Customer Loyalty: What it is, why it matters and how to activate it

What is customer loyalty?

The term "customer loyalty" is thrown around quite a bit and is generally used to describe (supportive) behavior from customer to merchant. As business people, we all want our customers to be "loyal" to us -- that is, to give their business to us instead of a competing merchant. So the term "customer loyalty" typically refers to a buyer's preference for doing business with a particular business establishment.

But is this (one-sided) definition a good one?

I don’t think so.

Take off your business owner hat and just be you for a second. Now, answer the question for yourself.

What is customer loyalty to you, personally?

For me, customer loyalty is more than just my preference for dealing with a particular business. It's currency. And like other forms of currency, it has value... but unlike regular currency I don't give it to businesses. I give it to people who earn it. Some of these people happen to work for businesses whose products I purchase so the business ends up receiving my loyalty as well.

These individuals and businesses earn my loyalty by providing an exceptional experience in exchange for my money. Exceptional experiences come in a variety of forms, but for me they all include:  (a) receipt of a product or service that meets or exceeds my expectations, and (b) being treated in a manner that makes me feel special.

Everyone has the capacity to deliver (a); the special people and businesses that earn my loyalty recognize that loyalty is a two-way street, so they focus on delivering (a) AND (b).  

Why customer loyalty matters

There is a big difference between loyalty and patronage. I go to Starbucks because they have free wifi, are conveniently located (everywhere), and offer good beverage and food products. I like the atmosphere, the staff and their corporate citizenship. All in all, I am a happy patron of Starbucks.

On the other hand, I am loyal to Alan, Royce, Megan, Devin and Taylor at Dunn Brothers Coffeehouse in Addison, TX. I will drive 15 miles to go to their location, and brag about them to everyone who likes coffee or who is looking for a “remote office” where they can feed off good vibes and get things done.

Dunn Brothers is a lot like Starbucks: their pricing is similar, they have free wifi, and they offer good beverage and food products. However, two things differentiate them: (1) their coffee is roasted on the spot – so it is as fresh as it can get, and the smell of roasting coffee is amazing and unmatched by anything at Starbucks; (2) the owners and the staff made an effort to get to know me (and everyone else who walks in the door). They know my name. They know that I’m coffee-curious so they’re quick to suggest something new. They know I like Guinness so they pride themselves on pouring it just right to create the perfect head.

Those differences explain why Dunn Brothers gets my loyalty, while Starbucks only gets my patronage.

The overall benefits of customer loyalty can be significant. They include:

• Customer retention – loyal customers don’t leave
• Repeat business – get more business from your existing customers
• Word of mouth marketing – it’s low/no-cost and most persuasive
• Bottom line improvement – increased revenue, reduced acquisition cost => improved profitability
• More meaningful feedback – thoughtful customers provide insights that allow quick identification of problems and opportunities
• Competitive advantage – real customer relationships provide you with goodwill, benefit of the doubt and other intangibles that are hard to displace

How to gain (my) customer loyalty

Gaining my loyalty is straightforward. It results from (a) receipt of a product or service that meets or exceeds my expectations, and (b) being treated in a manner that makes me feel special.

The first requirement (providing a good product) is the bread and butter of any successful business, and is largely the result of good operational processes. Successful businesses do this for every customer - regardless of who that customer is.

The second requirement (making customers feel special – by smiling when you see them, being courteous and fair, remembering their name and likes and dislikes, pleasantly surprising them, etc.) is the bread and butter of good relationships which is a pre-requisite for loyalty.

So, loyalty results from delivering a good product or service and establishing a good relationship with each customer. And, like all genuine relationships, each of these is unique. They are built by recognizing something special about each person (she comes here every other day, he is always courteous to staff, he could save money by buying this instead of what he typically buys, etc.) and then forming a connection with that customer by acknowledging that special something (by saying thanks, sharing valuable insight, offering a special deal, etc.).

People and businesses that do these things get my loyalty. Notice that this stands in contrast to the popular belief that the path to customer loyalty is largely through deals and discounts. I may be an odd duck; but I suspect it is the same for you too.

Activating customer loyalty

OK. You’ve worked hard to consistently deliver an exceptional experience to your customers by providing a great product and service – and now you’re ready to leverage that hard work to improve bottom line performance. What should you do? The answer is simple: keep doing what you are doing. The benefits will accrue as a result of endearing your customers to you.

If you want to leverage this goodwill, consider doing what the “big boys” have been doing for years: formalize your efforts into a systematic loyalty program. This will require some tools including: Software, card programs, and developing a loyalty scheme. This can quickly become complex however -- depending on how sophisticated you want your loyalty program to be.

Fortunately, you have a friend in the mobile loyalty business: CardStar.

MODsocket partner CardStar "develops mobile applications that perpetuate the use of loyalty cards and mobile coupons. The CardStar application consolidates membership and rewards cards on smartphones — letting consumers access scannable cards from within a single app and enabling merchants to tailor mobile deals and information to their customers."

The CardStar app works on iPhone, Android, and Blackberry smartphones and currently allows hundreds of national and regional merchants to reward their best customers with special, location-aware deals and information.

Your small business can now be one of those merchants. CardStar and MODsocket now allows you to deploy your own mobile loyalty program via the CardStar App, and have your card conveniently accessible alongside CVS, Best Buy, PetCo, Cumberland Farms and other big brands. All for only $49 during this exclusive MODsocket promotion. The normal price is $499, so this truly is an extraordinary offer.

Through this special offer, you business can have your own iPhone, Android and Blackberry loyalty card in less than 48 hours. This holiday season is a particularly good time to launch your own loyalty program as you can capitalize on the heightened focus on small business -- but you need to act fast since the holidays and this special offer will be gone faster than you might imagine.  

The process is simple:

• You order your mobile loyalty card from the MODsocket Store
• Your customer installs the CardStar app from the iPhone App Store, Android Market, or BlackBerry App World, then adds your mobile loyalty card
• You use MODsocket to send offers (mobile messages and/or mobile coupons) to your loyal customers
• Your customers present the mobile message or coupon at checkout to receive your special offer

The CardStar App is the essence of simplicity and makes all of this very easy.

So, there you have it: one man’s view of the what, why and how of customer loyalty. Please share your comments on this very important and timely subject.

Here are some screenshots of the CardStar iPhone app in operation: