Founder & CEO Beyond Philosophy
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5 rules that absolutely build customer loyalty

7th Oct 2021
Founder & CEO Beyond Philosophy
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Loyalty is one of the most overused phrases in business today. To most companies, it invariably means "customers give us all their money." But that is not what loyalty is. So, today we're going to talk about the five rules that will build customer loyalty. 

Before we get into the rules, let's talk about what loyalty is. Start by considering who you are loyal to, which is probably your friends and family. Now, if I were to offer you new friends that are much less expensive than yours and a family that is far more efficient than the one you have, would you trade? Unless you are a terrible person or you have horrible friends and family, my guess is you would say no. That's because loyalty goes beyond things like price and efficiency. It's emotional. No amount of time or money savings are worth it to you.

That's what loyalty is. Having that kind of bond with your customers is fantastic for your business. Building it, however, takes work, and here are five rules to guide your efforts.

Rule #1: Think long-term. 

Many organizations drive their actions to suit quarterly reporting, sales figures, and profits for this year and, as a result, don't think long term. However, customer loyalty necessitates thinking long term.

Remember the Wells Fargo debacle? Wells Fargo is a big retail bank in the U.S. The management at Wells Fargo put so much pressure on their team to get their customers to sign up for additional services at the bank that the attitude became "do whatever you have to" to get that new product or service signup. Unfortunately, it led to the team signing customers up for things they didn't want. Customers often didn't know about it until an additional credit card arrived or the new account showed up in their statement. Nevertheless, Wells Fargo was raking in extra conversions, their stock was going up, and they were getting all kinds of praise from investors. All in all, Wells Fargo enjoyed extraordinary short-term results. 

But it didn't last. They got caught and had to pay enormous fines. The damage to the brand was even worse than the fines. This activity forever damaged many long-term relationships with the institution. The long-term adverse effects of short-term gains were massive and lasting. 

Thinking long-term is a lot like marriage. I have been married for nearly 40 years. It starts with a promise, and then there's a commitment there. It's not short-term either; I believe the terms are "until death do us part." When you think long-term, it puts a different perspective on things. First, you have to work at a marriage.

Even marriages have the potential for exploiting the relationship to realize short-term gains. For example, you could take advantage of your partner, let them do more of the work, have them do favors for you, and so on. However, over time, you create a very toxic relationship that will not lead to long-term success. 

The same is true for customers. It is not a question of, "I've got this new customer. Woo-hoo! Now, they're going to be loyal for the rest of their lives." Right now, you have one, but things can change. So, unless you work at it, adapt, compromise, and change, you could lose them.  

Please don't take my word for it. Ask Wells Fargo.

Rule #2: Loyalty goes two ways.

Customer loyalty doesn't work if the organization is doing all the taking. Customers need to feel like you meet their needs, too. It's give and take between you. In this relationship, creating a loyal customer means that sometimes you sacrifice for one another.

So, have you sacrificed for your customers lately? Have you done something for the customer relationship that has either cost you money or time or gone out of your way to do a favor for customers? If you want customers for the long term, just like in a marriage, you've got to make some form of sacrifice to prove that you care and that loyalty is a two-way street.  

An excellent opportunity to prove that you are loyal is when your customer has a problem. Not only is it a chance to build your relationship, but it also is something that customers remember, especially when they are in desperate straits.  

A terrible way to build loyalty is to create compelling, valuable offers for "new customers only." These offers say, "even though you are an actual loyal customer, you don't get the best price." 

As an organization, you should consider whether you are asking your loyal customers to jump through hoops. For example, how much work do people have to put in to be a customer? If the answer is more than the work you are doing on their behalf, you have a problem with your loyalty not going both ways. 

Rule #3: Don't mistake inertia for loyalty. 

Often, firms treat loyalty as a behavioral phenomenon. In other words, the customer buys from us, and the customer purchases a lot from us, so they are loyal. Unfortunately, using buying behavior as the measure of loyalty does not distinguish loyal behavior from inertia or habit. Somebody might buy from you regularly without feeling loyal. 

It's outstanding when customers buy from you, but loyalty is not behavior in which people engage. So if you treat it like it is, you're missing the point. 

