Too many businesses mainly focus on identifying and selling to new customers rather than exploit the hidden potential within the existing customer base.

Classically, up to 80 per cent of marketing is used to generate new leads without any consideration of alternative efficient development of existing customers.

And a lot of sales personnel are acknowledged only for their ability to get new customers and turnover, without any questions asked about profitability.

American credit card company MBNA some years back found that the $200 average cost of getting a new client wasn’t covered until after five years. The problem, however, was that the company then lost 20 per cent of their customers every year. So the fact was that the entire customer base was ‘gone’ before they got profitable!

It is without a doubt far more valuable to optimise existing relations before chasing new ones. Here are a few tips on how to build up customer loyalty and make better profit:

1. Don’t ‘think ‘... ‘Know’ your business!

Base your decisions on facts and do not rely on your past experience as it may not be relevant to the current scenario. Companies should also ensure that the sales force is well briefed about their customers. Challenge key performance indicators too, as they are not always as logical as they may seem– as in the MBNA example above. Another example is a marketing campaign by a Scandinavian business newspaper to recruit new readers which would only have paid for itself if they remained subscribers for 32 years!

2. Focus on customer LOYALTY and not only on customer SATISFACTION

There is a difference between the two terms and satisfied customers do not equal loyal customers. The latter are those who will repurchase your products and services, who will spend more with you and actively recommend you to others.

3. True customer loyalty evolves over time

All too often, the massive focus on the new customer is lost or dwindles as soon as he or she is ‘captured’. The truth is that this is just the beginning as loyalty builds up over time and is ongoing. If you have a positive ‘balance’ in your relationship account, it will leave room for the occasional crisis to debit that account without it going into the red – at which point the relationship would be terminated.

4. Go from transactional to relationship thinking

It is too short-sighted to focus only on the profitability per transaction. It is better to view a customer’s value over time. For example, a younger, upwardly-mobile airline customer would generate considerably more over time than an elderly person, yet their loyalty scheme treats them equally only because of their current status.

5. There are no quick fixes in customer loyalty

Do not let the short-term focus on economic results blur the need for long-term customer loyalty. This is often due to the lack of focus or coordination between different departments within the organisation. Store knowledge about your customers centrally so that the whole organisation can work towards the same goal, whether this involves marketing, sales, product development, customer service or quality control.

6. Don’t build tomorrow only on yesterday’s data

Why are most budgets and targets based on a percentage increase over the previous year’s, without analysing whether any internal or external factors have changed? Use more predictive models with other data to understand the threats and opportunities.

7. Align expectations with reality

If there is only focus on acquiring new customers, rather than on keeping them, then the sales staff automatically will push unrealistic expectations of the product. Dissatisfied customers are those whose expectations were not fulfilled. They will certainly never be exceeded – which is what leads directly to loyalty.

8. Don’t follow in the footsteps of the competition

This may be the easy option but you have to stand out from the crowd and you need to do it intelligently. You cannot only compete on the basis of rational loyalty which is easy to win but also easy to lose; emotional loyalty is also important as it creates a ‘stickier’ bond with the customer.

9. Loyal employees are the foundation for loyal customers

It takes a professional and motivated employee to do that unexpected “little extra” for the customer – which is what leads to strong loyalty effects like repurchase and recommendation. And don’t forget that the customer service mentality among employees is one of the competition parameters that is most difficult for competitors to copy.

10. Development is crucial – but keep it in control!

Don’t get swept away by the changes that you need to make. Even though these guidelines make sense and are very simple, they represent change which needs to be planned, managed and supported, whether through focus, processes, resources or investment. It will all take time, planning and testing...

This article was drawn up from a white paper prepared by Mikkel Korntved, the CEO of Loyalty Group International. Loyalty Group now has an office in Malta.

For more information about customer loyalty and retention and the opportunity to download the full white paper for free, go to www.loyaltygroup.com.mt.