CUSTOMER LOYALTY

 
Editor's Note: The following was excerpted with permission from Customer Loyalty: How to Earn It, How to Keep It, by Jill Griffin; Jossey-Bass Publishers; San Francisco; 1995.

Once, The Road Less Traveled by psychiatrist M. Scott Peck was just another psychology/relationships book languishing on bookstore shelves. Then a few people read it, told their friends and started a chain reaction that's still going on. Today there are millions of copies in print, and the book has been on the New York Times best-seller list for more than nine years.

When customers become advocates for your products or services, you have achieved a relationship of great closeness and trust. This is the most valued and sought-after level of bonding, where word-of-mouth advertising can flourish. It is not enough for a loyal customer or client to buy exclusively from an organization. To fully leverage its opportunity with a customer or client, a company needs to recruit new prospects and customers through him or her.

We'll examine word-of-mouth or third-party endorsements and why they are so powerful. We'll then consider proven strategies for "getting the word out" and "keeping the word out" through client advocates.

Why Word of Mouth Can Be So Powerful

Referral is the most powerful pathway for any business to recruit new customers successfully. Referrals are so effective because they come from an objective second party. The words come from someone who knows you and your products and services, is confident of your ability and reputation to follow through, and has no financial motive for touting your product. Many times your products are "sold" before you even meet the new customer or client. When a new prospect comes to you through a second-party endorsement, you have three distinct selling advantages:

1. Less selling time is required. Sales statistics indicate that you'll spend half the time selling the referred prospect as you will selling the nonreferred prospect. Why? Because much of the selling has already been accomplished by your referral source. Trust and believability are key factors when making a first sale, and winning trust and availability takes time. These important factors become almost "non-issues" when people get a referral from someone they know and respect.

2. These prospects have greater loyalty potential. People who buy because of a personal referral tend to be more loyal than those who buy because of an advertisement. Consider the experience of Laura Peck. Laura Peck used to advertise her workshops, but due to financial problems she discontinued the ads and instead began cultivating her own network of friends and acquaintances for clients. Now, two years later, her business is thriving. She says, "When I advertised, I seemed to attract people who came because of the discount I offered. These clients often did not return, would cancel sessions and generally were not repeaters. The people who were most enthusiastic, most loyal, and continued with their sessions were almost always clients who had been personally referred. Had it not been for the economics involved, I would probably not have learned this important lesson: Personal recommendation is the best advertising there is."

3. People come ready to buy. An industry that evokes mistrust and fear is the auto-repair industry. Who hasn't heard a horror story of an auto repair that was unjustified or was never done right? So why does a customer who comes back to Direct Tire in Watertown, Mass., spend $173 during an average visit when new customers who have been referred by someone else spend $224? According to Direct Tire president Barry Steinberg, the answer is quite simple. These big spenders have usually been putting off a major repair or purchase until they can find a repair shop they can trust. Once they hear about Direct Tire's service, they come in and spend.

Earn Word of Mouth: Four Proven Strategies

1. Give 'em something to talk about. Bonnie Raitt, the popular blues/country crossover artist, had a Billboard chart hit in 1992 entitled Let's Give Them Something to Talk About that told how a good story travels fast. That same philosophy is key to creating a high talk factor between customers and their friends. Direct Tire's Steinberg sees the whole purpose of customer service very simply: to keep customers coming back and to get satisfied customers telling others.

Typical of the length to which Direct Tire will go to keep a customer happy and loyal was the case of the customer whose car was sitting on a lift for a front-end alignment. The customer had called in ahead of time to make certain there would be no delay for him to get to work. But Bobby Binnall, an employee who transports customers to and from work, was delayed in a car that had stalled. The customer was getting edgy, and Steinberg had an inspiration: "I called the local taxi company, and in five minutes they were here and took the guy over to his office. The cab fare was $17, but can you imagine how many people he's going to tell this story to? It was the best $17 I ever spent."

It is this kind of reasoning that has allowed Steinberg to maintain his high net margin, even as he has increased his investment in customer service. But he measures his return on that investment with a satisfying fiscal picture that shows how effective he has been in turning one-time buyers in to regular customers. Direct Tire's revenues continue to increase steadily, as they have every year since its founding in 1974, despite generally flat sales for the industry as a whole--all because Steinberg wins over customers who tell other people about their positive experience at Direct Tire.