Earlier, I was thinking about companies that I do business with regularly that I would drop as soon as I had a better option.  The one that immediately came to my mind was my cable company. I buy from them every month and have for ten years. By all behavioral measures, I am a loyal customer. However, I hate them. If I had the choice for a better service option, even if it cost more, I'd move tomorrow. 

Airlines have this a bit, too. Many times, you fly an airline even when you don't like them. In this case, consider Ryanair, the budget airline in Europe. Lots of people fly Ryanair but talk terribly about them. The only reason they fly with them is that they're very cheap. If some other airline provided better service at the same price, people would flock to them.  

It's the same situation with airline loyalty programs. The reward points create an incentive to stay with an airline, but they do not build loyalty. Consider this: if another airline came along and honored your airline miles with your current carrier, would you fly the new airline? Many of you would, I presume, because often our experiences with airlines are acceptable or even good, but they rarely create an emotional bond, which is essential to loyalty. Instead, it's transactional, and many times, airlines that that relationship for granted.

Do you take their customers for granted? Customer-centric organizations do not. Organizations that are mistaking inertia for loyalty are open to problems once there is disruption, you know, like a global pandemic that changes how everyone perceives the world. Right now, many organizations have not responded to post-COVID customer expectations that are experiencing first-hand what this means to their bottom line. Those with loyal customers are recovering fine.

Rule #4: Loyalty is a function of memory.

I realize that I have talked about this rule many times, but I would be remiss if I left it out of these five rules. After all, you can't be loyal to something that you haven't experienced. Therefore, loyalty is about remembering an experience and going back. It recognizes that you liked it. 

You have to think about how memories form. To explain memory formation, Nobel-Prize-winning economist Professor Daniel Kahneman gave us the Peak-End rule, which suggests that people remember the strongest emotion they feel during an experience and how they felt at its conclusion. The peak emotion might be a positive or a negative feeling. Therefore, it is essential to know that going in to maintain that positive feeling or overcome a negative one by the end. 

This memory is relatively clear cut in shorter business relationships. However, in business-to-business relationships, there might not be an "end" the same way there is in other business relationships. So instead, the Peak-End rule can help you manage the many smaller experiences with that customer, who can drive these memories that form loyalty, too. 

So, the first item on our list, rule number one about long-term thinking, is about having forward-looking behavior for the firm. Now here in rule number four, we have backward-looking behavior from the perspective of the customer. Customers base loyalty on how they remember their previous experiences. So, are you building that into your loyalty plan?

Rule #5: It's about emotions, stupid. 

There is an emotional attachment to the people for whom we feel loyal. My family can drive me around the bend sometimes, but I still love them. It's not a transactional thing. 

So that begs the question, which I've posted before, what emotions are you trying to evoke in your customers, and what emotions would drive loyalty? 

I wrote a book in 2007 called The DNA of Customer Experience: How Emotions Drive Value. In our research for that book, we discovered that 20 emotions drive and destroy value and some that drive loyalty. So we can show that feeling valued, happy, pleased, trusted, and cared for will drive loyalty. 

 So, you've got to define which emotion you want to evoke that will drive the most value for you. Moreover, it would be best if you determined how you are going to do it.

If we remember rule number three, don't mistake inertia for loyalty, the critical difference between inertia and loyalty is emotion. Loyalty is about a relationship, and emotional exchanges build relationships. So, if you have a purely transactional loyalty plan, then I've got bad news for you; it's not loyalty. It needs to have an emotional component to it.

Loyalty creates an Emotional Bank Account, which I first heard about in Stephen Covey's Seven Habits of Highly Effective People. An Emotional Bank Account is a place where you deposit good feelings with customers. When you do something for a customer that pleases them and makes them feel valued, you have deposited into your emotional bank account with them; you have credits. So, when you make a mistake, you take out a withdrawal. If you build up your savings, it doesn't close out the account when you take out a withdrawal. So, it is essential to keep making those emotional deposits for that rainy day. Remember that it's longer-term (rule number two), so you have to think longer-term with your Emotional Bank Account.

Also, if you haven't deposited into that Emotional Bank Account recently, you don't know where that customer is. So, the danger is if your balance is low, they could defect.

There you have it. The five rules that absolutely build customer loyalty. We hope these help you create the emotional foundation that long, beautiful customer relationships are built upon—and that your bottom line loves just as much. 
 

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