How to Create Loyalty Among Your Most Valuable Customers

1. How to Create Loyalty Among Your Most Valuable Customers Duarte B. Morais, Ph.D.

2. The State of the Industry • Mature Industry • increasingly competitive • Focus on market share • Need to focus on share of customer • Differentiation based on • Price • Quality of service • Long term relationships

3. Why are long-term relationships important? • Reduction of 5% of defective customers may result in 80% increase in profitability (Reichheld & Sasser, 1990) • 60% to 80% of lost customers were satisfied (King, 1996) • 90% of customers who love a company will repeat but only 30% of customers who like the company will repeat (Opinion Research Corp.) • 20% your customers bring 80% of your profits

4. What is Loyalty? “A psychological and emotional bond between the customer and the outfitter conducing to a long-term relationship” • Manifested through: • Repeating purchase • Purchasing premium products • Referring outfitter to friends • Becoming an advocate of the outfitter (merchandise) • Wanting to give opinion and have it heard • …

5. Types of Loyal Customers Frequency of Purchases + - + High loyals Latent loyals Attachment Spurious loyals Low loyals -

6. The Loyalty Process  Expected outcomes of loyalty  Types of loyal customers  How loyalty develops  How providers can foster loyalty

7. A Line of Research • How loyalty develops Attitudinal model of customer loyalty • How providers can foster loyalty  Rafting study 2000  Feedback from Confluence 2000  Cruising study 2001  …

8. The Love Triangle Social Network Provider Customer

9.  Rafting Study • Objective • Types of treatment conducing to increased loyalty • Phone interviews • 10 customers & 10 managers of US rafting outfitters • Expert Classification • 3 for classification & 4 for editing & modifications • Mail Surveys • 750 sent & 400 received • 3 mailings with a free two-day rafting trip incentive

10. Love Status Investment Model (Morais, 200) Services Information Goods Money

11. Thank you letter • Provide feedback • Birthday card • Recognize by name Investments made by: CustomerOutfitter Intangible / Special … … … … … Tangible / Generic • Tell friends • Own equipment • Free T-shirt • Trip video or picture • Premium purchases • Repeat purchases • Discounts • Quality service • Quality equipment • Good facilities and transportation • Own transportation • Own equipment

12.  Feedback from Confluence • Objective • Opinions about loyalty • Determine what types of investments outfitters have made to enhance loyalty • Open-ended survey • 40 outfitter representatives • Coding by independent rater • Classification of themes

13. Findings Outfitters associated customer loyalty with • Repeat purchases • Growth, profits and success • Staff & customer connection (cycle of success) • Information, feedback, advice What is being done • Tangible and generic investments • Focus on making investments instead of encouraging retribution (special mailings, gifts) • Few long-term membership programs

14. Cruising Study • Objective • Determine why customers have maintained long relationship • In-depth interviews • 22 long-term customers • Participant observation • Analysis of data • Coding by three researchers • Computer software

15. Findings • Service quality “Everything was just incredible” • Bond with the provider “They remembered my name!” “He told other people to ask me advice about nude beaches.” • Influence of friends “I felt like I would let them down!”

16. Action Outline 1. Select your market segment • Identify most valuable customers (what criteria?) • Identify customerswho might become valuable • 2. Design a relationship-building service culture • Identify what type of treatment promotes customer loyalty • Identify what loyal customers want to give to you • Identify potential for customer to customer social bonds • 3. Implement a loyalty treatment • Design specific communication strategy and message • Train staff to understand the importance and the process • Create opportunities to invest, receive investments and foster friendships • Develop information management and service procedures • 4. Measure effects of program and redesign • Maintain constant communication with your loyal customers • Monitor costs and results of your program

17. Loyalty Investments Invest on your valuable customers • Make sure that your special customers receive special treatment • Send cards for birthdays rather than just for the holidays • Make them feel unique (use name, compliment them for helping) • Educate them about your operations and the activity Facilitate reciprocation • Give them opportunities to develop relationships with your staff • Help them in being advocates of your company (merchandize, web) • Seek their opinion • Allow them to commit to you with a long term program

18. Social Networks Encourage friendships among your customers • Use the newsletter to create a sense of community • Develop an online forum for customers to stay in touch • Organize annual festivals “by invitation” for VIP customers • Facilitate picture / story sharing • Infiltrate your staff into the social groups • …

19. Loyalty program • Choose a good program name: The WildBunch Club • Call the members: WildBunch Club Members • Rewards not based on money or focused on discounts • Give those members specialintangible privileges • Access to exclusive information (web, newsletter) • Choice of guides • Participation in yearly events and festivals • Option to purchase exclusive merchandise • Opportunities to give you their oppinion • Develop database of members’ preferences & use it

20. How to Create Loyalty Among Your Most Valuable Customers Duarte B. Morais, Ph.D. The Pennsylvania State University 228 Mateer Building University Park, PA 16802-1307 dmorais@psu.edu (814) 865-5614