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The Future of Customer Loyalty Is your business ready for customer loyalty 3.0?

By Carol Roth

Opinions expressed by Entrepreneur contributors are their own.

How many customer loyalty cards do you have in your wallet? You know, those paper or plastic rectangles that give you the 10th item free after purchasing nine items or that help you collect points that you can redeem for a discount?

My wallet is littered with dozens, some that even label me as a "VIP."

However, every time that I make a purchase and the employee behind the counter rolls their eyes while I try to fish the card out of my purse or worse, has to look up my loyalty number because I left my card behind, I never feel VIP. I actually feel like a goofball.

Loyal customers are the Holy Grail for most businesses. With customers having so many different options for goods and services, developing long-term, loyal customers is critical for brands and companies. Not only is it easier to sell more things to customers who already love you, but raving fans will tell other customers about your brand or company. When you factor in the expense of trying to reach new customers and the high lifetime value of each individual customer, loyalty needs to be a top priority for every business.

Related: Want Loyal Customers? Understand This.

However, many companies have approached this effort in very much the wrong way and are stuck in old-school, ineffective loyalty approaches. It is critical for companies that want to develop long-lasting customers and raving fans to start coming around to what I call Loyalty 3.0.

With very few companies even coming near Loyalty 3.0, there are unprecedented opportunities for forward-thinking companies to become leaders in this movement and gain competitive advantages by forging rock-solid customer relationships.

The reality is that not only are most companies not at Loyalty 3.0 levels, many -- like my example above -- are still in primitive program mentalities, believing that having a paper or plastic card creates anything near loyalty.

Loyalty 1.0

This is where companies believe that by rewarding the customers who spent the most with them, that they are creating loyalty. This comes in programs like points-per-dollar spent or "buy nine, get the 10th free" cards. This form of loyalty looks an awful lot like bribery.

There are several problems with 1.0:

  • It creates loyalty to the program, not the brand or company; you are only as effective as your offer.
  • It creates another form of price competition. Buy nine and get one free is akin to a 10 percent discount across the board.
  • It only rewards the "spenders" -- customers are only considered as important as their last set of purchases.

Additionally, as my example demonstrated above, it's a farce. Why would a customer have to provide a card to be deemed important? It's against all logic.

Related: Aggressive Marketing Won't Win Customer Loyalty

Loyalty 2.0

This evolved in the form of social media. Brands realized that it was not just the spenders who were important, but also the influencers (aka the senders) who indirectly accounted for sales through brand advocacy. This was an important realization for companies and brands.

However, many companies approach 2.0 in the same way as 1.0. Once they identify the senders, they employ the same strategy and try to buy their attention and affection with swag. Yet this still doesn't create loyalty.

Loyalty 3.0

Ah, yes, here is the future of customer loyalty. Some companies have been doing this for a long time, but they are in the minority.

My company works with a variety of brands and corporations to help them create and run next-generation customer loyalty programs. We use the Loyalty 3.0 model to help our clients engage both the senders and the spenders by making them feel cared for and important.

It is a holistic approach that can be led with product functionality (think Apple), customer service (think Nordstrom), creating an affinity group or lifestyle association (think Harley-Davidson), creating an experience (think Disney theme parks) or even by creating a bridge to the customer with ancillary products, services, content or experiences that are important to the customer (think food companies with time-saving recipes), depending on what is of most importance to customers.

Related: 4 Basic Steps to Turn Web Visitors Into Brand Ambassadors (Infographic)

True customer loyalty stems from making your customer feel important -- but in whatever way resonates with him or her. This is tricky territory because not all customers have the same wants or needs.

To start on the Customer Loyalty 3.0 path, ask yourself the following questions:

  • Do we know who our spenders and our senders are?
  • Are we listening to their dialogues to understand what is important to them and what easily fits into their lives?
  • Are we demonstrating to customers that they are important and that we care for them (as a brand or a company)?
  • Do we leverage technology to make it easy for us to remember our customers and their preferences (without making them show us their plastic card)?
  • Are our employees our loyal fans?

Those questions need to be layered on the pillars of loyalty based on the type of company you are and the needs of your customer.

It isn't easy -- if it were, everyone would be doing it already. However, it is incredibly worthwhile, as nothing is more important to your business than solid, loyal customer relationships.

Related: Reciprocal Loyalty -- the Best Way to Acquire and Retain Customers

Carol Roth

Entrepreneur and author

Carol Roth is an on-air contributor for CNBC, a “recovering” investment banker, entrepreneur and best-selling author. She makes people think, makes them laugh and makes them money. Her accomplishments have ranged from her commentary on multimedia; to the seat she formerly held on the board of directors of a public company; to her role as an advisor on the raising of capital, M&A, joint ventures and licensing transactions. Roth splits her time between Chicago and New York City.

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