The Customer Loyalty Loop

An Introduction

“So, you wanna start a business. How do you start? What do you need? Well, first of all, you need a building. And secondly, you need supply. You need something to sell. Now this could be anything. It could be... a... thingamajig. Or a.... whosi-whatsi. Or... [pulls out a candy bar] a Whatchamacallit [throws bar]. Now, you need to sell those in order to have a PayDay [takes out a PayDay, throws it]. And, if you sell enough of them, you will make a 100 Grand [throws 100 Grand bar]. [pulls out a Snickers] Satisfied?”

Michael Scott, Regional Manager
Scranton Branch, Dunder Mifflin Paper Co.
1

What makes a successful business? What do you need? Unlike the views expressed by business ‘savant’ character Michael Scott from ‘The Office’, there are a couple fundamental things each business needs to do to stay in business and be successful. These may not be the thoughts that are on the top of your mind, but chances are if you’re the owner, entrepreneur, or management team of your business you inherently know them, and are instinctively driven by them.

To be successful in business we need to create outstanding customer experiences and outcomes by solving real customer problems and creating delighted customers. When you continually deliver on these fundamental concepts, just about everything else in business - from profits, to growth, to brand reputation - is downstream. And it doesn’t matter what type of business you own or operate. If your business does not continually deliver great customer experiences, you’re not likely to be in business for very long. For those of us that do focus on delivering great customer experiences, we’re typically rewarded with repeat customers, growing numbers of customers, and loyal customers who behave as ambassadors of our brand, promoting our business to others. These businesses enter and stay in the so-called ‘customer loyalty loop’.

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Delivering great customer experiences positions your business to develop loyal customers. But why are loyal customers important? Loyal customers tend to be the most profitable customers, requiring less effort and expense to support. Loyal customers tend to buy more from you, and as an existing customer each incremental sale requires little to no extra expense (again contributing to increased profit). And lastly, yet arguably most importantly, loyal customers can be your best (and lowest cost) way to promote your business and brand to others. Research conducted by the father of Net Promoter Score, Frederick Reichheld of Bain & Company, shows an increase in customer retention rates of just 5% can increase profits by more than 25%2! Keeping customers in this loyalty loop pays dividends. So how is this done?

Creating great customer outcomes and delivering great experiences are business skills and processes that can be easily formed by any business. Regardless of whether your business is large, small, established, a startup, service-oriented, product-oriented, traditional ‘brick & mortar’, or 100% online, this paper aims to educate you as to the methods by which you can employ processes to deliver outstanding customer experiences and build your own customer loyalty loop.

Although Michael Scott missed the importance of creating great customer experiences in his business discussion during the hysterical episode “Business School” from the The Office, if you employ the practices discussed in this paper and help your customers enter and stay in your customer loyalty loop, you too will enjoy a “PayDay”.

1 “Business School.” The Office. 5 February 2007. Season 3, Episode 16. Television.

2 Reichheld, Fred. “Prescription for cutting costs.” Bain & Company Inc.

2. The Difference Between Customer Satisfaction and Customer Loyalty

Your customers are your business. Without them, you would be making products with no one to buy them, hiring staff with no one to serve, or buying inventory to get dusty on the shelves. Hopefully you love what you do, but more hopefully you do it because you want to make customers happy. Happy customers become loyal customers, right? Well, sometimes they do.

Customer Satisfaction (CSAT) is your customer’s attitude (many times, emotional feelings) toward the product or service they bought from you. If you’re thinking, ‘I provide great service, so all my customers must be satisfied!’ then think again. Just providing good customer service isn’t enough. If you have done the research to make sure you are providing the right message to the right person at the right time, then your customer satisfaction is likely to be high. In order to deliver the right message to the right person at the right time, you must be strategic.

Customer Satisfaction Defined
Right message

Right Person You should know who your customer is. ‘Anyone could use my product!’ is not good enough. Creating customer profiles helps you to know who exactly your ideal customer is and how to reach them (here’s a handy Customer Profile Template3). Knowing the demographics of your customers such as age, gender, motivations, and locations, will allow you to find the right person for each of your products.

