Entnotebook/23 inches/1stLK/mark2nd
BETSY VAVRIN
Regardless of how you try to develop customer loyalty or retention, the key word to remember is “communication.”
You must establish a dialogue with your customers, donors and members so that you know what they want, and how effectively you are delivering.
You may have a product or service that is selling like hotcakes as when Bartles & James and California Coolers were first introduced. Ditto for Snapple. But as these companies unfortunately learned, times change and people’s needs and tastes change, too. Make sure you keep on top of these changes.
The same is true for nonprofit organizations and their membership and donor mailings. How many of us have continued to receive newsletters and solicitations from well-known nonprofit organizations to which we have donated once, perhaps many years ago? We eventually may make another donation, but it never will be enough to pay for what the organization has spent on its mailings.
Unless an organization frequently updates its databases, and does research to learn its donors’ net value, the organization will be losing money on postage and printing expenses that it will never recover.
Remember to tailor your loyalty program to how your company markets itself. Consider the way some of the airlines have made frequent-flyer miles available through other retailers, such as hotels. Those airlines have advertised the benefits of their frequent-flyer programs through tie-in advertising with other partners.
In a similar way, developing and communicating your own loyalty program to potential clients will help you differentiate yourself from the competition.
Even non-profit organizations reward their donors for revenue growth in their fund-raising activities. These programs sometimes include tiered rewards such as T-shirts, Walkmans, boom boxes, as well as more expensive gifts for larger donations.
How do you justify the cost of establishing a customer loyalty program? Look at the alternative. Consider that the average business loses 15 percent of its customers each year. Assume, for a minute, that you have 1,000 customers. Potentially, that means losing 150 customers each year!
Perhaps you own a gourmet food store, with average annual revenues of $1,200 per customer. Losing 15 percent of those customers translates into $180,000 a year in sales revenue. If your profit margin is 12 percent per account, you have lost $21,600. This is the cost of not having a customer loyalty program.
Now, assume you did have a customer retention program in place, and lost just 10 percent of your clients. That’s a difference of $60,000 in sales revenues retained. And that figure does not include the multiplier effect of larger purchases over the years, new customer referrals and the premium prices paid by loyal customers.
Of course, a retention program is hardly a panacea. Sometimes, you simply can’t get more out of a customer or donor. Not all businesses or non-profits can benefit from a frequency program. For example, even the best pool-cleaning service will have few customers who want their pools cleaned more often or decide to add a second swimming pool, simply because the cleaning fees are so reasonable and the work so good.
Sometimes, donations are made to a good cause as a memorial to honor a specific person’s wishes, and the donor is not likely to make another donation. Revenue growth and fundraising opportunities from existing customers and past donors, in these cases, may not be generated through frequency programs, but rather through referrals.
Whatever you decide, review your operational capabilities. Make sure your organization can support a frequency effort.
Indeed, having a loyalty program requires a commitment to yourself, to your employees and, most importantly, to your customers. It demands record keeping, budgeting and research. It means training your front-line people and those in customer service to understand the program, and most importantly, to understand the value of your customers and their needs.
It involves effective communication with your customers, perhaps even a newsletter developed especially for the program. A loyalty program is not just about numbers. It is about people.
Finally, developing an effective loyalty program does not mean you stop your efforts to acquire new customers or donors. It does mean that your new acquisitions will be that much more meaningful. The new customers are not just replacing the old ones who leave. They are adding value. By retaining existing customers through a customer-loyalty campaign, you will see your profits build more quickly with your new customers and donors than they would otherwise. The difference is the loyalty factor.
Loyalty: Is it costing you money? Or is it making you money?
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Betsy Vavrin is president of SMC Marketing in Studio City. Her company specializes in developing customer retention programs for national multi-unit companies, non-profit organizations, and smaller single-site businesses and retailers.
Entrepreneur’s Notebook is a regular column contributed by EC2, The Annenberg Incubator Project, a center for multimedia and electronic communications at the University of Southern California. Contact James Klein at (213) 743-1941 with feedback and topic suggestions.
