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Customer Loyalty Is A Two-Way Street

sidebar to main story, "Keep 'Em Happy"
It's in times like these that companies get serious about trying to build and claim loyalty with their customers. For many, however, the idea of customer loyalty has been more of a slogan than a guiding principle in recent years.

So companies need to change how they think about customer loyalty and what they expect to get from it, says Fred Reichheld, the author of Loyalty Rules! and a fellow at Bain & Co., a management-consulting firm. When revenue was strong and consumers were spending heavily in the giddy days of the '90s, too many businesses took their customers for granted. "Loyalty lost its meaning," Reichheld says. "It came to mean marketing gimmicks and long-term contracts that take people hostage." Loyalty was often abused, he says: Companies rewarded their dedicated customers with higher support costs and slower service, and they poured revenue from them into funding efforts to identify and attract new customers.

Those notions need to be discarded, and Reichheld believes that loyalty is starting to mean something deeper: a focus on mutually beneficial relationships. Too often, Reichheld says, companies confuse loyalty with unconditional acceptance. A vendor should consider customers loyal even if they criticize the product or service that they think could be made better. And vendors shouldn't consider customers loyal merely because they've paid the bills for a long time. They may be dissatisfied with the value they're getting and waiting eagerly for an alternative to come along. Loyal customers are those who stick with a company through bad times because they've been treated right, and they expect that to continue.

The software industry has a mixed record on loyalty: For every raving fan of a software company, there are a dozen who feel locked in and taken advantage of by another. BMC Software Inc. measures customer satisfaction through conventional means such as surveys. But it considers the number of repeat customers and the amount of new business from referrals as better measures.

In these times of tight IT budgets, BMC knows that sales growth alone isn't going to reveal how well it's doing keeping customers happy. So the company tries to measure how big a share of any customer's total IT spending wallet goes into buying BMC products. Says Mark Meyer, BMC's director of CRM, "If you're always growing the percentage, you've got to feel pretty good."

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