Relationships Still Build Loyalty

The good folks at 1to1, who pretty much coined the term “relationship marketing” released results of a new report on retail sales and client loyalty in their current newsletter. And while the report is centered around brick and mortar-type retail businesses; the insight into why “relationship marketing” is so important affects those of us involved in Multi-level Marketing, as well.


LOYALTY ABUZZ AT NATIONAL RETAIL FEDERATION SHOW
By Don Peppers and Martha Rogers, Ph.D.

We’ve been writing a lot and hearing a lot lately about
ways to engender consumer trust. In fact, we think it’s
the most important element in building long-term customer
value. At last week’s National Retail Federation event
in New York City, our emphasis on customer trust was
validated with research.

The research came from the Adjoined Consulting and SAS
study, “Retail Demand Insights 2006: What Drives Consumers?”
It shows very clearly that consumers connect trust to
loyalty. And loyalty, whether or not you’re a retailer,
is an important factor in customer value. Comments by
Kathy Mance, NRF Foundation Vice President, couldn’t have
expressed our feelings more accurately: “The more trust
and goodwill a retailer builds, the more likely it is
they will have a long-term loyal customer base.”

According to the study, the number of shoppers stating
that they were long-term loyal customers dropped in 2006
to 77.2 percent compared to 83.8 percent in 2005, and the
issue here goes straight to the relationship between trust
and loyalty. The report identifies the types of information
customers will trust you with — and what they won’t trust
you with. According to the study, the overwhelming majority
of consumers are willing to give retailers their name
(89.8%), email address (78.1%), and street address (60.7%),
and about half (46.8%) are OK with retailers keeping records
of past transactions. But very few consumers are willing
to give more personal financial information like income
(12.5%), job title (12.1%), employer (10.9%), or net
worth (8.2%).

The biggest issue in the report, which surveyed more
than 10,000 consumers during 2005, is that consumers
will not give you financial information about themselves.
That is a huge disconnect. Not only does it make it
difficult to build a loyalty program for retailers,
it makes customer valuation models for any business
difficult to build. It is challenging, if not impossible,
to calculate the long-term value of a customer without
financial information. If 12 percent of your customer
base will give you financial information, it creates
a big problem when it comes to analyzing your customers’
potential.

In our opinion, retailers trying to increase customer
loyalty need to refocus on relationships more than on
loyalty programs. In the short term it’s only reasonable
to expect that a consumer will be reluctant to give
you any more than a superficial amount of personal
information. But in the long term, if you use that
information responsibly to build a relationship that
the customer values by providing personally relevant
offers and communications, then customer trust will
build. As the customer sees a genuine benefit from
your use of his personal information, he will trust
you with more of it. It’s that simple.

Make customer loyalty a long-term customer strategy.
The more you make it a short-term grab for your database
and to hit a manufactured revenue number, the more
you risk alienating the very customers you’re trying
to attract.

Here’s another interesting fact from the report. When it
comes to reaching new customers in 2006, television (31.7%)
is still the preferred method, followed by direct mail (21%)
and word-of-mouth (17.7%).

But what customers say about your company is more
important than magazine, Internet, and radio ads and
many other more traditional methods of advertising.
You can bet that one instance of breaching customer
trust will be talked about by your customers over and
over again. You can also bet that one instance of showing
an understanding for customer information and working
to build trust will be talked about as well. You control
the conversation.

*Links:
National Retail Federation
http://www.nrf.com

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About Dave Robison

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