Posts Tagged ‘Customer service’


Think Like a Doctor to Cure Your Customers’ Problems

????????????????????????????????????????????Greg House, M.D. was a brilliant (if fictitious) diagnostician who based his success on the premise that “everybody lies.”  I can imagine a number of reasons why patients may lie outright to their doctors — even if those lies send them to the brink of death until the last few minutes of the episode.  But your business customers seldom try to misdirect you.  They just don’t know how to accurately tell you about the issues that they want to resolve with your goods or services. 

If you find yourself constantly tweaking and re-tweaking your business solutions, or if customers seem to return your products too frequently, you may be a victim of the dreaded customer-service disease known as problem solving by deduction.  However, by playing doctor and recognizing certain symptoms, you can find effective cures your customers’ needs.

Symptom 1: Requesting a Cure without Describing the Ailment

How many patients stroll into their doctors’ offices just to ask for an antibiotic?  Did they conduct their own testing before the visit to verify that they have a bacterial infection that antibiotics actually cure?  Unless your clients have your level of expertise, their requested solutions may not guarantee a cure for their ills, and it can even create a new disease.

When a first-time customer came to my friend’s flower shop looking for a bouquet of lilies to bring as a hostess gift, my friend initiated a conversation about the gift-giving occasion.  Once she learned that the flowers were intended for a dinner party being held by a first-generation German family, she quickly suggested alternative flowers because in Germany, lilies are used at funerals.  A few minutes of conversation saved the customer from embarrassment — and it earned my friend many future flower orders for the customer’s frequent business events.

Symptom 2: Providing Vague Explanations of the Ailment

You probably wouldn’t spend money on a doctor visit to report that you just don’t feel right.  Just as you might bring a list of specific complaints like loss of appetite or exhaustion, your clients need to describe their issues as specifically as possible. 

Think of the months of wasted effort you would put in if you were to build a Model A Ford from original parts, only to learn later than the customer wanted a ’65 Mustang when he asked you to “build a classic car.”  Business people can fall into this trap, often because they don’t want to appear ignorant.  But, if you don’t ask questions to get to the specifics, you will not find the right solutions to your customers’ business needs.

Symptom 3: Defining Issues by Elimination

When your doctor asks you where it hurts, you wouldn’t respond with, “I’ll tell you where it doesn’t hurt.”  Yet, some consulting customers expect you to come up with solutions based solely on what they do not want.  This is an extreme example of customer service by deduction, and you have to carefully nip it in the bud.

One report designer quickly learned this lesson when she was called in to modify a series of reports used to analyze product sales within a company.  The client provided her with a printout of each report and then, proceeded to point out what was wrong with each one.

Recognizing that this type of information would lead to a trial-and-error approach that would never solve the problem, the designer refused to end the meeting.  She kept digging until she got the client to clearly explain the intended use for each report and identify the missing information that prevented the report from meeting its goals.  With clear answers, she could solve the real issues.  Her clients were delighted when she returned with new reports that met or exceeded their expectations.

Recognize the Symptoms to Heal Your Customers’ Ailments

Your customers come to you because you have knowledge that they do not have.  But just as patients do not clearly express their medical concerns, your clients can easily lead you down the wrong path.  Of course, you probably want to act more like Marcus Welby than Greg House, but you need to keep asking questions until you can hone in on the issues and apply the healing touch that they really need.


Coaxing Great Service Behavior from your Employees

About this series: This series of articles from Nextiva will help you grasp of the essentials of customer service: the principles and guidelines that will serve you well in any era, regardless of trends, changing technology, and a constantly evolving customer base. Our guide is Micah Solomon, customer service and customer experience consultant, author, and speaker. 

Coaxing great customer service behavior out of your employees is one of the most important elements of providing a great customer experience. Let’s take a look at what’s involved and how you get this done.

The waiter with no peripheral vision

I could give you examples from any high-tech, low-tech, or moderate-tech industry.  But since everyone goes out to eat, let’s look at two contrasting waiters.  These guys will be familiar to anyone who has ever eaten out.

