3 Keys to Increasing Customer Loyalty and Lifetime Value

29 Jun 2015

3 Keys to Increasing Customer Loyalty and Lifetime Value

June 29, 2015Blog

Loyalty, like value, can be quite an ambiguous concept.   Big Box Retailers, airlines, hotel chains, the pizza shop, dry cleaner, Amazon, the car dealer, and the local Ace Hardware…anywhere we spend money, it seems there is a business out to make us their most loyal of customers.  We’re constantly pummeled with e-mail, flyers, text messages, daily discount flashes, and point systems…to the point that we can’t keep all our “savings” or “special access” opportunities straight.

As a consumer of all types of products and services, we are all too familiar with this pummeling…so how do we separate ourselves when we want our business to capture the most loyal of customers?  What makes one approach to driving customer behavior, and ultimately, capturing the customer’s loyalty stand out from the other?

The Current Challenge:

Consumers have the power.  They are more knowledgeable thanks to the internet and the ability to price shop. They’re more demanding as they expect superior service (24 hour) and unique product offerings.  And they’re more empowered with multi-channeled options and the ability to customize.

The truth is, it is 3-5 times more expensive to acquire a new customer than to keep an existing one.  According to the “Leaky Bucket Theory”, while a 10% reduction in customer acquisition costs improves the overall value of the customer base by 1%, a 10% improvement in customer retention increases overall customer lifetime value by 30%.  With numbers like these, it’s very clear why customer loyalty and retention needs to be the first priority.

Companies looking to drive greater customer loyalty and lifetime value must focus on the three legs of the loyalty stool: Perceived Value, Positive Emotional Connection, and Physical Appreciation.

1. Perceived Value  

Does the customer believe they got what they paid for, or hopefully, that the value of what they purchased was worth it?

Some of the key factors to influence an increase in customer’s perceived value include:  small “freebies”, buy one get one campaigns, perks (like upgraded rooms or airline seats), and even informational content to help them accomplish a task.

Perceived value is the easiest leg of the stool.  It is also where most businesses stop. Most companies try to use price, bundling, or perks to drive behavior and loyalty, but forget that this is only one leg of the stool.  Customers that only have perceived value of your product or service are very vulnerable – they are at high risk for the competition to come along with a 2 or 3 legged stool, and there will be nothing left for the customer to stand on when met with greater temptation.

2. Positive Emotional Connection

Does the customer feel good about the experience surrounding the purchase and use of the product or service?

When your brand name comes up in conversation, does it generate a positive, neutral, or negative gut reaction?

A driving factor to influencing a positive emotional connection is in the total customer experience design – an experience that can stimulate a sensory, intellectual, or perhaps even spiritual type of connection.  This is a more difficult task, and requires segmentation, profiling, and getting in deeper touch with customer preferences in order to tailor the perfect experience.

Companies that do this right can really flourish.  One that comes to mind is Delta Airlines.  Delta has gone at length to address perceived value with its loyalty program, but when it comes to emotional connection, they are tailoring the experience all the way down to the music and temperature on the plane.  Their loyalty program also offers options for use of the rewards, which allows a customer to choose how they’re rewarded – giving a customer the power to choose limits guesswork, and provides flexibility in how a customer’s specific emotional triggers are satisfied.

The key here in implementation is maintaining a fine balance in consistency in operations with employee empowerment for flexibility. To deliver a consistent and positive emotional experience at scale, all employees and procedures must be lock in step, without irregularity.  This includes everything from providing the same experience in every hotel room to being able to call AT&T and have them know who you are no matter whom you speak with.  This latter point references the company’s ability to provide “One Voice”.

However, when exceptions come up (like upgrading the passenger whose headed somewhere for a family emergency), then employees need to be empowered to bend the rules and let empathy with the customer drive their behavior.

3.  Physical Appreciation

Does the customer like the way your product or service looks and feels?   Can they pick your product out immediately in a line-up and associate its appearance with the experience of using the product or service?

A great product design (or marketing “package” for services) can go a long way to driving loyal customers, and can be a strong influence to both an emotional connection and total perceived value. 

The only way to test design is to solicit feedback and research.   If possible, tailor the design preferences of your customers to certain customer segments.   Ask, are your customers looking for form over function or function over form?

An example of two companies that do this well are Home Depot and Black & Decker.  They both capitalize on the consumer connection and linkage of the color orange to construction and tools – a connection that began with simple traffic cones and safety vests.  In the world of power tools, form can be a differentiator, but reliable function trumps.

As you can imagine, there are tricks to making sure these three legs of Perceived Value, Positive Emotional Connection, and Physical Appreciation work together.  Successful companies build integrated plans to ensure that all customer needs are met.  And then they build in tools and processes such as CRMs and integrated dialers (phone systems) to track customer behavior and provide that “one voice” when communicating.

The bottom line is that customer loyalty and the subsequent retention is earned.  Implementing strategies along these lines will not guarantee that you won’t lose a customer, but the customers you have will stay longer and it will take something major to make them switch.

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 Cooper Butler is an Operations Director for Blossom Growth Partners.  To learn more about Cooper and Blossom Growth, please visit us at www.blossomgrowth.com or follow us on Twitter at @blossomgrowth.

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