Gain a Competitive Edge: Create Customer Loyalty

Gain a Competitive Edge: Create Customer Loyalty

Gaining a competitive edge is based on customer loyalty. Satisfying your customers builds long-term loyalty, long-term sales, and long-term revenues. To truly gain an edge on your competition, build customer loyalty.

How? Let's look at the nature of customer loyalty.

Many people use the words "customer retention" and "customer loyalty" interchangeably. At its most basic level, customer loyalty means a customer comes back and buys again; in effect you "retained" that customer.

There are five basic types of customer loyalty; your goal is to develop one or more of these situations (some are easier to develop than others):

  1. Purchased loyalty. The prime example of purchased loyalty is a customer rewards program. Other examples include memberships, coupons, and rebates. Basically, purchased loyalty pays customers to be loyal and there is nothing wrong with taking that approach. In many industries and market sectors it works well.

    The problem with purchased loyalty is that it can be "stolen." Say you have a frequent flier account with a particular airline; if the only thing that keeps you as a customer is the points system, when another airline offers you a more advantageous system you will quickly switch. In a purchased loyalty situation the customer is loyal to the system, not to the company. Every company wants a sustainable competitive advantage, and a purchased loyalty program can provide one, but purchased loyalty is also a tough advantage to maintain.

  2. Convenience loyalty. The corner market, corner dry cleaner, the coffee shop on a customer's way to work--people may be loyal to these businesses simply because they are convenient. Unless competitors come along and are equally or even more convenient, customers will probably remain loyal.

    Convenience loyalty applies in an online setting too. For example, if you have the right real estate on a home page or portal, you may create loyalty through convenience. But the advantage is fleeting. The Internet has largely eliminated the power of convenience loyalty, both online and offline. "Location, location, location" is no longer the most powerful factor in retail success in today's business environment.

  3. Restricted loyalty. Restricted loyalty occurs when there is no other readily-available option. A cable company may enjoy restricted loyalty, especially in a rural setting where there are no competitors. Utilities tend to enjoy restricted loyalty. A corporate travel program with a credit card company may be a form of restricted loyalty. Some Wal-Mart locations enjoy a form of restricted loyalty, mixed with convenience loyalty: if Wal-Mart is the only major retailer in town, customers will be loyal. When customers don't have options they have little choice but to be loyal. Constraints create loyalty. Restricted loyalty is great for a business, if you can get and maintain it.
  4. Loyalty to your people. There is also loyalty to the people who serve customers. This can be one of the strongest loyalty bonds with some customers. The people who serve customers establish long-term, professional and personal relationships with their customer's. For example, simply remembering a customers birthday by bringing cake is not something the company is likely to remember or do. But, the people who work for you will do that because of the personal relationships they have developed. Long-term, sometimes the most effective people are your employees who developed deep-seated relationships with their customers.
  5. True loyalty. Earned loyalty is true loyalty. True loyalty is allegiance to a brand or product based on satisfaction. That's true loyalty; needs are completely met and customers cannot imagine using another product. True loyalty is difficult to achieve in a retail setting but is somewhat easier to achieve in the service sector. True loyalty is a tremendous competitive edge and is what all companies should try to achieve.

Those are the five basic types of loyalty. What does that mean for your business?

Your goal is to generate customer loyalty. Know your customers, analyze your competition, and make changes and improvements that will increase in customer satisfaction and you can create truly loyal customers. For example:

  • Change your products or services when market conditions or customer needs change; don't assume that what you do today will be successful tomorrow.
  • Focus on quality and customer service; customers will forgive an occasional defect or mistake as long as you take responsibility for that mistake, and remedy the situation immediately.
  • Keep costs low and profit margins reasonable; customers will pay a fair price – or even a slightly premium price – if they feel the quality and service they receive justify that price. (No customer will be loyal if they feel taken advantage of.)
  • Provide different solutions based on need. One-size-fits-all pricing and service schedules make it tough to effectively satisfy a diverse customer base.
  • Make sure all employees have been trained to provide outstanding service and have been given the authority to deliver that service. Let your employees be heroes, too.

The key to gaining a competitive edge and to building customer loyalty is to focus on the customer, not on your business. What do your customers need? What do your customers expect? How can you ensure they come back for more? Don't simply focus on how operational or service changes can benefit your company; work hard to develop changes that benefit your customers.

You can create greater customer loyalty. Loyal customers come back; you don't have to win them over through expensive advertising, or offer significant discounts to keep them. Best of all, loyal customers usually are among your more profitable customers.

In almost every market and industry, customer loyalty is the best form of competitive advantage your company can possess for the long-term.

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