Waiter #1: A skilled waiter [could be a waitress] never drops a tray, never reaches across you, brings out all the food accurately to his section. 

However, he’s also immensely skilled at ignoring any and all gestures and glances from anyone trying to get his attention who is outside his section or even who is within his assigned section but interfering with the order in which he was planning to go about his waiterly tasks.

Waiter #2: Equally skilled, but this one’s a master of using his peripheral vision, and even his peripheral hearing, to jump to the assistance of any guest, anywhere in the dining room — in or outside his own section — who needs his attention, who has dropped a fork, who has a question…

What makes the difference?  Stay tuned…

Purpose vs. Function

Let's assume your hiring process ensured that both waiters come to you with equal natural levels of empathy. The difference in their performances is due to one simple factor:  One waiter knows and understands his purpose in your organization, and the other one doesn’t.

Every employee has a job function, and a purpose in (and of) the organization. The function is what’s written, in detail, on the employee’s job description.   Or, to put it another way, it’s the technical side of the job.  Take orders.  Deliver food.  Process credit cards. 

An employee’s purpose is something different.  The purpose is the reason you’re doing all those technical things, and sometimes stepping out of your technical role to do whatever it takes.  A purpose for a waiter, and for everyone else working in foodservice or hospitality? Something along the lines of “you’re here to provide a pleasant, safe, and memorable experience for our guests.”  

Ritz-Carlton do not disturb sleepy image-copyright micah solomon micah@micahsolomon.com

(c) Micah Solomon

Get this purpose across right away, starting with orientation, and you’ll have to deal with fewer cases of employees who have mysteriously lost their peripheral vision.  You’ll have people competing to go the extra mile. Because they’ll understand, that this is what they’re paid for. The great Horst Schulze, who founded what we think of as the modern-day Ritz-Carlton, made sure to be at the opening of every hotel, personally doing the orientation.  He didn’t talk about the technical aspects of the job:  ensuring there are no water spots on the glasses, and so forth.  He talked about something else:  every employee’s purpose at the hotel.  He would introduce himself, letting them know “I’m President of the hotel.  I’m a very important person.”  Then he’d say “and you’re an important person too”— you control the impression the guests have of the hotel more than he, as president, ever could!

He’d go on to spell out their purpose, starting with: “the genuine care and comfort of our guests is our highest mission.”

The Mayo Clinic, one of the most extraordinary hospital groups in the world, functions in a very technical, regulated, exacting fields: healthcare.  Yet what do the new employees here, from day one, over and over and over?  The incredibly untechnical, incredibly straightforward, seven word purpose they are assigned:  “The needs of the patient come first.”  They are given to understand, from the very beginning of their orientation, that they are to put the needs of the patient above anything they may think they’re “supposed to” be doing at that moment—if the two are in conflict.

Of course, its not quite that easy.

There’s certainly more to coaxing the most out of your employees than saying a mantra over and over.  But it’s a very good place to start.

What else helps?

  • Reinforcement.  Daily if possible, weekly if not. Hold a brief (5-10 minute) meeting where you reinforce your company purpose and discuss ways to achieve it.
  • Positive Peer Pressure.  We think of peer pressure as something negative, by and large.  Kids don’t decide to light a stick of tobacco on their own; they see other kids do it first.   But peer pressure can be a powerful force for good as well.  It’s the reason Disney parks are so famously spotless:  You see your peers picking up stray trash, so you do it as well. 

For our hypothetical waiter, he’ll see his co-workers rushing to replace a dropped fork, continually scanning the rooms for eye contact from guests outside as well as inside their station, finding additional ways to be helpful before being asked.   And he’ll figure out that he’s expected to do the same.

  • Standards.  Everything that is done on a regular basis in a company is worth developing standards for:  answering the phone, replying by email, running a credit card charge, opening a service ticket, whatever it is.  But you need to design these standards in a way that explains the reason for the standard and makes clear when it may make sense to deviate from it. Otherwise you’ll have standards complied with in a robotic way by embittered and ultimately sabotaging employees.
  • Employee empowerment. This goes hand in hand with standards. Employees need to be empowered to do what’s right for their guests.  Period. They can’t be nickeled and dimed (or houred and minuted) to death for what they didn’t get done because they were tied up doing what’s right.  They’re late coming back from their lunch break because they were jump-starting a guest’s car in the parking lot?  This is something to celebrate, not something to be disciplined for. 

© 2014, Micah Solomon


Nextiva Customer Success Story: Fanology Social

The vibrant team at Fanology Social spends their days helping their clients form one-to-one relationships with fans across social media platforms. The award-winning digital content agency works with celebrities and big brands across the country including Toyota, Mini Cooper, Ashley Tisdale, Waka Flocka Flame, and Shay Mitchell.

We met with Richard Janes, CEO of Fanology Social in Los Angeles, to learn about how his company uses their phone system on a day-to-day basis.

“We’re in social media, so the biggest thing for us is talking to people and having those conversations,” explained Richard. “So if your phones don’t work and they’re crackly…we’re in trouble.”

Once a small team of only 3 employees, their only work phones were their mobile devices. Now at 16 employees and growing, they knew they had to transition to a more reliable communications solution.

When searching for new VoIP service, Richard’s first priority was to find a provider who could provide great customer service. After reading reviews and narrowing down his choices with a few phone calls, he chose Nextiva.

When asking Richard why he picked Nextiva out of all the VoIP providers available, he explained: “They took an interest in our business and about how we could best utilize their toolset. And obviously there were some things that we’re applicable to us, but there were some things that I hadn’t thought about that immediately made total sense when it was explained, because they had the expertise.”

Find out why telephones are not something that Richard has to worry about anymore:


Nextiva Tuesday Tip: Selling to Millennials? You Need a Loyalty Program

Stocksy_txp65da3129op6000_Small_134151If your small business doesn’t have a loyalty program—but does have Millennial customers as part of your target market—you may want to reconsider and add some type of rewards program to your marketing mix. The 2014 Loyalty Report from Bond Brand Loyalty reports that U.S. Millennials (defined as aged 20 to 34) are more likely than other age groups to participate in loyalty programs. What’s more, they’re more likely than other age groups to change their shopping behaviors based on a loyalty program, the study says.

A whopping 60 percent of Millennials would switch brands and two-thirds would change where they buy in order to get more loyalty rewards. In addition, 67 percent contend they wouldn’t be loyal to a company without a good loyalty program.

Consumers overall are enrolled in an average of 10.4 loyalty programs, and are active in about seven of those. While loyalty programs are widespread, consumers are getting slightly more unwilling to share personal information with them. Some 32 percent say they worry about divulging personal information, compared to 29 percent last year.

What works to get customers to spill their data? Offering discounts based on prior purchasing behavior, inviting customers to special events, customizing offers for them and inviting them to online communities for loyalty program members are all effective ways to get users to share their personal data. In addition, users say that when a company’s loyalty program makes them feel valued and important, they’re more likely to share personal information with that business.

However, there are some important differences in what works for Millennials as opposed to other age groups. Millennials are more likely to want to interact with your business on a mobile device. They’re also more likely to care about non-monetary rewards, such as getting recognized by their peers or being able to share their experiences with others.

Craft your loyalty rewards program to appeal to your desired customer base, whether that’s seniors who want plain old punch cards or mobile-loving Millennials who want to track everything on their smartphones. Your efforts will pay off in greater loyalty and higher sales. 


A Great Customer Experience Depends on Great Hiring

About this series: This series of articles from Nextiva will help you grasp of the essentials of customer service: the principles and guidelines that will serve you well in any era, regardless of trends, changing technology, and a constantly evolving customer base. Our guide is Micah Solomon, customer service and customer experience consultant, author, and speaker.

A great customer experience depends on great employees. To get those great employees, you need to know what to look for in an employee you’re going to put in a customer-facing position.

The trick is to hire your customer-facing team based on the following psychological traits, even before you start thinking about the specific skill set you’re looking for.  (Yes, the appropriate technical skills also matter. You can’t hire an empathetic surgeon who is also a klutz. But for most customer-facing positions, the technical skills are largely teachable, while the underlying personality traits can be much more easily hired than taught.) 

WETCO: The five crucial traits of customer-facing employees

Employees Only: Do Not Open Door-Snake Pit (humorous signage from Wall Drug, Wall, ND) © Micah Solomon micah@micahsolomon.com

Wall Drug, N.D. (c) micah@micahsolomon.com

The traits I consider crucial for customer-facing work are contained in my acronym “WETCO.” My suggestion is to picture a big, wet dog at PETCO, and you’ll never forget this acronym.

Warmth: Simple human kindness. Warmth is perhaps the simplest and yet most fundamental of these five personality traits. In essence, it means enjoying our human commonality, flaws and all.

Empathy: The ability to sense what another person is feeling. Empathy is a step up from warmth; empathy moves beyond the plateau of liking other people and is more like reading hearts—the ability to sense what a customer needs or wants, whether or not this desire is even yet apparent to the customer.

Teamwork: An inclination toward ‘‘Lets work together to make this happen’’ and against ‘‘Id rather do it all myself.’’   On the one hand, customers do need the help of entrepreneurially minded employees who will take charge of the situation without prodding, people who are willing to fix a problem all by themselves, if necessary. But that attitude needs to be seasoned by an inclination to favor a team approach, or your organization will soon suffer from the friction created.

Conscientiousness: Detail orientation, including an ability and willingness to follow through to completion. Conscientiousness is a key trait for successfully serving customers, and unfortunately may not always be found in those who are otherwise suited to customer service work. The quintessential ‘‘people person’’ may lack conscientiousness, and this one flaw can be fatal: An employee can smile, empathize, and play well with the team, but if he can’t remember to follow through on the promises he made to customers, he’ll kill your company image.

Optimism: The ability to bounce back and to not internalize challenges. Optimism is a necessity in customer-facing positions. Employees who can’t shake off a drubbing from a customer won’t last long. Support from management is, of course, important here, but the employees themselves need a positive, optimistic self-image as well to propel themselves forward in the face of daily adversity.

How to select for WETCO

How to select such people? An ideal approach is to match candidates to the psychological profiles of existing, successful employees. You may not have gathered this data for yourself yet, in which case you’ll be dependent on an outside company to provide it. That’s okay, because some of the available external tools are excellent. But you need to use your chosen methodology consistently: on every hire, rather than as the whim hits you. If you use scientific methods only sporadically you’ll never know what worked and what didn’t. Instead, the selectiveness of your inherently biased—that is, human—memory will trick you and you’ll continue to favor unscientific, ineffective hiring patterns that will hamper your organization for years to come.

If you start with externally generated profiles, as you grow be sure to gather data specific to your company. This process isn’t that complicated. Have your best performers answer profile questions and then bank these results. Have your average performers do the same, and then bank those results. If you show a consistently measurable difference between these two categories of employee, you have a valid test.

The necessity of a trial period

Great companies tend to have a lengthy trial period before newly hired employees become ‘‘brand ambassadors’’—that is, are ready to be foisted on the public. This is important in providing consistently great service, because how your brand is perceived is only as strong as the weakest cliche´—sorry, link. There’s no truer truism than the simile of the weak link; it’s one of the unnerving truths about providing customer service. You never want those potentially weak links out there representing your brand, whether at the returns counter, the contact center, or connected via their workstations to customers.

The trial period is also important for protecting your company culture. Even in the best-handled hiring scenario, it can take ninety days to know if you have a fit. Most often, it takes that much time for the employee to know if there’s a fit. At the Ritz-Carlton, for example, the first twenty-one days are treated as crucial, and if you’re not there for the big, transitional ‘‘Day 21,’’ you’re taken out of the work schedule. They don’t cut corners here, and neither should you.

Article © 2014 Micah Solomon


Nextiva Tuesday Tip: How to Hold an Online Focus Group

Stocksy_txp14c2a2052O6000_Small_64388 (1)Holding a focus group is a great way to learn what your target customers want from your business. Until recently, however, focus groups required physically getting representatives of your target market into a location; rewarding them with money, free gifts, food or some combination of all three; and organizing and recording the focus group session. This could be an expensive, stressful hassle for small business owners.

Now there’s a better way: You can simply go online to host a virtual “focus group” using survey tools and social media. While it may not be as in-depth as a real-world focus group, because you’ll be able to incorporate more people’s opinions, you will actually get a better feel for what your target customers think.

Here are some tips for making online focus groups work.

  1. Be specific. Online focus groups work best when they cast a wide net over a narrow subject, so it’s important to narrow down exactly what you want to find out. For example, if you sell women’s clothing online and you’re considering opening a physical store, you could ask whether customers would drive to a physical store, what local area would be preferred and what days and hours they would be likely to shop.
  2. Keep it simple. Customers get bored and tired if your online survey goes on too long. You can break your survey down and ask one or two quick questions a day right on social media. For example, use polling apps to set up a poll with radio button options on Facebook, or tweet out a question for users to answer. Even if you are conducting a longer survey, it’s best if you ensure it can be answered in just a few minutes.
  3. Provide room for expression. Radio buttons are an easy way to conduct online surveys, but make sure you leave a blank form at the end of the survey where users can add detailed comments or opinions. This can provide valuable insights into what customers want (or don’t want) from your business.
  4. Pay ‘em back. You may not need to order in pizza for customers of your virtual focus group, but you should reward them for their time if they take a survey longer than one or two questions. A good way to motivate users without going broke is to enter all survey respondents in a drawing to win a free product or other prize from your business. You could also offer a discount such as a code good for $5 off their next purchase.
  5. Use technology. Survey tools such as SurveyMonkey, Create Survey and QuestionPro let you create surveys in a variety of formats, then use analytics tools to dig into the results.
  6. Follow up. Ask survey respondents to share their contact information with you if they are comfortable having you follow up with more questions. This enables you to probe deeper into customers’ interests, wants and concerns, just as you would in a real-life focus group. 

Mondays with Mike: 5 Foolproof Tips To Make Better Decisions

Stocksy_txpfff38493BN6000_Small_45968When you think about it, running a business is all about making decisions.  Let’s face it: if you didn’t have the drive to be a decision maker, you’d work for someone else, right?  As an entrepreneur, you’re faced with decisions every day – whether it’s a question about hiring a new employee, embarking on a new marketing plan, or managing costs by improving efficiency.  Successful business owners make good decisions, and the good news is that you can improve your decision making skills by following these tips:

