BENEFITS OF CREATING RELATIONSHIP MARKETING WITH CUSTOMERS (PART 2)
How to Identify and Reward the Best Customers
It is not uncommon for a company to find that as few as 24 per cent of its customers account for 95 per cent of its revenues. The 24 per cent are the customers the company needs to know well and to keep happy because these are the customers who will readily try new products and services and refer the company to others.
After a company has been in business for a while, it becomes easier to identify the most valuable customers. One way to do this is to calculate the lifetime customer value as a series of transactions over the life of the relationship. Add to that the value of the customer referrals, and subtract the cost of maintaining the relationship (advertising, promotions, and letters). The result will be the customer’s lifetime value. Another non-statistical method is simply to carry on a dialogue with customers about their buying intentions.
There are a variety of ways by which companies can provide special programs, incentives, and rewards for their best customers. Airline companies have used frequency programs or customer loyalty programs with great success. The people who fly the most frequently with the airline receive free tickets, VIP service, and upgrades. Rewards increase with use; therefore, the customer has a vested interest in using a particular airline again and again.
Frequency programs have also yielded good results for other businesses. Cosmetics companies, for instance, issue cards that give customers a free product after a number of purchases. Similarly, small entertainment centres, such as a miniature golf and water parks, often offer discounts on season passes purchased by customers who use the service the most. Setting up a club or membership makes customers feel special, because they have input into the company and receive special privileges for being a member; examples of these privileges include information newsletters, discounts, and other special programs.
The benefits that accrue to the company from frequency programs are derived from the repeat purchases they inspire. The more a customer buys from a company, the higher the probability that he or she will buy repeatedly, and the lower the cost of each repeat purchase. In establishing one-to-one relationships, of course, it is essential to single out the best customers for special treatment.