Time to conduct a Customer Loyalty Check

To have customer loyalty is the wish of every entrepreneur. In the vernacular, such individuals are called suki or loyal customers who expect to be treated differently from non-suki customers. They provide the entrepreneur a base load that reduces the uncertainty of revenues.

One day during the Christmas season…

An AIM student-entrepreneur recently reported that just before Christmas 2002, amid the rush of last-minute shopping by countless customers, a frail man in his late 60s approached him. The latter handed over a plastic bag full of old and dirty receipts and blurted: "Yung pamasko ko!" (Where is my Christmas present?)

Even if it was customary for the store to give away shirts, calendars, and other tokens of gratitude to their patrons, this was the first time that someone showed proof of his loyalty. The student-entrepreneur realized that his many suki had varying levels of patronage. Some bought more than others. This made him wonder why they had been giving every-body the same Christmas present. Since some gave more business, he thought that they deserved a better Christmas present.

Does an enterprise have to be big to set up a loyalty program?

It has been often said that Christmas should be a year-round affair. It follows then that customer loyalty should be recognized, regardless of the season. However, this must not be applied in an egalitarian fashion. Greater loyalty deserves better treatment.

It is interesting to note that even small enterprises have some form of a loyalty program except that it is usually egalitarian and scheduled once-a-year at Christmas time. The operative question then is: Why do most enterprises, big and small, do it this way? Is it because the size of the business can handle it only annually?

Size is not a factor for determining a loyalty program. More important are the benefits that large as well as small enterprises derive from the program.

A loyalty program will provide critical knowledge about the suki that will be valuable to the entrepreneur, no matter the size of the enterprise. However, the critical knowledge about the loyal customer is not just a matter of demographics. It is also about psychographics. A loyalty program should give the entrepreneur intimate knowledge about what these loyal customers buy and not simply who they are.

The benefit of knowing what and when loyal customers buy will help in the inventory management of the enterprise. Knowing the demand pattern for particular products by loyal customers will ensure that only the right amount of inventory will be kept, no more and no less.

The ability to predict demand accurately will result in less overstaying and sometimes even obsolete inventory. This will lead to better space utilization. In addition, one will avoid running out of stock without creating unnecessary buffer stocks.

Tracking the buying pattern of loyal customers will also alert the entrepreneur on emerging changes. These shifts can come in the form of new products or services being purchased and/or changes in the volume, time, and frequency of purchase. This change in pattern impacts on inventory management. If a shift to a particular color, style, or size is noticed in the analysis of the purchasing pattern, corresponding adjustments must be made in the ordering of replenishment.

All these benefits of a loyalty system cannot be enjoyed if the loyalty check is done only once a year, which only rewards the loyal customer without additional value to the entrepreneur.

Recognizing loyal customers pays for itself

Gratitude for patronage is the primary reason for recognizing and rewarding a loyal customer. There is nothing wrong with this. As a matter of fact, this is encouraged. A loyalty program strengthens the relationship between the entrepreneur and suki customers. This will enhance future revenues.

However, the critical knowledge about loyal customers will also result in lowering operating costs. Because of less stock-outs, there will be improved revenues as well. This should give the entrepreneur another reason to reward/recognize the loyal customer. There is an operating benefit and, therefore, something defrays the cost of a loyalty program. In addition, the surplus over costs can be shared with loyal customers.

Another reason is its value to the entrepreneur’s suppliers. The critical knowledge can be the basis of product development, market development, and other market-share increasing programs that the supplier can start working on. The latter may even be willing to pay for such critical knowledge. Again, this payment can serve to defray the cost of a loyalty program. Likewise, any surplus can also be shared with loyal customers.

The recognition of loyal customers will make them more loyal. This is not just a vicious cycle. Rather, it is an upward spiral towards higher revenues. So, why not conduct a customer loyalty check frequently? Do not look at this as an expense. It is good for the economic sustainability of your enterprise.

(Alejandrino Ferreria is the dean of the Asian Center for Entrepreneurship of the Asian Institute of Management. For further comments and inquiries, you may contact him at: [email protected]. Published "Entrepreneur’s Helpline" columns can be viewed on the AIM website at http//: www.aim.edu.ph).