2. Continually search for new ways to earn the talk factor. A computer check-writing program called Quicken has become the most successful personal-finance program ever written, holding an impressive 60 percent market share. Says Jeffrey Tarter, editor of the industry publication Softletter, "It has become the brand-name product in what would otherwise be a commodity business. It's the Kleenex or Xerox of its market." Sales have continued to explode. The company now generates annual sales of more than $33 million and sells close to one million units annually.

Quicken is carried by Target, Wal-Mart and other retailers and computer-chains nationwide. And how large is the company's sales force? It comprises exactly two people. But Scott Cook, CEO of Intuit, the maker of Quicken, sees it differently: "Really, we have hundreds of thousands of salespeople. They're our customers." Cook speaks of his customers as "apostles" and states that Intuit's mission is to "make the customer feel so good about the product they'll go and tell five friends to buy it."

3. Get your product in the hands of influencers. Conventional wisdom says that in order to get a group of "opinion leaders" to earnestly spread the word about a new product, its maker must first give the product away. Not so with Approach Software, a start-up in Redwood City, Calif., which found a way to earn initial sales from opinion leaders and then triple the number of people who purchased its product on the advice of friends or associates in the six months following the product's launch. How did the company do it? By offering a low introductory price and a 90-day, money-back guarantee. The target of the offer was carefully selected and included influential users, who were asked to try the company's first product, a database software program designed for non-techies.

Approach's limited-time offer of $149 for Approach 1.0 for Windows, plus free technical support, quickly got the innovative software into the hands of thousands of small-company CEOs and other targeted customers. The price was hard to beat, given the software's appealing characteristics--less than a half-hour to learn the program and seamless integration with other database software. Competing products cost as much as $799.

4. Turn centers of influence into full-time advocates. One unique application of word-of-mouth advertising in the deep South proved how effective this form or prestige recommendation can be. Fifteen years ago, Jay Stein decided to expand the department store in Greenville, Miss., that his grandfather had founded in 1908. As a stroke of luck, several well-to-do women from Greenville volunteered to help out during the store's liquidation sales of some designer clothing. Commenting for The Wall Street Journal, Stein says, "They had firsthand knowledge of this better merchandise, because they had worn it for years." The experience convinced Stein that the concept was worth replicating. When Stein Mart opened its second store, this time in Memphis, he created a designer boutique department in the store, and he and his wife recruited socialite friends to operate it.

"The boutique ladies are our secret weapon," says Stein. These ladies work one day a week, earn $7 an hour, and are excused from cash-register responsibility and evening shifts. Instead, their activities are focused on "spreading the word" about designer merchandise. For example, when a shipment of $39 designer silk separates arrived at the Jacksonville Stein Mart, boutique lady Joy Abney, the wife of a former managing partner of Coopers and Lybrand, hit the phones. She called fellow board members at Wolfson Children's hospital and "told them to get over here." Abney's friends obliged by spending $2,000 in her department store that same day.

In return, Stein Mart enjoys a polished, loyal sales force of advocates. Joyce de la Houssaye of New Orleans wedges her boutique duties into a schedule full of Junior League, golf and four grandchildren. She brings flowers from her award-winning garden to decorate her boutique department. After organizing a special store reception, she took off in her golf cart to deliver fliers to neighbors about the upcoming event.

Getting the Word Out About You

Once you have developed a loyal client, you then have the opportunity to multiply that one client by a factor of two, three, five or more. Each person you sell to can be multiplied by the number of his associates who are prospects for your offerings. It all depends on getting the word out through your client advocates. Let's examine the tools you need to maximize your talk factor.

What's In It for the Endorser?

An advocate, or endorser, is someone who goes out and advocates your cause. Is this a totally selfless move on the part of your endorser? Not entirely. To an advocate, you are the best in the business, and his selfish motivation is to keep you in business. The advocate wanted to keep you going so you'll always be able to continue doing business with him. Moreover, when you perform well for the new customer and he is satisfied, you make the endorser look good. In some ways, the new customer now "owes one" to the endorser. So the next time you are shy about asking for an endorsement, take into consideration the fact that the giving of an endorsement is not a totally selfless act on the part of your advocate. There is something in it for the advocate as well.

