Developing the “Devoted” Customer

"Loyalty is probably the most misunderstood and under-utilized strategy and tactic in business," says Aldy Keene, co-founder of the Loyalty Research Center. "Everybody thinks they're doing something about customer loyalty, but very few of them actually are."

You'd think customer loyalty would be easy to identify. If the customer gives you repeat business, that's loyalty, right? Not necessarily. Keen warns that too often, "customer loyalty is confused with customer tenure," and companies fail to recognize the difference between habit and preference.

The first step in discerning that difference is to develop a meaningful measure that's connected to customer behaviors. For example, every small business has encountered the repeat customer who exerts constant pressure to reduce prices. When you comply with those demands, when your sales to that customer depend on your continued willingness to discount your prices, you're buying the customer's business, but you have not bought his loyalty.

Keene believes that "when you really look at the customer base, it's rarely price. It's price when you're having problems or when you're delivering bad service. When you've got a lot of price sensitivity, you're really not listening to the customers."

A loyal customer, Keene asserts, is one who sees the value in the goods and services you're providing and pays the price you quote. However, individual customers have differing definitions of value and differing ideas about the tradeoffs they're willing to make among product, service and price. Building customer loyalty, he says, is a matter of "putting together the right mix and putting it out to the right segment."

One strategy for building customer loyalty is to ask for referrals. If customers are willing to give them, that's an indicator that they're loyal.

If they're not, look into the problem behind their refusal. Keene says customers who have experienced a problem and say it was not resolved are "low-hanging fruit" when you're looking to cultivate increased loyalty. "Research has proven that simply asking if there's a problem makes the customer feel better about the relationship," he says.

Continued communication is the best tool for maintaining the relationship once you have a customer's loyalty. "Ask, 'How can we improve the business we're doing for you?' Be prepared for answers you don't expect to hear and maybe don't want to hear-but you've got to do something with it. That's what customers want," Keene advises.

When thinking about your customer loyalty strategy, remember that, in the past, a company's value was determined by its hard assets, but today, a lot of a company's value depends on goodwill. Customer relationships are a key component of goodwill. So to maintain customer loyalty, Keene says, treat those relationships like assets.

For more information on loyalty, see Keene's American Management Association podcast interview, "Why Should Companies Measure & Manage Customer Loyalty?"