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On the Road from Customer Satisfaction to Customer Loyalty.

The Holiday season is over, but it was genuinely so nice to see so many people happy with their Holiday- shopping, carrying their purchases with a smile. But, is a happy & satisfied customer really what any merchant/ business owner (of any type) should be after?

You are happy with what you bought. No question about it. But will you really buy again the same thing (if it is a consumable) – same brand/ same service from the same merchant or vendor? Will you even go back to the same store/ vendor to buy something else?

You see, a happy, delighted and satisfied customer is not ‘automatically’ a Loyal Customer.

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Customer Loyalty – this & that…

Customer loyalty is an area that a lot of entrepreneurs must take heed to. Businesses exist to solve the true pains of their clients. Hence businesses that are able to provide the exact needs of their clients are rewarded more often. Man by nature is an economic being and can be very fickle especially when there are varieties of tastes and options. A typical client is always looking to minimize all costs while maximizing both benefits and pleasure.

Customer loyalty is therefore rewarded to businesses that are able to provide the most pleasure. It involves the ability to satisfy your customers so well that, they keep coming back to your brand, back to your business, for the same or another product or service that you do offer. Loyal customers become avid fans of products and can be a key source for both marketing and publicity. The great thing about customer loyalty when established is that, the customer becomes an active campaigner for the brand. Marketing by word of mouth is a powerful tool that small business owners should never underestimate. Especially today -in the age of social media- when Facebook updates, tweets and Instagram images can easily go extremely viral; and they do. Think of the delighted customer who has 5,000 friends on Facebook and who shares a positive post about your product on Facebook for example; that is pure free advertising and publicity to 5,000 people that your business has gained by just having put the effort to create that loyal customer.

Customer loyalty can be exhibited regardless of the sector that a business is operating in; if you are an NGO, please feel welcome to call it ‘Donor Loyalty’. Small business owners usually do not see the need for learning about their client as well as having an elaborate client loyalty program. Therefore they remain in the abyss when it comes to knowing about their clients.

Let’s take for example 3 small businesses, e.g. a hair salon, a restaurant and a boutique and analyze the ‘side-effects’ that a robust customer loyalty scheme can have on these the type of business.

For a beauty salon (please read our previous post), customer loyalty can reflect in higher sales given the range of services that the salon provides. Customer knowledge and loyalty can direct salon owner to the peak times and the services the clients demand at particular times. Customer loyalty helps restaurants not only to successfully adjust menu offerings but to also stock up on the right type of foods in order to boost and increase sales. Customer loyalty helps a boutique to stock up the right size of clothing because there is knowledge of the size range of their core client.

The benefits of customer loyalty are numerous and can lead to greater sales and profits. Customer loyalty is one of the single most important drivers of profitability in any business. Some businesses miss the mark by rather targeting customer acquisition. The notion that expanding the scope of customer acquisition is important than building on existing relationships is far from right. Hence most businesses spend lots of money targeting new customer without maintaining the relationship they have with their current customers.

Customer Satisfaction is a Starting Metric

The reason that most small businesses are hung up on customer satisfaction and not loyalty is due to the perceived notion that once the customer is satisfied with a product or service, they will become lifetime buyers. In reality, the customer is most likely just hanging around in search of a better alternative. When such a customer stops patronizing the product, instead of critically analyzing the cause of the departure, more money is rather invested into another round of advertising and client acquisition. Then the newly acquired customers hang around till there is a better offer and they leave. And the cycle continues unabated with another round of customer acquisition. Small businesses must know that satisfying the client is indeed the first stage of the loyalty building process, but they need to invest more in maintain their relationship with the customer.

The Pareto Principle (80/20 Rule)
The Pareto Principle is one key principle to consider while thinking about client loyalty. The rule simply suggests that 20% of effort will bring in 80% of all accrued benefits. If that is reflected in customer loyalty terms, then this stands to suggest that 20% of the satisfied clients of a business will generate 80% of the business’s revenue. Therefore in the search for the core clients of a business, the business owner must focus on identifying the 20% of their satisfied customers that patronize the business’ product and service the most. This can be achieved through doing a rigorous study of the client base and profiling customers based on their frequency of purchase and their volume of purchase.

Who Are My Core Clients
Customer knowledge and their loyalty enablement and management, usually requires careful planning and study not only of the customers themselves and their behavior, but also of the business owners’ point- of- view of how they view the customers and the way their business meets their ‘demands’. Unfortunately, a lot of small business owners do not bother with trying to detect what it takes to know their customer. The difficult nature of knowing their clients thoroughly has left many business owners scratching their heads. This explains why big data and how it can be optimized for consumer behavior is a trending sector. No matter how hard detecting consumer trends can be, it is possible to detect the buying trends of the core clientele that a business has. The concept of knowing the core drivers of sales and revenue for every business can strongly linked to the Pareto Optimality Rule. The Pareto Optimality law is a law in public finance that rings true across most industries.

In Conclusion
Every time you make a sale, yes there is revenue associated with it, but there is also always an acquisition cost. And there are so many studies showing that it is cheaper and more profitable to turn an existing Satisfied Customer into a Loyal Customer instead of going on with the acquiring of new Satisfied Customers.

Also the opportunity to cross- & upsell to a Loyal Customer is a lot higher (some people claim 4 times higher) than cross- & upselling to a Satisfied Customer.

A Loyal Customer is a long term relationship that generates a constant stream of income over the years.

In our follow-up article, we shall discuss proactive steps that a business can take in thoroughly knowing their customers and building a long term relationship with them. It is imperative that businesses whether large or small take proactive steps in building customer relationships and spending extra resources in knowing their clients. This is a sure way to profitability and distancing a business from the competition, so that it does not make any ‘sense’ for the consumer to move to another competitor.

Meanwhile, think please: when was the last time that you asked your customers how THEY would like to be served?

Are you still after 1.000 Satisfied Customers?

Or will you build 1.000 Loyal Customers please?

Thank you
Kwaku and Spiros

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