The Satisfied-Customer File

One valuable sales aid is to keep a satisfied-customer file. Make a point of adding a satisfied-customer story every week. Write it up, including the names, addresses and phone number of the satisfied customers. Ask each one, in advance, for permission to use his name as a reference. When you're trying to win over a tough prospect, scan your file, identify a success story that nearly matches the prospect's situation and invite the prospect to contact the customer directly for a reference. Among sales professionals, this technique is known as "reference selling."

Reference selling is so effective that it can overcome hurdles that seem insurmountable, as Lynn Green, a sales manager at Data I/O Corp. in New Hampshire, discovered. She was able to overcome legitimate price objections from a prospect by referring him to loyal customers. Though her company is the market leader, she says, "Our pricing is usually the main stumbling block with a new customer who has used competitive products."

In one situation, she was selling a product for $15,000 against a competitor who was offering something similar for only $2,000. Green remembers that the prospect "called and asked why he should pay $15,000 when he could by seven of the competitor's products for less money."

That was when she asked him to seek the advice of her own customers who had used the competitor's product in the past but had switched back to hers. "At the time," she says, "I didn't think I would get the sale because of the wide difference in price. But, once again, my existing customers made the sale for me."

Green stresses the importance of developing good rapport with your existing customer base. And she found out that her customers enjoy assisting her. "If you and your company have a customer's loyalty, it can pay off in more ways than one," she states.

The Testimonial Letter

Another approach to reference selling is by using the testimonial letter. Such a letter can be used in a number of ways. It can be part of marketing materials given to a prospective customer, for example, or an excerpt from the letter can be used in brochures.

Ask your satisfied customers and clients to write you a letter on their company letterhead outlining how your products or services helped their organizations. Encourage your clients to identify concrete benefits they derived from you. Make these benefits as specific as possible. Ideally, you should ask for letters from as many customers and clients as possible. Prospective customers like to see testimonials from companies in their industries and from their regions of the country.

Often a client is happy to write a letter but asks for assistance in what to say. Show the person examples of other testimonial letters. Ask him questions about what he found most beneficial from your products and services. From the resultant description, you can suggest the thrust of what the person can say.

  • How long did he use your product?
  • How does yours compare with others he has used?
  • What was the scope of the project or sale?
  • What were the tangible results?

Make the testimonial-letter development process as easy as possible for the client. I've had several clients who have suggested that I write the letter for them. I love it when this happens. They review it and may make some changes. From the draft, they finalize the letter.

The Preheat Letter

Juanell Teague, who operates a successful consulting business for established and aspiring speakers, suggests an approach called the "preheat letter" to turn satisfied clients into advocates. Ask your satisfied clients, she says, to write a preheat letter to between five and 40 of their personal contacts. You get your clients to provide you with names, addresses and phone numbers, along with their letterhead and envelopes. You prepare the mailing, including postage, and return the letters to them for signatures and mailing. About a week later, you make follow-up calls. Obviously, the preheat letter is a warmup before you make a call on your customer's referral.

Teague advises that the most successful preheat letters accomplish four objectives:

  • Explain the client's requirements that you fulfilled;
  • Describe how he found you;
  • Outline the work you accomplished; and
  • Recommend you.

Perhaps the simplest way to use the endorsement for selling is by asking your client for referrals and then promptly following up. Asking for referrals should be a natural part of your interaction with your client. As we discussed earlier, satisfied clients benefit by giving your referrals. Don't be shy. Just ask.

There is a right way and a wrong way to ask for referrals:

Wrong: You don't know anyone else who might be interested in my product, do you?
Reason: Based on a negative supposition. Leads the client to say no.

Wrong: Do you know someone who might need my product?
Reason: Provides the client with the opportunity to just say no.

Right: Who do you know that might appreciate knowing about my services?
Reason: Takes a more positive, proactive approach that implies "I'm a problem solver."

Once you have been given the first name, ask, "Who else do you know?" and repeat the process until your client runs out of referrals. Ask permission to use the referrer's name with the question, "May I use your name as a reference when I contact them?" and then abide by his or her wishes.

