Carol Roth is a business strategist, deal maker and author of the new book “The Entrepreneur Equation.” She will be speaking at SOBCon 2011, which will be held in Chicago from April 29 to May 1.
“That will be $56.02,” said the woman behind the counter.
“Oh wait,” I replied. “I am a member of your VIP program.”
The woman rolled her eyes. “Do you have your card?” she grumbled impatiently.
I rummaged through my wallet, sifting through “buy nine and get the 10th free” punch cards in search of a white plastic rectangle.
I didn’t have it.
She asked me for my phone number. I gave my cell number. Nope. Then my home number. Not there either. Finally, the third time was the charm — the account was registered under my office phone number. The woman lodged my 56 points in the computer system and shoved my bag of cosmetics at me.
Ah, the portrait of an effective customer-loyalty program, don’t you think?
Hardly.
I didn’t feel like a VIP member — I felt more like a fool. Loyal customers are the holy grail for most businesses. With customers having so many different options for goods and services, developing long-term loyal customers is critical for brands and companies. Not only is it easier to sell more things to customers who already love you, but raving fans will tell other customers about your brand or company. When you factor in the expense of trying to reach new customers and the high lifetime value of each individual customer, loyalty needs to be a top priority for every business.
However, many companies have approached this effort in very much the wrong way and are stuck in old-school, ineffective loyalty approaches. It is critical for companies that want to develop long-lasting customers and raving fans to start coming around to what I call Loyalty 3.0.
With very few companies even coming near Loyalty 3.0, there are unprecedented opportunities for forward-thinking companies to become leaders in this movement and gain competitive advantages by forging rock-solid customer relationships.
The reality is that not only are most companies not at Loyalty 3.0 levels, many — like my example above — are still in primitive program mentalities, believing that having a paper or plastic card creates anything near loyalty.
Loyalty 1.0 is where companies believe that by rewarding the customers who spent the most with them, that they are creating loyalty. This comes in programs like points-per-dollar spent or “buy nine, get the 10th free” cards. This form of loyalty looks an awful lot like bribery.
There are several problems with 1.0:
- It creates loyalty to the program, not the brand or company; you are only as effective as your offer.
- It creates another form of price competition. Buy nine and get one free is akin to a 10% discount across the board.
- It only rewards the “spenders” — customers are only considered as important as their last set of purchases.
Additionally, as my example demonstrated above, it’s a farce. Why would a customer have to provide a card to be deemed important? It’s against all logic.
Loyalty 2.0 evolved in the form of social media. Brands realized that it was not just the spenders who were important, but also the influencers (aka the senders) who indirectly accounted for sales through brand advocacy. This was an important realization for companies and brands.
However, many companies approach 2.0 in the same way as 1.0. Once they identify the senders, they employ the same strategy and try to buy their attention and affection with swag. Yet this still doesn’t create loyalty.
Loyalty 3.0 is where we are headed. Some companies have been doing this for a long time, but they are definitely in the minority.
This is where companies and brands engage both the senders and the spenders by making them feel cared for and important. It is a holistic approach that can be led with product functionality (think Apple), customer service (think Nordstrom), creating an affinity group or lifestyle association (think Harley-Davidson), creating an experience (think Trader Joe’s) or even by creating a bridge to the customer with ancillary products, services, content or experiences that are important to the customer (think food companies with time-saving recipes).
True customer loyalty stems from making your customer feel important, but in whatever way resonates with him or her. This is tricky territory because not all customers have the same wants or needs.
- Do we know who our spenders and senders are?
- Are we listening to their dialogues to understand what is important to them and what easily fits into their lives? Are we demonstrating to them that they are important and that we care for them (as a brand or a company)?
- Are our employees our loyal fans?
Those questions need to be layered on the pillars of loyalty based on the type of company you are and the needs of your customer. It isn’t easy — if it were, everyone would be doing it already. However, it is incredibly worthwhile, as nothing is more important to your business than solid, loyal customer relationships.