You can be on Entrepreneur’s cover!

Customer Loyalty 3.0 Is Never About Transactions. It's About Getting to Know Your Customers. Decipher what your individual customers want, and use the pillars to build relationships. Rinse and repeat.

By Carol Roth

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

Diego Texera Photography
Carol Roth at Accelerate You Business - Chicago

At Entrepreneur and Microsoft's Accelerate Your Business Event, I was able to talk to attendees about how to grow their businesses using what I believe is the future of customer loyalty -- and I call it Customer Loyalty 3.0.

I wanted to share some highlights of that discussion here.

Related: 10 Simple Ways to Improve Customer Retention Rates

1. Why customer loyalty is important.

When it comes to growing your business, customer engagement is the holy grail. Engaged customers who love your business provide a base to grow from. In a world where it is difficult to get someone's attention, the customer who loves you provides you an opportunity to go deeper. That means selling to them more frequently or in larger order sizes via upselling, because you are already engaged in a dialogue with them.

Additionally, people tend to hang out with other people who are a lot like them. Whether you have a business-to-consumer (B2C) business where your raving fans tell their friends and colleagues, or a business-to-business (B2B) operation, where your raving fans know other potential business customers, your existing customers are your best advocates to cut through the noise and help you to reach your target market.

2. Why old-school loyalty tactics don't work.

In trying to create customer loyalty, most businesses tend to do something that looks more like bribery. They give you one point per dollar spent or "buy nine, get the 10th free" type of programs in the name loyalty. But neither is loyalty at all.

First, in either case, it's a discount -- one that you have to work a bit harder to get, mind you. And in discounting, you are competing on price, not on value. You always want to compete on value. Competing on price means that you end up in a price war with competitors who now offer the eighth item free or the seventh item free -- not to mention that you attract the wrong type of customers: the ones just looking for the best pricing.

You also create loyalty to a program, not your brand. Starbucks is struggling with this right now. Many customers -- who frankly did and would go to Starbucks with no loyalty program just as frequently -- are up in arms over their changing the loyalty program from per visit to per dollar spent. You want to create loyalty to your company, not a program structure.

The old-school loyalty also creates the issue of rewarding "spenders" but not "senders." You measure the people who are spending directly with you, but not the influencers who are conduits to bringing new customers into your business.

Finally, these old-school programs also aren't loyalty, because loyalty is not transactional -- period.

The future of loyalty is about creating relationships. It's listening to your customers and potential customers, using information about them to build connections and making them feel cared about.

Related: 'Starbucks Rewards' and the Failure of Today's Loyalty Programs

3. What the challenge is.

While the notion of relationships may seem simple, it's not. Many of the biggest brands have failed to do this despite having multimillion-dollar marketing campaigns. Customers are all driven by different parameters, which means that you need to do a lot of listening and keeping track of the likes, dislikes and drivers of your customers' behavior.

The good news is that small businesses and entrepreneurs are well-suited to succeed here, because you can be more nimble and adept at knowing your customers. You can also easily track them. I use my Office 365 Outlook program as a customer relationship management (CRM) tool. I pop open each contact and use the "notes" section to keep track of important information.

Any business can do this and turn these efforts into loyalty.

For example, there's a boutique hotel I stay at, where the staff leaves me beautiful food and drink displays when I come to the room. What's special about it, though, is what they leave -- the champagne buckets are filled with bottled water, and they leave me fruits, cheese and chocolates. They do this instead of wine, champagne and caviar, because I don't drink alcohol and don't eat caviar. It's customized to what they know about me, not just generic "shtick." That's what builds the loyalty.

They also let me keep my luggage at the hotel, so I don't have to bring my cosmetics, workout shoes, etc. back and forth. This is a great service to me and is quite savvy, too. What hotel am I going to stay at, regardless of the price? The one that has my luggage!

I say the same thing about my accountant. I don't know the name of his company (because they have merged so many times), their logo or anything else, but he not only provides great advice, he checks in on my business and chats with me about my fantasy football team each season. Some other accountant could try to woo me away with a discount or a fruit basket, but the relationship creates my loyalty to my service provider.

4. How to build loyalty.

To build loyalty, you have to listen first. Then, you have to use the mechanisms (which I call "pillars" of loyalty) that drive each individual customer's behavior. Some customers will be moved by best-in-breed product or service offerings, like Office 365. Some will respond to outstanding customer service, as exemplified by Nordstrom.

Others will want to have an affinity to the brand or be part of a community, like Harley-Davidson builds with their riders. Others want a great experience like you would get at Walt Disney World or even Trader Joe's. And others appreciate you building a bridge between your product and their needs, like Campbell Soup does when they support the schools of the moms who are their customers.

Related: Southwest Is the Only Major Airline to Not Charge for Luggage Check. What Is It That Only You Can Provide Your Customers?

Decipher what your individual customers want, and use the pillars to build relationships. Rinse and repeat, and you will not only retain your existing customers but have a strong way to get new customers and grow your business as well.

Carol Roth

Entrepreneur, TV host and small business expert

Carol Roth is the creator of the Future File™ legacy planning system, a “recovering” investment banker, business advisor, entrepreneur and best-selling author. She is also a reality TV show judge, media contributor and host of Microsoft’s Office Small Business Academy. A small business expert, Roth has worked with companies of all sizes on everything from strategy to content creation and marketing to raising capital. She’s been a public company director and invests in mid-stage companies, as well.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick

Side Hustle

He Took His Side Hustle Full-Time After Being Laid Off From Meta in 2023 — Now He Earns About $200,000 a Year: 'Sweet, Sweet Irony'

When Scott Goodfriend moved from Los Angeles to New York City, he became "obsessed" with the city's culinary offerings — and saw a business opportunity.


Save on Business Travel with Matt's Flight's Premium, Only $80 for Life

This premium plan features customized flight deal alerts and one-on-one planning with Matt himself.

Science & Technology

Here's One Reason Urban Transportation Won't Look the Same in a Decade

Micro-EVs may very well be the future of city driving. Here's why, and how investors can get ahead of it.

Health & Wellness

Do You Want to Live to Be 100? This Researcher Has the Answer to Why Longevity is Not a Quick Fix or Trendy Diet

Ozempic, cold plunges, sobriety and the latest health fads are not what science reveals will help you live a longer and healthier life.

Data & Recovery

Better Communicate Data with Your Team for $20 with Microsoft Visio

Visio features a wide range of diagramming tools that can support projects across all industries.