  1. Follow the 10-10-10 rule.  Biz guru Suzy Welch gives us this technique for making decisions based on their long-term effects.  Consider the outcome of your decision in ten minutes, ten months, and ten years.  Let’s say you’re struggling with a particularly difficult client – the one who sucks up all of your time and energy and provides little in the way of revenue.  You’re trying to decide if you should kiss up to them for the umpteenth time to smooth over their latest ridiculous complaint or if you should cut your losses, fire them, and move on.   If you fire them, you know that in ten minutes, you’ll be panicked, worried about the loss of revenue.  But in ten months, you’ll realize that you’ll be happier for having eliminated the anguish this client produced, and in ten years, you’ll have been able to generate far more income from new, less problematic clients that you’ve been able to bring in with your renewed energy and freed-up time.  Think long-term.
  2. Create a stop-loss plan.  And follow it!  Entrepreneurs are seldom devoid of ego, and it’s far too easy to make a decision, ignore all the signs that the decision wasn’t the wisest, and continue well past the point at which you should have thrown in the towel.  A stop-loss plan forces you to evaluate your decision based on predetermined, concrete parameters, rather than on the results you’re hoping for.  Whether it’s a trial period for the pricy new sales rep you hired on, or whether it’s a minimum requirement for a new advertising campaign, you’ll make better decisions if they’re based on results, rather than hopes and ego.
  3. Employ split testing.  When you’re torn between two (or more) equally plausible choices, use split testing to try both options out before you commit to one.  Let’s say the sales rep for the community circular that you advertise in brings you two options for your next ad.  If you have the chance to run both ads, perhaps in different areas, or in different months, you can find out definitively whether the ad that touts your long-established history in the area is more effective than the ad that shows off your reasonable prices.  The idea is to make a decision based on hard data, rather than assumptions.  Online advertising makes it particularly easy to run split testing, as you can create and employ multiple variations with ease.
  4. Do thorough research.  You’d feel like a fool if you tried and failed with some radical new tactic to bring in new business only to discover afterwards that your competitor had already tried and failed with that tactic.  Look around you.  See what your competition is up to, and look to history to give you insight into proven – and disproven – strategies.  Fortune does favor the bold – those folks who forge new pathways – but fortune also favors those who do their homework.
  5. Sleep on it.  This last tip is the easiest and most foolproof of all.  People make decisions based on emotion, and that’s often a mistake.  Simply giving yourself time to think a decision over will almost always lead you in the right direction.

Hiring, firing, spending, saving … all decisions that we face every day.  Commit to making better decisions, and you’ll find those good decisions reflected in your bottom line.  


Selling Your Customers What They Need — Not What They Want

Posted on by Carol Roth

Stocksy_txp0272139ak36000_Small_169040The Rolling Stones said it best, “You can't always get what you want.  But if you try…you might find you get what you need.”  Regardless of what kind of business you own, you may find yourself in the unwelcome disconnect between providing what your customer needs to be successful versus what they think that they want.  So, how do you guide them toward the right path without losing the sale?

Outright Refusal is Not an Option

Even though you may want to do it (and sometimes, I really want to do it), the quickest way to walk away without the sale is to flatly tell prospective customers that their visions are two levels short of insanity and then, proceed to explain what they really need.  Even if you’re a rocket scientist in your field, you need to recognize and respect that they not only believe that they know what they need, they also have some important information about their objectives.  Their vision on how to accomplish their goals may take them in the wrong direction, but there may be significant value in what they have to say.  Your job is to guide them in the right direction without rolling over their dreams (or at least doing so without their clear knowledge).

Unless you decide that you do not want the customer, your first response should affirm that you understand their objectives.  Then, tell them how you can meet or exceed expectations while saving time, money or effort, even if it’s with a different product, service or strategy.

Identify Specific Issues

Once you understand the customer’s desired outcome, you can begin pointing out the issues that may prevent clients from meeting their goals.  In many cases, they may be asking for more than they need.  For example, if they want three manuals for a new software system, you can explain how a single well-designed manual can meet or exceed the requirements at a fraction of the cost.  How many people do you know who will insist on paying too much for a project?

There will also be times when customer visions simply will not meet their expressed goals.  In other cases, the entire goal may be unrealistic or even severely misdirected.  A customer who comes to your candy store in August asking you to ship a gift of chocolate-covered cherries to a close friend in Arizona might better maintain that friendship if you suggest a less perishable confection.  But logic alone might not be enough to sway that customer.  If you can tell a story about how people react when they open the box, smell the heavenly aroma and then, realize that the melted chocolaty mess is not safe to eat, you can really drive the point home.

When Offering Alternatives, Focus on the Benefits

As early as the beginning of the 20th century, “The customer is always right” has been the motto that great businesses live by, but that doesn’t mean that you should take it literally.  Customers need to feel that you respect their goals and visions.  But a great way to open their minds to change is to focus on what’s in it for them.  In other words, when you propose changes, lead with the benefits. 

