#1 Posted: 2 Nov 2011 08:28
Customer loyalty may not be what you think it is. Most people or companies claim to have great customer service and customer satisfaction scores, which they think leads to loyalty. However, these scores may be misunderstood.
On the contrary, customer service and customer satisfaction may not lead to loyalty. They just mean that your customers, loyal or not, are happy with you. That said, customer service and satisfaction is the price of entry. You won't get loyalty without it.
So, let's define what customer loyalty means. Is it a repeat customer? If so, does the customer go anywhere else, or are they 100% loyal — or a better word might be "married" — to you?
I'm very loyal to one of my favorite restaurants, The Pasta House. I go there for lunch about every week or two. What about the rest of the days of the week? I go to other restaurants. So, am I a loyal customer?
The above example ties into the concept of "wallet share" versus "market share," which I've been writing about for many years. The concept of market share has to do with how many of the customers that are able to buy your product actually buy it. For example, if there are 100 customers in a given area that could buy your product, and 60 of them buy it, then you have 60% market share.
Wallet share takes the concept of market share to another level. Of those 60 people who admit buying from you, how many of them will still buy from someone else? If they only buy from you, then you have 100% of their "wallet share." If they split their loyalty between you and someone else, you only have 50% "wallet share."
At the highest level of loyalty, your customer only buys from you. In other words, they give you 100% wallet share.
So, here is what I want you to do. Define what customer loyalty is to you and your organization. There are several considerations to think about:
1. Define how often your customer buys what it is you sell (product or service). This doesn't mean how often they buy from you. It is how often they buy what you sell, from you or your competition.
2. Based on their frequency of buying, even if they buy from a competitor, would you consider them loyal?
3. Do they ever buy, even once in a while, from your competition?
4. Following up on question 3, if they do buy from a competitor, why?
5. Again, following up on question three, if they do buy from a competitor, what can you do to get them to buy more often, if not always from you? (Or at least more often from you than they currently do?)
6. What other questions should you be asking yourself to determine if a customer is loyal and how you can earn more wallet share, if not 100% of wallet share?
It is important to note that some businesses don't need 100% wallet share to consider their customers loyal. Back to The Pasta House restaurant example above, Kim Tucci, the restaurant chain's co-founder, says, "We would consider a guest loyal if they came back two times a month. The customer has so many choices of where to go, the type of food and more. If they want a hamburger, they should go to their favorite hamburger restaurant, but if they want a bowl of pasta, I hope they come to us. That is how we define loyalty."
Creating loyal customers is a far more cost effective strategy than bringing in new ones. Many studies claim that it can cost five times more to acquire a new customer than keep an old one. If that is the case, then loyalty — even at a lower wallet share — is a very smart strategy.
So, define what loyalty is to you. Determine what percentage of wallet share makes a customer loyal. Then strategize on how you can create more loyal customers and increase your wallet share.