Defining Loyalty

Thoughts from Dino Cortopassi (December ’95)

In the last issue of La Trattoria, one of my key points was that as National pizza chains fight stagnating sales with money losing price promotions and Italian dinner houses strive to build sales (some with high quality food), Independents cannot afford to take customer loyalty for granted.

Therefore, in this issue it seems appropriate to clearly define a loyal customer and to illustrate why understanding this definition provides you the tool to win the game! There are two kinds of customers: those who are “loyal” and those who are not. The defining difference is:

A loyal customer values your offerings enough to buy

them at a price which allows you to be profitable.

Conversely, those customers who will buy your offerings only at unprofitable prices, by definition, are not loyal, and you can’t afford to keep them! Widespread failure to understand this basic truth causes many businesses (including National chains) to mistakenly throw good money after bad in trying to attract/keep customers who actually cost more than they’re worth.

On the other hand, customers who are willing to buy from you at a fair price are loyal and you and your team should do everything in your power to satisfy them. Moreover, the value of a loyal customer grows over time. That’s because:

1) Loyal customers are more motivated by relative quality than relative cost. Once introduced to superior quality food, loyal customers are self motivated to return, whereas price oriented customers must be continually enticed to return with promotional “deals” at below cost prices.

2) Loyal customers bring new business. Once they’ve consistently experienced the quality superiority of your food, loyal customers go out of their way to promote your business with family/friends, who in turn tell their family/friends, and so on. All of this word of mouth advertising costs you zero.

3) Loyal customers buy more over time. Over time, loyal customers tend to return more frequently, typically purchasing more per visit.

Since loyal customers become more valuable over time, it is clearly in your self interest to continually strive to enhance their satisfaction to keep them even longer. The potential benefits to reducing customer turnover are staggering. I recently read about a Harvard study which showed that across a wide variety of industries, reducing customer turnover by a mere 5% can increase bottom line profits fivefold!

The critical part to remember is that the goal is not to attract and retain customers, it is to attract and retain LOYAL customers! Because many National chains were/are trapped on the “growth” treadmill, they’ve actually fueled their customer turnover by attempting to “buy” the loyalty of price oriented customers with excessive discounting, thereby attracting/keeping disloyal customers! No wonder the “Big Guys” are in trouble!

Keeping this fundamental truth in mind, here are a few ways to increase your retention of loyal customers.

I. Attract/keep loyal customers with superior food quality.

No matter how good your food quality is already, constantly strive to make it better to reinforce the loyalty of existing customers and attract more of the same. (You can never have too many loyal customers!)

II. Send disloyal customers to your competitors.

Avoid below cost discounting, which only attracts disloyal customers that cost you more than they are ever worth. As my mentor Frank Piciullo used to say, “Let them go to our competitors and make them broke!”

III. Be sure employees understand the value of loyal customers.

Employees tend to treat customers with greater respect once they understand their true value to your business. Demonstrate how a loyal customer who spends $20 a week is worth $1,000 per year to the business (plus tips!). Taking the time to make sure your employees appreciate the importance of truly satisfying every loyal customer helps build the quality of your service as well.

IV. Treat each customer as your best customer.

Every individual customer makes an individual value judgment regarding your quality and service. That is why in our business, each and every customer is treated with respect regardless of how many cases of our products they use. We believe customer loyalty must be individually and continually earned to ensure our own long term success.

My bottom line is “Do not try to be all things to all people.” Just deliver your Best to loyal customers who value your offerings and leave the rest to someone else!