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Customer Loyalty in Six Simple Steps

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By Rick Cook

6 Step Approach to Increased Customer Loyalty

Customer loyalty is a key metric for many marketers and an inherently supported capability within most Customer Relationship Management software systems.

Using the CRM software 360-degree view of the customer relationship you can aim your offers at highly specific segments of your customer base to build loyalty, deliver relevant messaging, grow customer share and retain more of your customers. Consider the following six step approach to use targeted offers to increase customer loyalty.

1) Segment Your Customer Market
In building your market segments, don't neglect RFM – recency, frequency and monetary return. This is a key metric in identifying your most valuable customers.

However RFM measurement should only be the beginning. Generally the first cut will be made by categorizing customers by profitability – that is, return on investment, not necessarily total sales volume.

2) Build Segment Profiles
The next step is to drill down and try to characterize the segments. This starts with customers’ purchase history, frequency and trends and goes on to use all the available data to try to build correlating patterns and relationships in order to construct the most complete picture possible for each group.

In building profiles, try to separate the characteristics you can use from those that are simply irrelevant. It's good to be creative when slicing and dicing the data, but not every variable or characteristic you find in that mass of information demonstrates cause and effect relationships or contributes to a model that is going to be useful.

You may discover, somehow, that half your best customers are left-handed, but except in special circumstances it's hard to see how you can build a useful marketing campaign around that.

Some characteristics will be obviously useful, however. Pay attention to things like purchasing patterns. Do your best customers tend to make large purchases infrequently or do they make a lot of small purchases very often? Information like that can help you aim your offers at the customers' buying habits.

Be prepared for surprises. Customers have a habit of thinking outside the box when it comes to creatively meeting their needs. For example, most high end woodworking tool stores find they do some amount of business with cooks looking for everything from Shur-Form rasps to grate nutmeg and hard cheese to Japanese waterstones for putting the absolutely finest edge on chef’s knives. This may not be a large segment, but it is potentially a very profitable one because the items being put to such unconventional uses are typically high-margin sales. Appropriate offers targeted to this group can be quite profitable, if not in the same category as a woodworker who purchases a bandsaw.

3) Tailor Your Strategy to Your Audiences
A central part of the targeted approach is to match your strategy as closely as possible to the buying patterns of each customer segment. This includes not only the characteristics of the offer and how it will be delivered, but also includes how much you want to spend on each segment of the market.

Obviously if you’ve done your segmentation correctly some customer segments offer more profitable returns than others. It is worth devoting more marketing investment and resources to those customers.

Try to determine how each market segment views you. Are you merely a convenience or do they feel they’re part of a community built around your business? To one class of customer, an auto parts store may just be a place to pop in and pick up a case of oil. To a serious motorhead it may be a place that fills an important need in his or her life. Even if the amount of money both customers spend in the store in a given period is not all that different, what will motivate them to increase their spend will likely be very different.

4) Pick Your Offers
Next to segmenting your audience this is the most crucial part of targeted marketing. You need to use the characteristics you have identified to figure out what is likely to most appeal to each group.

Here’s the place to exercise your creativity. An ideal offer not only appeals to the targeted customers, it is also unique. It offers them something they need but that they might not think of on their own. Like the customer groups themselves, the ideal offer tends to be highly specific to each target group.

A marketing promotion or campaign offer doesn't have to be wildly original to be useful. One successful promotion by a chain of electronics stores involved running a battery club. Customers who received the offer got a wallet sized card which entitled them to two AA batteries a month. Batteries of that size are used in most small electronic gadgets and the offer went to people who had purchased such gadgets at the stores. Of course people who buy gadgets tend to buy more gadgets and as long as they were in the store to get something they needed for free, they might as well browse.

Sometimes the best offers are also counter-intuitive. A flower shop that offers its customers a free rose on Mother’s Day is likely not only to increase business on what is already one of the busiest retail days of the year for florists, but can also help business the rest of the year by building customer consciousness and differentiating itself from competitors.