Right Time Once you know who your customer is and what you want to say to them, you can start to discover how to reach them. This has been true since the beginning of advertising. Want to sell pantyhose in 1940? Put an ad in Woman’s Day magazine. Procter & Gamble (P&G) perfected this with “their decision, long ago to produce radio and then TV programs to reach the audiences most likely to buy its products— hence, the term ‘soap opera.’”4 Of course, this principle now applies to the digital world. Your marketing efforts online should be coordinated to reach your customers at just the right time on social media, your online store, or search, as well as traditional media.

Right Message Representing yourself accurately in your marketing efforts is key to high customer satisfaction. There is no use in misrepresenting or overselling your product, because in the end, people’s satisfaction is a factor of what they expected to get and what they got. If you build up your service to be more than it is, then the customer will be disappointed. When you know who are you trying to reach, talk to them in a way that is engaging and helpful. Your message should feel tailored to them, not mass-broadcasted to the world. So, Satisfaction = Reality – Expectations.

Customer Loyalty is your customer’s ongoing behavior to continue purchasing from you. It is related to CSAT, but different. Typically, satisfied customers are more likely to be loyal, but just because they had a good experience once doesn’t mean they are magically going to buy from you from now on. It’s what happens after the sale that turns one-time customers into repeat customers. Loyalty is an ongoing customer experience decision - you must decide to actively engage your highly satisfied customers, even after they have completed their purchase. Following up with customers to let them know about additional products you offer, letting them be the first to know about new product launches, and listening to their feedback are good jumping off points to creating lasting customer loyalty.

Customer Loyalty Defined

3 Brown, Kristi. “How to Create a Customer Profile in 2019 [+ Template].” fitsmallbusiness.com, 2 January 2019.

4 David Court, Dave Elzinga, Susan Mulder, and Ole Jørgen Vetvik. “The Customer Decision Journey.” McKinsey Quarterly, 2009. pp. 1.

3. The Evolution of Customer Loyalty Management

Your gimmick-free game plan

Customer loyalty has been around for centuries, even if it didn’t always have that name.

You can bet the first humans who were bartering goods hoped that they could go back to the same guy and offer more wheat for more leather pelts. Jump forward a few centuries to when Betty Crocker introduced loyalty Box-Tops, followed a few more decades later by every airline announcing frequent flier miles, such as American Airline’s Aadvantage5. Now, it seems as though every coffee shop has a (digital or analog) ‘punch card’ system - buy ten lattes, get one free! Other companies have paid monthly subscriptions or tier-based options to increase customer loyalty. Amazon is perhaps the most notable of the paid loyalty programs, with Prime Membership offering free shipping as well as streaming and listening services.

Points and rewards programs can help create repeat customers, but don’t confuse repeat purchase behavior with customer loyalty. When a better points program comes along, your repeat buyers may simply move over to the vendor with the flashier program. Focus on giving the customer experiences first, then remind your customers why they bought from you and why they were satisfied in the first place. When you consistently deliver outstanding customer experiences, you’ll be rewarded with growing numbers of happy, repeat customers many of whom will be brand advocates for your business. When people become advocates and promoters of your brand, you’ve successfully developed loyal customers. Think about Apple and Harley Davidson. Customers of these two companies are fiercely loyal, embracing the entire brand as part of who they are as people. These loyal customers ‘feel’ as if they are actually part of the company, and in reality they are because the company treats them as such by giving them outstanding customer experiences. They’re part of the company culture and express this with their loyalty. Their brand loyalty is so strong, they’ll continue to buy the company’s products even if they are lesser than products offered by competitors, or more expensive. That’s customer loyalty! Customer loyalty management is about doing a good job and making customers, particularly loyal customers, happy. Moral of the story – focus on delivering outstanding customer experiences that drive loyal customer behavior.

5 ”Aadvantage® – American Airlines.” Awardbird.com, accessed 12 December 2019.

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