Gain a Competitive Edge: Create Customer Loyalty

It’s no secret that satisfying your customers builds long-term loyalty, long-term sales and long-term revenues. Strong customer loyalty is the single biggest factor that gives you a competitive edge.

Many people use the words "customer retention" and "customer loyalty" interchangeably rather than in tandem. At its most basic level, customer loyalty means a customer comes back and buys again. In effect you’ve "retained" that customer.

Your goal should be to develop one or more of the five types of customer listed here. Some, however, are easier to achieve than others.

1. Purchased loyalty. The prime example of purchased loyalty is a customer rewards program. Other examples include memberships, coupons and rebates. Basically, purchased loyalty pays customers to be loyal – and there is nothing wrong with that approach. In many industries and market sectors it works well.

   The problem with purchased loyalty is that it can be pilfered. Say you have a frequent flier account with a particular airline. If the only thing that keeps you flying with them is the points system, you’ll quickly switch when another airline offers you a better deal. In a purchased loyalty situation the customer is loyal to the system, not to the company. Every company wants a sustainable competitive advantage, and a purchased loyalty program can provide one. Even so, purchased loyalty is a tough advantage to maintain.

2. Convenience loyalty. The corner market, corner dry cleaner, the coffee shop on a customer's way to work – people may be loyal to these businesses simply because they are convenient. Unless competitors come along and are equally or even more convenient, customers will probably remain loyal.

   Convenience loyalty applies in an online setting too. For example, if you have the right real estate product on a home page or portal, you may create loyalty through convenience. But the advantage is fleeting. In fact, the Internet has largely eliminated the power of convenience loyalty, both online and offline.

3. Restricted loyalty. Restricted loyalty occurs when there is no other readily available option. A cable company may enjoy restricted loyalty, especially in a rural setting with no competitors. Utilities tend to enjoy restricted loyalty. A corporate travel program with a credit card company may be a form of restricted loyalty. Some Wal-Mart locations enjoy a form of restricted loyalty, mixed with convenience loyalty, because they are the only major retailers in town.

   When customers don't have options they have little choice but to be loyal. Constraints create loyalty. Restricted loyalty is great for a business, if you can get and maintain it.

4. Loyalty to your people. There is also loyalty to the people who serve the clientele. For some customers, this can be one of the strongest loyalty bonds because long-term, professional and personal relationships can evolve. For example, remembering a customer’s birthday with a cake is not something you, the owner, is likely to do. But, the people who work for you may, because they have had the opportunity to cultivate that bond.
5. True loyalty. True loyalty – allegiance to a brand or product based on satisfaction – is the ideal you should aim for. Your customers’ needs are completely met, and they simply cannot imagine using another product. True loyalty is difficult to achieve in a retail setting, but not quite so tough in the service sector.

If you believe you are missing the mark where loyalty is concerned, you can do something about it. Try these solutions:

• Change your products or services when market conditions or customer needs change. Don't assume that what you do today will be successful tomorrow.
• Focus on quality and customer service. Customers will forgive an occasional defect or mistake as long as you take responsibility for that mistake, and remedy the situation immediately.
• Keep costs low and profit margins reasonable. Customers will pay a fair price – or even a slightly premium price – if they feel the quality and service they receive justify that price.
• Provide different solutions based on need. One-size-fits-all pricing and service schedules make it tough to effectively satisfy a diverse customer base.
• Make sure all employees have been trained to provide outstanding service and have the authority to deliver that service. Let your employees be heroes, too.

Finally, remember that the key to developing true loyalty is to always put the customer first. A well-treated individual will come back, even without expensive advertising and deep discounts. In almost every market and industry, in fact, customer loyalty is the best form of competitive advantage your company can possess.