You can’t always convince customers to buy your goods or services just because you know best.  Customers want to hear, “You can double sales and long-term brand loyalty with just a ten percent increase in the quality of the base materials that you use to build your product.”  When you present the advantages up-front, they will listen more closely to solutions that they may have never considered.  With the right incentive, they may choose to pay slightly more to improve their product quality, rather than just modernize the packaging, as they originally requested.

By Remaining True to Your Principles, You Instill Customer Confidence and Boost the Success of Your Business

Here’s a story that illustrates how sticking with your convictions can make a major difference to your customers — and to your own business.  Five years ago, a new customer came to a full service print shop seeking a new supply of the black and white leaflets that he periodically distributed in neighborhoods to sell his lawn services.  The printer advised that people are less likely to toss well-designed color brochures, which convey a more professional image.  The customer recognized the value of this advice and even used the printer’s in-house designer to upgrade the look of his advertising.  He spent more on his new brochures, but that increase was more than offset by the significant increase of new business those brochures generated over the response rate generated by his leaflets during the same period in the prior year. From that point on, he became a loyal customer, turning to the printer for all of his marketing material needs.  And to this day, he continues to send many new customers to the printer. 

Your customers may need convincing, but they rely on your knowledge and experience to get the greatest value from your goods and services, even if you sell them something vastly different from what they initially wanted.  The printer addressed his customer’s wants by focusing on what he really needed.  When you take this approach with your customers, you will not have to rely on a hard sell approach to develop a loyal customer base.


Nextiva Tuesday Tip: 3 Types of Loyalty Programs and How to Make Them Work

Does your small business use a loyalty program to keep customers engaged and spur them to buy? The Boston Consulting Group recently published a report on loyalty programs and what it takes to make them profitable and effective for businesses.

According to BCG, there are three main types of loyalty programs:

  1. Earn-and-Burn. The classic punch-card program (Buy 10, get one free) is an example of earn-and-burn, in which customers benefit from their purchases by earning rewards at specific thresholds. Other types of earn-and-burn loyalty programs include points programs (in which customers earn points they can redeem for free products) and discount programs (in which members get discounts).
  2. Recognition. In a recognition program, repeat customers get special perks or services only for them, based on the total amount they spend or the total number of points they accumulate. Airline rewards points are an example of a recognition program; customers who accumulate a certain number of points earn special perks and upgrades. 
  3. Customer Relationship Management. CRM programs are the most sophisticated type of loyalty program. They typically use loyalty software to capture purchase data, then use that data to develop targeted special offers for loyalty members. Examples include members-only promotions or targeted communications such as newsletters, emails or even website content.

According to BCG, each type of program has its pros and cons. The cost of an earn-and-burn program can eliminate any gains, while recognition programs by their nature limit the number of members, and CRM programs can have both of these flaws.

Ideally, you’ll want to find a loyalty program that enables you to prompt more spending from customers, increasing your margins rather than cutting into them. BCG uses the example of a company with a 35 percent gross profit margin. In this case, a customer who spends $100 annually generates $35 in profit. If the customer joins the loyalty program and increases spending by 10 percent, to $110 annually, the company makes an additional $3.50 in profit. However, the cost of the loyalty program ($3.30) eats up most of that; essentially, the business is breaking even. But if the customer spends 20 percent more, the company makes $7 in profit, or $3.70 minus the cost of the loyalty program. At this point, profit begins to grow rapidly.

According to the study, the most profitable loyalty programs invest more in the customers who spend the most. Typically they do so by using a tiered rewards system: As customers meet increasingly higher thresholds of spending, they qualify for bigger and better rewards.

Ideally, you’ll also want to use rewards that are inexpensive for your business to give, but have high value to the customer. For example, a hotel that has an expensive room sitting unused can score points by upgrading a loyalty customer to that room. It doesn’t cost the hotel anything, but it earns greater loyalty from the customer.

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