Operations and Technology – Looking for Loyalty

To keep customers coming back, understand what makes them faithful in the first place.

It’s no mystery why you want loyal clients — attracting new customers costs five to 10 times as much as retaining existing ones. What’s more, studies have shown that a 5% increase in customer retention can increase profits as much as 100%.

Yet before launching any loyalty initiative, it’s critical to stand in your customers’ shoes and assess what’s in it for them.Loyalty breeds benefits on both sides of the fence. For customers, doing business with the same firm over time:

1. Reduces risk. When a customer deals with a company for the first time, there can be considerable anxiety. Will the vendor get it right? As patrons engage in repeat transactions and all goes smoothly, their perception of risk decreases.
2. Reduces effort. With repeat exposure, a customer gains knowledge about the vendor. The customer knows what to expect — how the system works — which eliminates confusion and makes the transaction easier. At McDonald’s, instead of specifying a particular sandwich, fries and beverage, you can simply order a Value Meal. This not only saves time, but it also speeds up the line for other customers.
3. Accommodates customization. Long-term customers often have input into product or service design because vendors have had a chance to discover what’s important to them. When Subaru found out that many customers were pet owners, it created a pet carrier as an option.

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