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When you look at companies that have consistently built a loyal
customer base, one common denominator surfaces time and time again:
Each company consciously created a system for getting and keeping
customers.
The first step in building a client loyalty system is to get
familiar with the terminology and variables that define and drive
loyalty:
- Client base. This is the total number of active customers
and clients.
You can calculate this number by adding your total number of
first-time customers, repeat customers and clients. It's crucial
that you count only customers and clients who are active and
have made purchases or contacts with you recently enough to
be considered current.
- Resist the temptation to include inactive customers and clients
on this list. Be hard-nosed and brutally honest, and include
only current names.
New customer retention rate. This represents the percentage
of first-time customers who return for a second purchase within
a given period. This period is governed by your typical customer's
repeat purchase cycle.
- Client retention rate. This is the percentage of customers
who have met a specified number of repurchases over a finite
period.
- Share of customer. This is the percentage of a customer's
total purchases in a particular category of products and services
spent with your company. A vendor has captured a 100 percent
share of a customer when the customer spends his or her entire
budget for the vendor's products or services with that vendor.
- Average number of new customers a month. This is the average
number of first-time customers who buy from your company each
month. Use a six-month time span to calculate this figure.
- Purchase frequency. This is the average number of times a
customer or client buys from you each year.
- Average purchase amount. This is the average amount paid
for products and services at each purchase.
- Attrition rate. This is the average annual percentage of customers
who are lost or go inactive for any reason, including dissatisfaction
or relocation.
As a first step to building your loyalty system, calculate these
variables and use them to establish goals and to monitor the progress
for your loyalty program.
1. Measure and track loyalty using the
variables outlined previously.
Depending on your situation, it might be helpful to calculate
a variety of retention rates, for example, including a total company
retention rate, retention rates for each sales professional and
retention rates by account team or other group.
Using these current rates as a base, set your customer retention
objectives for the next five years. The same analysis could be
done with share of customer, new customer retention and so forth.
2. Introduce all company employees to
the importance of client loyalty.
If you have a small staff, you might choose to introduce this
information in a meeting attended by all personnel. If you are
a larger company, you'll want to consider other tools, such as
division meetings, corporate newsletters and training videos,
for getting the word out.
A discussion of both current and projected loyalty rates should
be an important part of this communication. Begin monthly performance
evaluations with employees who have direct customer contact. Use
the loyalty measurement factors as a basis for the review.
3. Build customer and client loyalty
goals into employee performance and compensation plans. Reward
excellent and improving loyalty rates with employee bonuses and
raises.
Address substandard and declining rates promptly. Set time lines
for improvement, then train and coach employees accordingly. Release
employees who are unable to meet loyalty goals.
4. Evaluate and review loyalty rates
each month.
Consider posting rates in employee break rooms and other highly
visible places. This can help reinforce the company's commitment
to loyalty and help motivate employees to strive for superior
retention.
5. Get employees involved in the development
and maintenance of the loyalty program.
Staff members' input, recommendations and ideas can play an important
role in the program's success. It isn't a secret that employees
are more likely to support a program they helped put together.
One way to accomplish this is to set up employee teams to perform
specific loyalty "duties," such as retention evaluation
and first-time customer program reviews.
6. Assemble an assortment of marketing,
selling and customer care tools aimed at cultivating loyalty at
each customer stage.
Develop at least one key loyalty program for each customer stage.
Examples are a new-customer welcome promotion that motivates the
first-time customer to buy again and a promotion for repeat customers
that cross-sells other products and services.
7. Identify the five biggest customer
loyalty breakers in your company, such as the busy signal that
callers often get when they call your business or an overly complicated
return policy for items purchased, and develop plans for eliminating
them. Start carrying out those plans immediately.
8. Continue to modify, fine-tune and
correct your loyalty system as you go. Time and hands-on experience
are great teachers.
JILL GRIFFIN is president of the Austin-based
Marketing Resource Center Inc., wich provides customer loyalty
research, strategies and training. She is author of the book
"Customer Loyalty: How to Earn It, How to Keep It."
She can be reached at 512-469-1757 or mrci@eden.com.
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