There is an art to keeping customers and it is a mix of well tested strategies and new methods which have been inspired and developed through technology. It costs seven times as much to find a new customer as to retain one, and so you need to explore all possible methods if you want to maximise your customer base.

How do you keep customers coming back? How do you create fiercely loyal customers who will turn a blind eye to your competitors? And what can you learn from successful loyalty programs in businesses both large and small? Loyal customers represent your business' goodwill and they are intangible assets that add value to your balance sheet. Domino's Pizza chain estimates that a loyal customer is worth about $5000 over the 10-year life of a franchise; the Ford Motor Company has calculated that a loyal customer is worth $142,000 over their lifetime.

"Customers who are loyal are gold because they won't shop around," says Dr Tim Mazzarol, executive director of Curtin University's Small Business Unit. "There are very few markets where price is the only issue in customer purchasing decisions. Small businesses grumble about price competition but they need to identify loyal customers and find ways to enhance the ways they build loyalty. If the quality of service and product and the way they are dealt with is not there, customers won't stay."

According to Mazzarol, chasing new business is a necessary activity but it is usually three to five times more expensive to get a new customer to purchase as it is to get a repeat purchase from an existing customer.

Questions & Patterns

Critical questions small business owners should ask themselves are:

• What proportion of your customers are repeat?
• What is your customer's buying cycle?
• How much is a loyal customer worth to your business over time?
• How much time do you currently spend winning new customers vs. nurturing existing ones?

"You should encourage your core customers (20% of your customers that provide 80% of your business) to buy more. Is there a new product you can sell them? "I often wonder how much research is conducted before businesses launch their customer loyalty programs," Mazzarol says. "You are more likely to have a good program if you talk to customers beforehand. It also depends on the buying cycle. If purchases are very regular, a loyalty points program can be of benefit.

"Think about why you are offering discounts and cutting your margins. You need to discount to those who haven't come to you yet, not to your loyal customers. They have already decided to buy from you regardless. It really ought to be the way you do business rather than the loyalty program that keeps customers happy."

Loyalty Programs

According to Tony Course of Loyalty Magic, there are two types of customer loyalty program:

1. Recognition programs make up 80-90% of loyalty programs. They are all about communicating with and identifying your best customers and recognising their support by treating them differently. i.e., the Ansett Golden Wing program or the VIP programs that many retailers use.

2. Reward programs. These give tangible rewards to loyal customers. i.e., frequent flyer programs and Fly Buys. The advantage of reward programs is that a business can use points to motivate desirable buying behaviour. Typically businesses want to motivate customers to purchase high margin products at slow times, slow moving products, or to increase spending.

According to Ernie Hug of Loyalty Magic, rewarding with points lets customers concentrate on building points rather than discounts and the points have a higher perceived value than money. Most airlines put one cent for every point into a pool to fund rewards. This means that if a frequent flyer earns 1000 points, they are costing the airlines $10. Most people would not be interested in a $10 discount but will change their purchasing behaviour for 1000 points.

Customer Loyalty programs are synonymous with corporate advertising and marketing dollars. However, according to Malcolm Bristow, chairman of Bristow & Prentice Advertising, creating customer loyalty doesn't always require large corporate dollars.

It can, in fact, be fostered from a single phone call or letter. The aim is to keep in touch with existing customers so they want to purchase from you again.

Free flights and points are essentially sales promotions and are not necessary to run an effective campaign," Bristow says. "In a true loyalty program, you don't make any attempt to gain a sale. You are simply out to prove that you are a great company to deal with."

Your database will differentiate between transactional buyers (one-off price-related sales) and those who have bought more than once or who have purchased a product or service that required a considered purchase. These are the profitable customers who are worth the investment of a loyalty program.

Even if you have a once-in-a-lifetime product or service, like a pre-paid funeral, its loyalty program can produce valuable referrals," Bristow says. Insurance companies that used to bill customers once a year now find reasons to contact their customers during the year to soften the blow at premium time. Car manufacturers work on service plans and offers to keep customers loyal until the next purchase, which could be two to four years in the future.

Developing A Plan ...

After deciding on the particulars, you need to develop a plan that will carry out the campaign. Keep in mind that once you have started a loyalty campaign, it is difficult to remove it from your business strategy. Customers will come to expect your high level of service and customer care. Loyalty campaigns require ongoing investment of time and money. Be aware of what this will cost your business and balance this with the expected increase in returns.

