Small Business Marketing

How to Improve Customer Loyalty

Written by James Garvin for Gaebler Ventures

Returning and loyal customers are a small businesses most profitable customers as acquiring new customers is often expensive and difficult, yet small businesses often have no means of tracking the true loyalty and profitability of their customer base. Some methods below will help you and your firm analyze the true loyalty of your customer base.

There is no question about it, your most profitable customers are your loyal customers; the ones who continue to purchase your product and tell others about your products and services.

How to Improve Customer Loyalty

Acquiring new customers can be challenging and costly. Amazon at one point was spending nearly $70 per new customer, but they could afford it because their customer retention rates were are very high and their long-run customer profitability is among the best for any retailer.

Why is it then that small business has very little in the way to track and incentivize customer loyalty? After all, wouldn't you want to do everything you could to ensure your best customers were being treated like your best customers?

Some small businesses offer the paper hole-punched loyalty cards that offer a promotional discount after so many purchases. But since these cards are given to everyone and they offer no personalization to your best customers, they are often not as effective as they could or should be.

Small businesses are at a huge disadvantage to larger retailers and businesses that spend millions on building customer loyalty tracking programs. By tracking customer loyalty, they are better able to target promotional campaigns and communication to their most frequent or non-frequent customers to incentivize further purchases.

The importance of customer loyalty was shown when airlines first introduced their frequent flier programs. These programs were a huge success that helped airlines catapult themselves to having some of the highest profit margins in any industry. The reason is quite simply that they were better able to incentivize customer purchases with a single airline that mitigated the risk of competition.

As a small business, it is very cost-prohibitive to build a "frequent-flier" system, but there are steps that you can take to help you track and notice your most frequent and profitable customers. Start by getting your customer's email address. Don't simply ask for their email address, but offer an incentive to do so. Perhaps you offer $5 off their next visit if they sign up for your newsletter.

Once you have populated a customer database of emails, you can use tools such as Constant Contact and other small business e-newsletters to send out coupons and other promotional fliers. Now with your digital database you can track:

1. Which customers clicked on your email
2. Which customers bring the promotional message to your store for redemption

Track these results and over time you will start to build a customer profile list in your database that will help you understand who your most loyal customers are. It's not perfect, but it will help you improve customer relations and give you a competitive advantage over your competitors by allowing you to better understand who your most frequent and presumably profitable customers are.

James Garvin began his education studying biotechnology. In recent years he has turned his interest in technology to helping two internet startup companies. The first business was an online personal financial network and the second was an e-marketing platform created to help entrepreneurs demo their web sites. Currently a student at University of California Davis, James is spending his summer incubating two new online businesses and writing about his entrepreneur experiences.

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