipulated. Do the former, not the latter, and the customers you make will be yours for a long time.

Last updated: Mar 11, 2014

ERIK SHERMAN | Columnist

Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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