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Get your customer loyalty right

Get your customer loyalty right

Hallmark and Barnes & Noble may have different types of products, but their relationships with customers are similarly strong.

So says a new study from Peppers & Rogers Group, Carlson Marketing Worldwide, and Market Tools that examines the current state of customers' relationships with retailers.

The study, "Carlson Relationship Builder 2007: Getting It Right in Retail," measures the relationship strength of 1,100 customers with the retailers they frequent.

Carlson Marketing considers a relationship to be "strong" when the ongoing exchange between a company and a customer has the ability to grow and endure, and to resist any damaging forces that might destroy it.
Strong relationships are characterized by trust, commitment, and mutuality and alignment, a two-way dialog that meets mutual expectations of the company and customer.

The study finds that customers with high levels of relationship strength aided a retailer's bottom line.
When relationship strength is high, the customer is 49 per cent more likely to remain a customer than when it is low, and 55 per cent more likely to shop at the retailer within the next year.

In addition, a customer in a strong relationship is 1.82 times more likely to recommend the retailer to friends and family. These factors lead to growth in same-store sales, a critical success measurement within the retail industry.

Building relationships

Barnes & Noble and Hallmark have the highest level of relationship strength. But at all retailers studied, there is an opportunity to raise the bar. By crafting differentiated marketing strategies, retailers can leverage the affinity of those customers with high levels of strength, as well as move the low customers up the relationship chain.

The researchers suggest focusing on the one-to-one connection to meet individual needs and preferences through loyalty programs, customization, relevance, and an optimum frequency of messages.

Almost two thirds of survey respondents say that when enrolled in a loyalty program, they use the products and services of that retailer more frequently, and 57 per cent would join a retailer's loyalty program if it were offered to them.

Once enrolled in a loyalty program, the goal, researchers say, is to create "loyalty fanatics," customers who demonstrate a strong affiliation toward the program and its associated recognition and economic benefits.

Once customers are enrolled in a loyalty program, retailers should take advantage of the customer data they collect. Using customer-specific information to tailor the content of communications has a dramatic impact on relationship strength.

The effect holds across a broad range of communication types, including those related to merchandise/service offers and information, pricing, and partner offers. On the flip side, respondents say that customization done poorly actually suppresses relationship strength.

The relevance of the message i.e. the extent to which the content of the message is applicable to the customer's current needs -- also strongly impacts the strength of the relationship.

Moving from "irrelevant" to "relevant" increases a customer's relationship strength by 37 per cent, and the propensity to recommend by 42 per cent.

The data also show that communication frequency has an impact on relationship strength. If it's too infrequent, the relationship suffers. But it also suffers if frequency gets to be too much, as the customer may feel bothered by the sheer volume of messages. What's the right balance?

It depends. Individuals who prefer weekly communications have the highest level of relationship strength, and are more likely to recommend the retailer and shop more at that retailer.

As of now, however, only 31 percent of respondents prefer weekly communications. Most prefer monthly communications.

The experience

All of these tactics are pieces of a great customer experience. No matter where on the relationship spectrum a retailer sits, there is opportunity to improve on both a collective and individual relationship level.

And by creating competitive differentiation and building relationship strength through a superior customer experience, the retailer avoids the challenge of competing solely on product, price or service. Instead, customer value grows and retailers can lock in long-term loyalty.

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