If you're like most marketers, you'll agree that loyalty pays. The statistics that a brand should focus on its most loyal customers are compelling:
- An increase of customer loyalty of 1 percent is equivalent to a 10 percent cost reduction (source: Bain & Co.)
- The probability of selling to a new prospect is only 5 percent to 20 percent while the probability of selling to an existing customer is 60 percent to 70 percent (source: Marketing Metrics)
- Customer loyalty accounts for 38 percent of margin, 40 percent of revenue growth and 38 percent of shareholder value (source: Accenture Research).
Despite these findings, a just released report by Strativity Group found that although respondents declare that customer loyalty strategies are more important than they were three years ago, a full 60 percent of senior executives claim they do not deserve their customers' loyalty! "Respondents honestly admitted that they are selling commodities and that their core value proposition does not merit customer loyalty," says Lior Arussy, company founder.
What should these executives be doing to deserve the loyalty of their customers?
Customer engagement drives loyalty, and effective (and judicious) use of Web 2.0 drives customer engagement. Marketers that embrace these technologies and integrate the new brand/customer dynamic into their strategies will engender the loyalty of the customers. And as Web 2.0 and social networking tools and technologies move even further into the mainstream, marketers that don't go down this road may be left behind, doomed to compete based solely on price.
Here are the four new laws of customer loyalty in today's Web 2.0 world:
Loyalty Law #1: Drive community participation
Loyalty Law #2: Don't just talk to customers … listen.
Loyalty Law #3: Meet customers' expectation of honesty.
Loyalty Law #4: Reward your best users
Loyalty Law #1: Drive community participation
People naturally congregate around common passions or interests.
Connecting and interacting with others who feel the same way and who
share common experiences creates stronger bonds. Savvy marketers use
this level of participation as the foundation of their online
communities and as a cornerstone of their loyalty efforts.
In a report titled "The Social Influence of Brand Community: Evidence from European Car Clubs,"
Paul Dholakia, an assistant professor of management at the Jesse H.
Jones Graduate School of Management, said that it's not a matter of
attempting to directly influence consumers, but of providing them
support in interacting with each other through activities of their
brand community, which, in turn, increases their level of engagement
and loyalty."
Loyal customers already have an affinity for a brand's products or
services, and they will instinctively be drawn to a brand's online
community. Customers who are strongly engaged in the brand community
are more likely to remain attached to the group, participate in group
activities more often, and recommend the brand community to
non-members. What's more, research shows that customers who are engaged
in an online community stay longer and buy more. According to the
Ogilvy Loyalty Index, such customers can be worth up to six times the
value of an average customer.
In addition to driving loyalty, inviting customers to participate in
the brand is an effective marketing research tool. After all, who knows
how to best market to your target market than your target market
itself?
Loyalty Law #2: Don't just talk to customers … listen
Faced with a deluge of marketing messages, increasing resistance and
negativity towards advertising and marketing in general, and a growing
array of communication channels, the conversation between the brand and
customer must change. A one-way, marketing-driven conversation no
longer engages customers. Building trust and earning loyalty is the act
of creating a dialogue with customers: talking, sharing and, above all
else, listening.
Marketers have at their fingertips an array of technologies (such as
blogs, forums, chat rooms and online communities) to facilitate
conversations with their customers. Being able to easily contribute
opinions and ideas connects the customer to the brand, but what
strengthens this relationship is when the brand embraces the customer
as a partner in the dialogue, and truly listens to what he/she has to
say, and acts on it. In fact, experts say that the very act of
listening deepens customer loyalty.
Ducati, the Italian motorcycle company, is putting customer-driven
innovation and participation at the crux of its marketing efforts.
Ducati engages its customer community to provide feedback on design,
performance and general customer experience. Blogs have replaced formal
research methods, and through new media communication tools, Ducati is
embracing its customer community in an ongoing, real-time, informal
feedback loop. In fact, the company now calls itself a tribe of
employees and customers who share emotions and fight together.
Loyalty Law #3: Meet customers' expectation of honesty.
Delivering consistently on the brand promise plays a greater role in
creating loyal customers than any other customer-facing capability,
accounting for one-third of an organization's ability to achieve high
customer loyalty, according to marketing and customer management
research by Accenture. In fact, for all companies in the study,
regardless of their industry or business model (i.e.,
business-to-consumer, business-to-business, et cetera), developing and
delivering a branded customer experience comprises 33 percent of a
company's ability to achieve strong customer loyalty.
How does social media affect customers' expectations of the brand?
In the Web 2.0 world, consumers look for different traits from brands.
While on one hand customers expect that the brand will deliver a
quality product or service, the new brand/customer dynamic also raises
the expectation that brands will behave a certain way online. In the
realm of social and user-generated media, brands must be honest about
their opinions and their identity.
As Max Kalehoff writes in his blog, consumer-generated marketing
means "entering into direct conversations with consumers, where there
is a far greater expectation of humanness, honesty and transparency." I
believe that the best rule of thumb is to follow the WOMMA (Word of
Mouth Marketing Association) Ethics Code Honesty ROI:
- Honesty of Relationship: You say who you're speaking for
- Honesty of Opinion: You say what you believe
- Honesty of Identity: You never obscure your identity
Loyalty Law #4: Reward your best users
Information, how you want it, when you want it: By serving community
members and customers with useful and informative content delivered
regularly, marketers can drive loyalty and enhance brand value at the
same time. Delivering valuable information is an easy way to create a
relationship based on trust. To drive loyalty, optimize content
delivery and discovery, make it easy for customers to find and access
this information, and share it with others. And, this means giving
links and feeds that are relevant to the customer, even if they are not
the brand's content.
Brands can also use content to extend their current loyalty
initiatives: for instance, by offering premium content, special
promotions, or access to exclusive information, chats, and forums to
loyal customers.
While some may believe that customer loyalty is waning in response
to the transparency of the web, Web 2.0 actually gives marketers an
exciting new set of tools to add to their portfolio to help improve it!
And these loyalty laws help marketers do exactly that, and drive bottom
line results.
