Monday, April 20, 2009

5 Must-Do’s in Building Customer Loyalty

Many executives use loyalty programs to buy customer loyalty, offering discounts and giving away products or services, in the hope that they will make it up on volume. That said, success in implementing these programs and integrating the systems that support them has been somewhat limited.

According to an April 9, 2009, Aberdeen Group report: “Even though 53% of retailers surveyed indicate that customers can join their loyalty program on the retail website, the same is not true at the store POS. Despite the growth in online retail sales, store sales account for bulk of retail revenue and customer traffic. A mere 37% of all retail respondents reported that customers can join their loyalty program via the POS system in stores. This gap between the POS capabilities the retailers possess and POS processes that enable loyalty program implementation show that retailers are not taking advantage of the technology afforded to them."
Given the systems and other challenges in implementing “traditional” loyalty programs where customers earn points and redeem them for products or services, program design deserves careful thought. Here are 5 steps every executive team should take to ensure customer loyalty (and loyalty program success):
  1. Know whose loyalty you want

  2. Identify what you can do that will be motivating to them, as well as differentiating

  3. Get clear on internal expectations, roles and responsibilities

  4. Test and learn

  5. Rollout and measure
It’s probably not surprising that e-tailers are the innovators on this front. They tend to have newer systems, integrated databases, and more business model flexibility. Zappos is a great example of a leader and loyalty innovator. Founded in 1999, the shoe e-tailer has 7.4 million total customers, and 3.3 million of them have made a purchase in the last 12 months.

What do they do that’s so special? Zappos has a huge assortment – 230,000 SKUs of branded footwear – and offers free shipping in both directions. That means they have eliminated the downside to buying shoes (or apparel) online — i.e., the fit issue. At Zappos, there is no added cost to ordering multiple sizes of multiple styles and returning the ones that don’t fit. That’s standard for everyone.

What earns Zappos rave reviews and WOM is the way it consistently surprises customers with free shipping upgrades so their shoes arrive sooner than expected. Our work with women shows that shoes are one the fastest ways to her heart, It’s not only the free shipping and surprise upgrades that make customers rave about Zappos.

Employees are clear on the importance of building lasting customer relationships and on their roles in the process. Lots has been written about Zappos culture and the emphasis on delivering a WOW experience. One of the best descriptions is from an interview of Zappos CEO Tony Hsieh that Bruce Temkin of Forrester did last year.

The company has a clear focus on its target customer, knows what motivates her and appeals to that clearly and convincingly. They have employees on board, and use data to improve the customer experience. Delighting customers clearly pays Zappos dividends: Over 75% of purchases come from returning customers, and the company reached $1 billion in sales, generating over 30% comps the last two years, alone!

Loyalty pays. Doing loyalty right pays more.

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