Natural Foods Merchandiser

Building Consumer Loyalty, Building Profits

Philip Nabors remembers the day 10 years ago when a longtime customer stepped into the checkout line of one of his stores and discovered she had forgotten her wallet. The woman lived about 45 minutes away, but she always made a special trip each week to shop at one of Nabors' Ohio-based Mustard Seed Market stores.

Nabors was working that day and was called to the front to help. He recognized her and, without hesitation, told her the groceries—about $50 worth—were on the house. To this day, the woman remains a faithful customer.

"That bought a lifetime of loyalty," he says.

What Nabors did that day illustrates how a simple action can pay longterm dividends for a business. And indeed, the basic steps for building loyalty are not complicated. But, say the experts, store operators must work vigilantly to build programs and attitudes that will keep customers returning week after week and year after year.

One simple statistic, true for every business, illustrates the importance of customer loyalty: It costs six times more to attract a new customer than to keep an existing one.

"Loyalty is a relationship," says Nabors, "and it's up to the store to determine how that relationship is defined."

"Loyalty Happens"
Business consultants stress that building loyalty is a long-term process of delivering value to customers.

"When a company consistently delivers superior value and wins customer loyalty, market share and revenues go up and the cost of acquiring new customers goes down," writes internationally renowned business consultant Frederick Reichheld, author of Loyalty Rules! How Today's Leaders Build Lasting Relationships (Harvard Business School Press, 2001) and frequent contributor to the Harvard Business Review.

What is critical for retailers to understand is that "delivering value" should be viewed as an equation—it contains many elements, including service, employee training, product selection, data mining, customer surveys, advertising, presentation and education.

Marty Baird, president of Nutritional Marketing, based in Phoenix, says building customer loyalty starts with the simple things. He cites examples from local and national stores he visits in his neighborhood in Phoenix: The people at the dry cleaners call him by his first name; if the pizza joint hasn't received an order from him in a month, they send a $1-off coupon; when he asks for an item at Safeway, a staff member will walk him right to it.

"These are easy and they make [customers] feel special. Make them feel like you're one of their neighbors. It's like in the TV show "Cheers"—people like it when someone knows their name; it makes them feel like they belong," Baird says. "When you do those [neighborly] things, loyalty happens."

But instilling a loyalty mindset in any organization requires planning and commitment. Baird, who consults throughout the country, says most retailers think about developing customer loyalty programs, but few do anything about it.

"People get overwhelmed. The important thing is to pick one thing and do it."

The List
Most retailers don't know who their customers are, explains Danny Wells, a nationally known marketing consultant based in Martinez, Calif. Without that knowledge, it's impossible to build effective loyalty programs.

"If you don't know who your customers are, you don't know what they want, and there's a good chance you'll lose them, especially when competition comes into the market," Wells says.

He advocates developing a database to maintain customer contact and identify shopping patterns and behaviors. The most efficient method is to use a point-of-sale system in the checkout line. Customers are issued a special card that entitles them to discounts. The cards also are equipped with a bar code so each time they are used the store automatically gains a record of the shopping trip. You can then use a database program to develop customer profiles for target marketing.

For example, the database could identify the 500 customers who spend the most money per month. That list could then be used to develop specific promotions. A valuable tool when you consider the renowned 80-20 business rule: 80 percent of a company's profits come from 20 percent of its customers. That adage, Wells says, is as true for grocery stores as it is for computer companies.

Sophisticated database systems can be as general or as specific as needed. The program could be used to identify those who are buying a specialized product—herbs for arthritis, for example—and then to print a postcard describing related products that might be helpful to the customer.

The second example, Wells says, represents "solution marketing."

"The store is presenting customers with solutions to a problem. They're not just going after a price point. Customers like that. It shows them that the store cares about them," Wells says.

Some of Wells' clients use the database for general information—which customers spend $100 or more on a shopping trip, for example. Those customers are then sent coupons that entitle them to a discount on purchases of more than $100.

The downside to sophisticated POS systems is that they are expensive, some costing tens of thousands of dollars. Installing a system usually requires hiring additional personnel for operation and data analysis.

Low-tech Solutions
Even without a POS system it's possible to develop a valuable and effective database.

Nabors, at his Mustard Seed Markets, has assembled a list of 35,000 names the old-fashioned way—with pen and paper. Customers, however, must sign up themselves to be on the list. Besides basic information, they're also asked to provide personal information: What publications do they read? What are their primary health concerns? Do they have kids? What radio stations do they listen to? What TV stations do they watch? Where do they travel? What clubs do they belong to?

"There is tremendous data-mining potential. We learn a lot about who shops in our stores," Nabors says.

Everyone on the list receives a newsletter every month, plus other mailings for special promotions. The newsletter also is sent via e-mail but the readership is not as high as the printed version, Nabors says. "This is what I call permission marketing. We ask them if they'd like to be on our mailing list. When they put their names on those cards, we've essentially been invited into their homes," Nabors says. "When they receive our newsletter, it's not considered junk mail; it has a different value."

Nabors promises that he will not sell the list—even though he's been approached with substantial offers. "By making that promise to customers, we establish trust."

In his stores, clerks are trained to ask customers if they want to be on the mailing list. Enrollment cards are always available.

The fastest way to develop a list, Wells says, is to hold a drawing that requires customers to put their names, addresses, phone numbers and e-mail addresses on cards. Names also can be collected from checks and credit cards. Either way, management must assign staff to enter the information in a database or a spreadsheet.

"This is time-consuming, but operating a business is a time-consuming process," Wells says.

Once a customer list is assembled, it shouldn't be used only to send a blizzard of promotional offers. Whatever is mailed should be meaningful in a customer's life. Nabors produces a newsletter that is packed with health-related information.

"You need to deliver something with value. It needs information and a feeling. When they get the newsletter, customers will want to read it because they know they'll always learn something from it," Nabors says. "It can't just be a bunch of advertisements."

If they learn something from a store's mailing, customers begin to develop an affinity for the newsletter and loyalty to the store.

At the same time, the store must measure the effectiveness of mailings—sending newsletters is too expensive not to check the results. So store owners should include coupons in all mailings, and establish a system to collect them in the store.

Looking Within
Although communicating with customers outside the store is important, attending to them in the store is critical—it's the easiest place to show customers that a store deserves their loyalty.

The first line is the front-line employees. They need thorough knowledge of the store and products, and they must be trained to greet customers, address them by name whenever possible, and ask them questions, explains Baird, of Nutritional Marketing.

"Work on building that relationship, build the rapport," Baird says.

That's especially important for small stores in highly competitive markets.

"I don't know of a small retailer who's going to outspend the big guy on advertising. You've got to beat them with service."

Baird believes in rewarding customers in the store. Offer extra discounts that haven't been advertised, and provide free product samples.

On a specific day each week, Wild Oats Markets offers a 10 percent discount to seniors who show their AARP cards. Any customer who buys a full case of any product receives a 10 percent discount. The company's "Did You Know" program places printed signs and materials throughout stores that explain products and their benefits.

Mustard Seed consistently offers taste fairs, gives cookies to kids and offers free informational lectures to the public on various topics. "There are a lot of things you can do to make customers feel good," Nabors says. "If you do those things, they'll tell their friends and be active for you. They'll pay you back by coming back."

And at some point the customer's attitude moves beyond loyalty.

"Touch the customers. Tell them you care more about them than the average store [does]," Baird says. "If you do enough for them, then people will feel obligated to shop in your store. And when they feel that obligation, you have customers for life."

Natural Foods Merchandiser volume XXIII/number 3/p. 62, 70-71

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