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Keep Your Customer Loyal, Not Just Satisfied

Jill GriffinJuly 6, 2005 – It's the $64,000 question: What makes a customer loyal? In the 1980s, many business advisors would have said "satisfaction with a product or service," but today we know that loyalty goes way beyond simple satisfaction.

In customer surveys across industries and market segments, most customers rate themselves as at least "satisfied" with a product they are using. But that doesn't mean they plan to buy that product again. Indeed, satisfaction alone does not give a company a strategic advantage. Auto analyst J.D. Power said it best: "A satisfied buyer is a repeat buyer -- maybe."

Customer loyalty is a much more reliable measure for predicting sales and financial growth than customer satisfaction. Unlike satisfaction, which is an attitude, loyalty can be defined in terms of buying behavior. A loyal customer is one who:

  • Makes regular repeat purchases.
  • Purchases across product and service lines.
  • Refers others, and
  • Demonstrates an immunity to the pull of the competition.

There is a common denominator that runs through all these behaviors and helps explain why loyalty and profitability are so inextricably linked: Each behavior, either directly or indirectly, contributes to sales.

How do these behaviors manifest themselves in the context of a company-customer relationship? Harley-Davidson Inc., a company with perhaps the most loyal customer base in the U.S., provides an excellent example.

When Harley-Davidson reached its 90th birthday in June 1993, it boasted 63 percent market share. That special day was celebrated by 100,000 people, including 18,000 members of the Harley-Davidson Owners Group (HOG). Harley's customer loyalty is legendary, but it was not always so.

At the start of the 1980s, few people gave the company much chance of surviving. The last American motorcycle manufacturer, Harley was being run out of business by Japanese manufacturers. This marked a turning point, when the company decided to correct a host of quality problems on its product line. By 1987, Harley had regained its market momentum.

The momentum came not so much from the improved products, but from Harley's focus on its customers. Concurrently with its quality program, Harley began identifying the typical Harley customer (who spends $10,000 on a bike) and found ways to meet that person's needs. Here's a look at the results, in terms of loyalty behavior:

Makes regular repeat purchases.

Attorney Richard Inzerillo and his wife, Deborah, went from zero to five Harleys in 15 months, and with each purchase they traded up. The reason? Harley has identified Richard and Deborah as part of a Harley customer segment known as RUBs (Rich Urban Bikers). These people enjoy having new bikes, having a bunch of different bikes, and fixing up their bikes. They buy new models as they are offered; they spend liberally on custom details. By learning about this segment of their customer base, Harley is able to cater products and services to meet their needs and drive sales.

Purchases across product and service lines.

Not only do customers buy one Harley after another, but they are constantly buying accessories for their bikes. Some customers buy a $10,000 bike and add additional items that raise their investment in the machine, doubling and even tripling the original investment. Over the past decade, the company's line of branded merchandise -- available only at Harley dealers and promoted through a glossy catalog -- has taken off.

These products, which are only peripherally related to the bikes themselves, are an important area for the company. The goods range from $500 Harley black leather jackets to $65 fringed bras and $12 shot glasses. The company has learned the value of targeted brand extension and strategic brand image building to both customer loyalty and the bottom line.

Refers others.

Michelle Russo, a 25-year-old secretary from Long Island, had a boyfriend. He had a Harley. Before long, she had a Harley too. Although Michelle began with little interest in owning a motorcycle, her boyfriend constantly reminded her what a great machine his Harley was and what fun they could have if she rode too. He convinced her to buy the Harley starter bike and she quickly traded up to a Low Rider. She was struck with Harley fever, and Harley people say there is no known cure for it. Rather, it seems to be spreading.

Demonstrates immunity to the pull of the competition.

Harley owners refuse to admit that other kinds of bikes even exist. They are sure that if someone owns another kind of motorcycle, he or she must secretly be miserable. It isn't because Harleys are the fastest or leanest bikes on the road either. They aren't. Many Japanese models are faster, sleeker and perhaps more economical. But Harleys are classics. Their owners consider them beautiful machines that provide a sort of transcendental riding experience. Getting there faster is not the point. Getting there on a Harley is.

So how do you know when you've got a loyal customer? People grow into loyal customers in stages. The process is accomplished over time, with nurturing and attention to each of the seven stages of growth. Each stage has a specific need. By recognizing each stage and meeting the specific need, a company has a greater chance of converting buyers into loyal customers and clients.

Stage 1: Suspect. Suspects include everyone who might possibly buy your product or service. We "suspect" they might buy; we do not know enough yet to be sure. Tip: At this stage, you conduct market research to get to know this group better.

Stage 2: Prospect. A prospect is someone who has a need for your product or service and has the ability to buy. Although a prospect has not yet purchased from you, he or she may have heard about you, read about you, or had someone recommend you to him or her. Prospects know who you are, where you are, and what you sell, but they still haven't bought from you. Tip: Get to know them better still (i.e., market research) and begin marketing your products and services to them, based on what you learn about them.

Stage 3: Disqualified prospect. These are prospects about whom you have learned enough to know that they do not need or do not have the ability to buy your products. Tip: Remove them from your prospect list, but keep them on file for networking purposes.

Stage 4: First-time customer. First-time customers are those who have purchased from you one time. They can be customers of yours and still be customers of your competitor as well. Tip: Find out more about them, zero in on their unmet needs and then meet those needs.

Stage 5: Repeat customer. They have purchased from you two or more times. They may have bought the same product twice or bought two different products or services on two or more occasions. Tip: Direct market to these people to let them know of specials on the products they buy or to announce new products and services.

Stage 6: Client. A client buys everything you have to sell that he or she can possibly use. This person purchases regularly. You have a strong, ongoing relationship that makes him or her immune to the pull of the competition. Tip: Place strategic emphasis on these individuals when you are determining your marketing plans. Take special care to interact with these people personally and nurture the relationship.

Stage 7: Advocate. Like a client, an advocate buys everything you have to sell that he or she can possibly use and purchases regularly.

In addition, an advocate encourages others to buy from you. An advocate talks about you, does your marketing for you, and brings customers to you. Tip: If it looks like loyalty and smells like loyalty ... just recognize it when you see it.

Getting from stage one to stage seven takes time, resources and effort, but the payoff in terms of profitability and loyalty can be huge. Just ask Harley.

Jill Griffin is author of "Customer Loyalty: How to Earn It, How to Keep It," and president of loyalty research and training firm The Marketing Resource Center Inc. of Austin (loyaltysolutions.com)

Griffin can be reached at 512-469-1757 or mrci@eden.com.

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Headquartered in San Ramon, California, Performance Loyalty Group is a leading marketing technology company providing customized loyalty rewards, customer retention, prepaid maintenance and media tracking programs for the automotive industry.

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