5) Analyze, Analyze, Analyze
The next step is to study your results and see how well your offers worked in drawing in your target customers. Ideally you’ll have some way of tracking the offers, such as a coupon to be redeemed, a promotion code that can be given for a discount or an online response that can be tracked back to a campaign.

It's important to constantly monitor the results of any marketing campaign, but it is doubly so on highly targeted offers. Just as the demographics of each group are narrow, so the range of getting it “right” tends to be narrow as well. You may need to fine tune your offers over progressive cycles to hit the sweet spot with your customer groups.

This is a place where the business intelligence or analytics tools in your CRM software can be invaluable. They can not only help you total up your successes, they can help you to see why the offers were successful as well. Of course they can also show you where your failures were and that's equally important.

6) Make Revisions and Repeat
Once you’ve analyzed what works and what doesn’t, use that information to further refine your customer segmentation, tailored messaging and marketing campaigns. This kind of marketing is ongoing. If the purpose is to maintain contact with customers the process doesn't stop after three or six months. Ideally try to improve your work on every iterative campaign cycle.

Categories: Marketing

Tags: Customer Loyalty, Marketing Campaigns

Permalink: www.crmsearch.com/marketing-loyalty.php

Author: Rick Cook

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Comments (6)	— Comments for this page are closed —

	Rob Chapman
	I recently read a magazine article that claims customer loyalty is over rated and customers are loyal to only superior products and competitive prices. Not sure I agree. Your thoughts?

		Denise Holland
		Superior products and competitive prices are most important in the customer acquisition process. Once you have acquired the customer, consistently good service is often the single greatest factor that keeps them coming back. Repeat customer purchases are low cost, high margin sales transactions that have big bottom line impact. Loyal customers also refer your company to their friends and colleagues, thereby providing a most coveted form of advertising with no additional advertising expense. I personally dispute any notion that customer loyalty is over-rated; the benefits are strategic, sustained and self evident.

	Arlene Miller
	How else do you achieve customer loyalty, beyond just good service?

		Denise Holland
		While consistently good customer service is a prerequisite to customer loyalty, other avenues include customer rewards programs, periodic statements with loyalty point accumulation, discount coupons, special promotions for existing customers, notices to upcoming events, special pre-release announcements, participation in beta or early customer adoption programs, customer anniversary letters or even thank you notes when customers place new orders. There is really a myriad of ways to reach out and engage your customers. The objective is to thank your customers and make sure they know how important they are to you and the company.

	Marti Chandler
	We're looking to improve our email conversions. Could you expand on the concept of RFM and how it can be applied to email campaigns?

		Denise Holland
		RFM could entail creating different email campaigns based on at least one or a combination of up to three variables (Recency, Frequency and/or Monetary) or scores based on customer behavior. The recency variable generally implies the last time the customer did something with your company – made an inquiry, responded to a promotion or bought something. The frequency variable measures the number of interactions over a defined period, and the monetary variable measures an economic impact, usually spend. Based on these variables, campaigns can be created to deliver more relevant messaging and maximize response. Recency emails are often automated (triggered) events. For example, when a customer makes a purchase, they then receive a follow-on email thanking them for their business, suggesting complimentary products or offering service or support. Recency emails are all about timing – and keeping mindshare without coming across as intrusive. Frequency behaviors are indicators of customer satisfaction and loyalty – and can be further capitalized on with email campaigns that promote customer loyalty rewards programs and benefits. Customers with high monetary value deserve more specialized attention and messaging may promote personalized account management, special promotions just for them and gold level status with customer support.

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Key to customer communication is targeted messaging. A central part of the targeted approach is to match your strategy as closely as possible to the buying patterns of each customer segment. When building segmentation profiles, try to separate the characteristics you can use from those that are simply irrelevant. It's good to be creative when slicing and dicing the data, but not every variable or characteristic you find in that mass of customer information demonstrates cause and effect relationships.