In today's competitive marketplace, the race to increase profits by cultivating customer loyalty is going at full speed. Customer retention is not only a cost-effective and profitable strategy, it is a necessity for businesses wanting to stay ahead of the pack.

As consumers are spending less thanks to soaring fuel and food costs, companies are more reliant than ever on the loyalty of a dedicated customer base to maintain a competitive advantage. Following the Pareto Principle, 80% of your sales come from 20% of your customers, and in a recession the numbers are closer to 95% and 5%, says Ajit Maira, senior vice president of the Information Technology Services Marketing Association. Since these returning customers cost less to reach, are less vulnerable to ploys from the competition and buy more over time, companies need to give customers an incentive not to go elsewhere for the same product or service.

One of the most successful ways to achieve this cost-effective retention is through the use of customer loyalty reward programs. By rewarding the ongoing purchase of product or services, companies achieve long-term relationships with customers. With a variety of loyalty programs available to companies, the key is discovering what works best for your needs and goals.

Build a Strong Foundation

Successful loyalty reward programs are built from a working knowledge of your customer base. To create the foundation, you must first identify the type of customers you want to retain and understand the types of products and services they value most. This information can then be used to determine the kinds of rewards programs that will appeal to them.

To obtain this level of understanding about your customers, it's vital to conduct targeted research. In an article in the Harvard Business Review, authors Thomas O. Jones and W. Earl Sasser, Jr., suggest utilizing a combination of customer satisfaction surveys, customer feedback and market research. Together, these three tools can help businesses better grasp the wants and needs of the customer to build stronger brand loyalty.

Establish Winning Relationships

While good service is the key to earning customers, it's not enough to maintain their long-term loyalty. In his book How to Win Customers & Keep Them for Life, author Michael LeBoeuf states, "Smart companies go the extra mile for the customer and show them just how dedicated they are to making sure that they feel good about doing business with them."

To prove to your customers that your company is going that extra mile, you must show them you are doing just that on a regular basis. For example, Ben McConnell, co-author of Creating Customer Evangelists: How Loyal Customer Become a Volunteer Sales Force, suggests showing customers they are valued by inviting them to lend their opinions on new products and ideas, or invite them to your company's conferences or meetings. These offers to participate in your company's operations will promote a feeling of value and inclusion.

It's also vital to maintain open lines of communication and always treat customers with courtesy. Loyalty is established over time, and customers need to believe that your company values them.

Give Them Incentives

Giving customers incentives to let their purchases be tracked allows you to base loyalty programs on very specific requests and needs. The incentives can help your business to increase customer traffic and sales, and most importantly—allow you to measure the effectiveness of the incentive.

The incentives can vary, and can include immediate rewards like free long-distance phone calls for hotel guests, targeted deals such as exclusive "friends and family" sales events, valuable membership cards offering extras like bonus spending points. Other options are also successful, like manufacturer rewards for items such as brand merchandise and discounts, and point-earning partnerships between retailers and online shopping sites.

Offering these loyalty incentives, also know as frequency marketing, allows your business to build a database of loyal customers that you can target again and again, and with precise tracking.

Follow Through

To reap the rewards of a customer loyalty programs, it is vital to maintain a consistent approach and follow through with your strategy. By staying the course with targeted research, communication and incentives, you can establish a loyal customer base yielding great results.  

It's important to remember that customer loyalty can't be established overnight, but the investment required to create a satisfied customer is always worth the effort. Establishing long-lasting, loyal relationships with clients should not be an afterthought in the current market; it's now a fundamental necessity on the road to achieving higher profits and business longevity.  

About Dittman Incentive Marketing

This article was provided by Dittman Incentive Marketing (www.dittmanincentives.com), a quality leader in the field of people performance improvement. Since 1976, Dittman has helped companies achieve critical corporate goals via original, one-of-a-kind customer loyalty programs and motivation programs that inspire a sales force to sell more and customers to buy more.