A few weeks ago, I was delivering a training course on pricing strategies for small businesses. One of the participants observed that some companies offer incentives to new customers but ignore the loyalty of existing ones. It is a reality that many of us as customers can identify with – not only do companies focus on upselling to existing customers, but they seem to take it for granted that you will continue as a customer without being given an incentive to do so.
One of the most powerful and effective ways that companies can use to let customers know their loyalty and continued patronage is valued is by rewarding that ongoing business relationship. This applies whether it’s a business to business (B2B) relationship or one that is business to consumer (B2C).
Traditional ways in which companies reward such loyalty include end of year gifts, redeeming points for purchases and offering discounts on future purchases.
New vs. Loyal Customers
Increasingly, however, there are those companies that fail to reward customer loyalty and choose instead to focus on getting even more sales from existing customers. Examples of what not to do can be found among some Internet providers and telephone companies. The common mistake made by some of these service providers is requesting – nay, demanding – that existing customers sign up to a new contract for at least a year at the same price as the existing contract. New subscribers to the service are offered more attractive rates for the first year. Loyal customers, therefore, are made to pay indirectly for discounts offered to new customers.
What can be done instead to avoid this mistake? How can service businesses communicate that they are rewarding loyalty and not just cashing in on sales or upselling? One way of doing this is to offer customers discounts on their existing service. For example, offer the customer one month free for a one-year service contract or a free session after every four to six sessions.
In many countries, the beauty industry is well known for this approach. For example, after every four appointments, my hair dresser offers clients a voucher that covers 50 percent of the cost of the next appointment. This encourages return business next time around knowing that it will cost less than usual. The salon also rewards customers for successful referrals (introducing a relative or friend to the salon who then becomes a customer).
Another way of avoiding the potentially costly mistake of selling instead of rewarding loyal customers is through offering introductory prices on additional products or services the customer does not use at present.
When businesses keep track of services that customers do not purchase, communicating with customers will allow sellers to understand the needs of customers for another product or service, rather than forcing a sale on loyal customers.
Rewarding customer loyalty is unconditional. Loyalty is based on past actions and rewards should be offered without any conditions. Providing incentives to loyal customers is an effective way of encouraging them to use your services or buy your products in the future.
By recognizing and rewarding loyal customers, businesses can be on their way to ensuring not only high levels of customer satisfaction but even greater levels of customer retention and referrals.