Recommend-a-Friend Rewards

One of the most profitable, yet overlooked, methods for stimulating word of mouth and referrals is recommend-a-friend promotions. The basic technique is to offer an incentive to a customer in exchange for the favor of referral. At Indy Lube, customers who send friends to the $3.6 million quick-lube chain get a $10 certificate toward their next oil change. It's a way to thank customers who take the time to fill out an Indy Lube referral card and give it to a friend. The new customer uses the card to get $5 off his first oil change. The Indianapolis company won 35 new customers that way in one month alone. When Indy runs a contest among its 15 locations for most customer referrals in a month, CEO Jim Sapp says he redeems as many as 50 referral cards per store.

Another twist on the recommend-a-friend promotion is the recommend-a-friend card, whereby a customer receives a special reward for providing referrals. Experience has shown that you can expect a larger number of friends' names if your customers are guaranteed that their name will not be used in soliciting their friends. Response from friends will be higher, however, if you are allowed to reference the name of the friend who provided the name. Therefore, you may want to give the customer the choice of whether his name will be used in solicitation by using this question: May we use your name as a referral source?

Response decreases in proportion to the number of names provided by the customer. Thus, response from three names provided by one customer will most likely be greater than the total response from six names provided by another. Additionally, experience has shown that people list names according to likelihood of interest. Therefore, contact the names provided in the order of their listing, giving priority to those that listed first.

Companies that have acquired names through customers have found that the people listed are, with few exceptions, more responsive and ripe for conversion than those on most any list the company can rent or buy.

Learn to Say 'Thank You' Every Time

Any action on anyone's part in referring a prospect to you deserves a thank you. The rule is simple: Thank the person in writing. Thank the person right away. Whether or not you convert the referral into a customer or client, the source for the referral deserves recognition.

Blueprint for Staying in Touch Long Term

Maintaining a network of clients and market influencers who are likely to provide you with contacts and leads for future business is essential to business success. The secret to a strong network is constant contact. Consider this system for staying in touch:

Written Notes: Five a Day. Have some type of stationery with you at all times. This is important, because it's during those moments while you are unexpectedly waiting that you use the time to keep in touch. Note cards are great for this purpose. If you write five notes a day and you are in business 250 days a year, that's more than 1,200 extra contacts.

With five notes a day, you can create friendships from business contacts by simply taking the two minutes necessary to jot down a thought. Two to three sentences is all it takes to say to someone, "I was thinking of you." While birthdays, anniversaries and promotions are a reason to write, do not wait for special events. A note that simply says "hello" and "how are you?" can do the trick. Mailing a copy of an article you think may be of interest to a customer can be an added bonus. The key to this tool is to maintain a good mailing list of clients and addresses; doing so is crucial to your ability to stay in touch.

Phone Calls: Five a Week. Make a minimum of five calls a week. Keeps the calls brief. Two brief calls are better than one long call. You become the source. You are generating the communication, and you are building the network. Take the opportunity to ask the persons you call their opinion on something you are undertaking. William James once said, "The greatest need of every human being is the need for appreciation." Let them know you respect their opinion.

In-Person Contacts: Five a Month. Make five personal contacts a month. Practice the "out-to-lunch" method by calling and inviting three clients to lunch. Pick a popular lunch spot. Mix new clients with long-term clients. Make it a social affair that can pay you business dividends.

The numbers speak for themselves:

  • 250 days x five notes/day = 1,250 contacts
  • 50 weeks x five calls/week = 250 contacts
  • 12 months x five contacts/month = 60 contacts
  • Total contacts = 1,560 contacts per year

Consider the impact of 1,560 additional contacts to your business.

Be Ready for More Customers

Think twice before you launch a plan to encourage personal recommendation referrals. Properly executed, it can produce dynamic results. But when a business is not ready for expansion, having a lot of new customers can threaten quality by reducing standards in order to meet demand. The result can be disastrous: disillusioned prospects, dissatisfied customers, low employee morale and general frustration at not being able to provide good service. When this happens, unhappy prospects and customers will tell their friends, and a downward business spiral begins.

Jill Griffin is president of The Marketing Resource Center Inc. in Austin, Texas, a strategic marketing firm recognized as a leader in state-of-the-art solutions for building customer loyalty. Griffin conducts seminars on loyalty marketing nationwide and works with clients from Fortune 500 companies to law firms and small businesses. For more information about Customer Loyalty, contact JoAnne Skinner at Jossey-Bass Publicity, (415) 782-3213, or Jill Griffin at The Marketing Resource Center, (512) 469-1757; e-mail [email protected].

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