You Can’t Buy Customer Loyalty

If you’ve paid attention to popular culture during the last 40 years, you’ve come to learn there are certain things in life that money, apparently, can’t buy: love, happiness and all of those priceless things mentioned in the MasterCard commercials. But in the world of direct marketing, we have another to add to the list—customer loyalty.

The Customer Hierarchy

If you segment the customers in a cataloger’s database to fit into a typical customer hierarchy, you’ll see various levels of buying activity and inactivity that move a person from being a prospect to a “trier” to a buyer and so on until loyalty is achieved.

Customer loyalty can be a slippery concept, however, and is defined by the cataloger’s business and the goals and objectives of its management team.

MetalCraft, a business-to-business catalog selling durable asset identification products with a relatively long product life cycle, may have customers in its file who haven’t purchased in more than five years, but are still considered active and loyal with strong lifetime value.

But, if Quill Office Products had customers on its file who hadn’t responded in more than five years, they may be considered lost, and Quill either would be working hard to reactivate them or not mailing them at all. The same issue applies to consumer catalogs.

Is Loyalty Programmatic?

For years, catalogers of all types have spent time and money developing, building, executing and pulling out of loyalty programs that were designed to move a buyer up the hierarchy to loyalty. Some catalogers have made the concept work. They’ve defined a set of benefits customers will perceive as valuable enough to pay for during a time period long enough that positive contribution to lifetime value is greater than the cost to provide the benefits.

But building loyalty programs requires defining objectives, identifying the best mix of benefits, developing an exit strategy and investing capital. Those catalogers who’ve made the concept work have done so because the programs are relevant to the company’s brand and are part of what differentiates the catalog from its competitors.

Catalogers who sell a more commodity-style product mix and compete almost solely on price often have difficulty making loyalty programs and loyalty offers work. In fact, it’s possible that customers are buying from these kinds of catalogs and won’t even remember which they purchased from when asked.

The general crux of the problem with programs and offers of this type is that most loyalty programs are designed to convince customers they should be loyal. Whether it’s a set of defined benefits, a free gift or special access to a Web site, the message often is: “Buy from us, because we’ll give you something.”

It may turn out that the only things you have to give away are some kind words. Many successful loyalty programs are built around offering exceptional customer service, “thank you” greetings, a first chance at sale merchandise, special pricing and more to those customers who already are loyal. The difference is that these catalogers focus on and cherish their best customers, nurturing the relationship and encouraging them to never go to a competitor.

Database Intelligence

Building customer loyalty isn’t a matter of crafting the perfect mix of benefits or giving away the right freebie. Rather, it’s a matter of database intelligence. Identifying the upper-echelon of customers in your database—those customers whom a cataloger would most like to duplicate—is the first step to understanding loyalty.

The first question to ask yourself is: “How do we define loyalty?” Often it’s defined as some combination of RFM (recency, frequency and monetary) data, as well as product and seasonal-buying information.

Next, ask: “Why are our loyal customers loyal?” It could be stellar customer service, unique product offerings or on-time shipping. Catalog company executives must learn what differentiates their catalogs from competitors’ offerings in the minds of loyal customers. That is, why are your loyal customers so darn happy with you? If you really want to find out, ask them! An in-package, Web-based or mailed customer survey or an outbound calling program can put catalogers in touch with their best customers—and best customers usually won’t mind being asked.

Here’s another question: “How do we find more customers like these?” Again, this is a database-intelligence issue. All of those loyal customers came from somewhere. Lifetime-value analysis is critical to this process and will help identify sources for acquiring customers most likely to be loyal.

YouCan’tBuyLoyalty.com

It seems many of the fallen dot-coms faced little trouble getting prospects to visit and buy, but had little success building substantial loyalty—no matter how much money they spent promoting their sites.

A key principle of Direct Marketing 101 is that you make your money from your existing customers. E-tailers faced with continuous acquisition of new customers, and no or little repeat purchase activity, almost have no choice but to go out of business.

Fortunately, most catalogers don’t face the same challenges as pure-play

e-tailers, because the paper catalog gives the Web presence credibility. On the other hand, not all catalogers are as savvy as they could be with promoting loyalty on the Web. Catalogers must build Web loyalty through stellar customer experiences online, and not necessarily through Web-based offers.

It’s great to drive customers to the Web to place orders using a dollars-off offer; it costs less to process the order. But wouldn’t it be a shame if customers had such poor experiences online they stopped buying from the catalog altogether? The key is to build online functionality that also builds online and brand loyalty.

Customer loyalty always is attainable, but it absolutely doesn’t have to be purchased. Remember that loyalty is a database-intelligence issue, a lifetime-value issue and a brand issue. Loyalty programs can improve customer satisfaction and drive up retention, but the most successful programs build on treating great customers with great service.

Making loyal customers feel great about doing business with you will keep them loyal. Catalogers who know and understand how to identify the best customers they already have will understand how to find and cultivate new, loyal customers. And that’s priceless.

Steve Trollinger, vice president of client marketing at J. Schmid & Associates, can be reached at (913) 236-8988 or by e-mail: stevet@jschmid.com.