There is nothing worse than sending out the first issue of your newsletter and neglecting to follow up. Ensure you start with a minimum program that you will be able to continue. After the initial period you may find you can increase expenditure and in turn reap the benefits of recurring sales from loyal, happy customers.

Before deciding which type of loyalty campaign you will use, take a look at what your competitors are doing. How can you differentiate your activities from theirs?

Establish objectives that you wish the campaign to achieve. Increased customer retention? More referrals? Make sure these are measurable objectives and implement some sort of ongoing evaluation that can track how your campaign is going. This could be as simple as looking at the database and tracking the performance of customers who are receiving the campaign. After this planning, it will be important to do a cost/benefit analysis that will determine if the campaign can be run at an acceptable cost to the company.

Remember to keep fine-tuning your database, the most important tool in the success of your loyalty campaign. Watch your small business grow from strength to strength, as you build lasting relationships with customers. Marketing consultant, Bob Pritchard* says many loyalty programs don't do anything to show that the business cares about the customer. "We all know that it is five to seven times more expensive to obtain a new client than to retain one," Pritchard says. "It has become very fashionable for marketers to build loyalty programs for customers to entice them into continuously buying your product.

"There is no question that loyalty programs work for many businesses. However, the majority incur high costs and administrative burdens which are prohibitive to many small businesses. Very few actually develop heart share and permanent loyalty. When the program stops, so does the loyalty."

Heart Sharing ...

According to Pritchard, people make decisions with the heart or with the head. If they use their heart, the decision comes down to how much they care about you. If they make the decision with their head, it comes down to how well your product or service stacks up against the competition. "Winning with heart share can easily be a slam dunk! It comes down to caring, empathy and building relationships, a natural attribute of most people."

Pritchard travels internationally every couple of weeks and so he has a high frequent flyer mileage. "My airline gives me a stack of points just for driving past an airport so I always fly with them when I can," he says. "But have they built loyalty or heart share? They have done nothing over all these years to show they care about me one iota. If they stop the program tomorrow, I will leave."

Loyalty programs can be expensive and temporary, while heart share is inexpensive and permanent. Every quick decision is made using the emotions. It doesn't matter whether you're buying Coca-Cola (because 112 years of advertising has convinced you that Coke is fun) or a house (because you 'just love it'). These decisions are made almost without thinking because of the emotions attached to them, and they evoke unwavering loyalty.

A Cut Above ...

Pritchard visits many large cities but he always gets hair cut at the same salon even though it is not the most convenient. So what is so special about his favourite hairdressing salon?

"They genuinely care about me as a person, not just as a client. They show it both during and between salon visits. They make me feel special, like I'm their only client, yet I'm sure they make every one of their clients feel special too.

"When I arrive I receive a glass of my favourite champagne or wine and a few trade magazines to read. They inquire about my work and my family. They'll send a junior staff member to park my car, pick up my drycleaning or a gift if I'm running late. They send and take phone messages for me to ensure that my business routine isn't interrupted. They send small gifts and cards for my birthday and Christmas and even a Hannukah card for my son because his mother is Jewish. And I get a good haircut!

"Do I care if going to the salon is a little inconvenient some days? Do I compare the haircut I get or the price I pay with thousands of other highly competitive hair salons? Never. Because they have developed heart share."

Following Up ...

"John, the owner of the shop where I buy my shoes, also cares. He gleaned sufficient information about me in a short period of time in order to really understand me. After giving excellent service in the store, he sends a follow-up thank you card and occasionally a gift certificate. If I go into the store with my son, he gets a small gift or sweet every time.

Within a couple of weeks of the purchase, a representative from the store turns up at my office with a shoe shine box and cleans the shoes of everyone in the office at no cost. He knows the names of everyone in my team and has become a friend. It costs him surprisingly little to provide these services. Where do you think all my people buy their shoes now?"

Bob Pritchard is the author of Marketing Success Stories, Complex Marketing Made Simple and Sponsorship Made Simple. They are available for purchase through the DSB Bookshop.

Loyal Facts ...

• 68% of consumers change their place of business for little or no reason.

   

• It costs between five and seven times more to find a new customer than to retain one.

   

• A 5% reduction in lost customers can increase profits by up to 75%.

   

• Only 3% of businesses have a 'lost customer' reactivation program.

   

• Existing customers are not as price sensitive as new ones, they require less sales time, administration and advertising.

   

• A first-time customer has a 30% chance of becoming a long-term profitable customer. If they buy three times relatively quickly, their chance of becoming long-term more than doubles to 67%.

•  Implement your own Loyalty Program for $590.00 per year