This is the second in a series devoted to building business on value and redesigning your business to maximize customer perceived value.

Small business succeeds when it – consciously or unconsciously – provides customer perceived value. This begins with a new understanding of customer loyalty.

Customer loyalty may be the most misunderstood value in commerce. The US economy grew in the ’50s on the unspoken marketing concept of “built-in obsolescence,”the presumption that, because customers were repeat buyers, their loyalty would keep them buying brand. Quality, not surprisingly, stole these “loyal” customers away from American manufacturers in the ’70s and thereafter.

Now that American businesses have learned the value of quality – a reasonable demand of local and global customers – we are winning back markets thought lost. American designs, programming, engineers, and craftspeople have regained dominance in automotive, aerospace, and technology.

Small businesses, on the other hand, have always understood and depended on the values of buying local and customer service. Given small business volume, a lost customer is not just “a drop in the bucket.”

  • Small business must move away from so-called “customer loyalty” that is really just reluctant allegiance. For example, every Christmas, a dry cleaner I know, bless him, gives out lint brushes. In his mind, he is repaying customers for their loyalty. But, it isn’t the lint brush that keeps them coming back; it is the convenience of the store’s location and the geniality of the counter person. Open another dry cleaner across the street and cut the price by $1.OO per shirt, and he will be overstocked with lint brushes.
  • Small business has to learn that customers don’t like having no choice in the matter. They do not like having their loyalty monopolized. This is what tears at the fabric of small town businesses as customers flee to improved perceived value at the newly big box stores. Customers are fickle and whimsical, but they will stick with you if your perceived value gives them a choice. They are able and ready to compute the cost of travel away from town to save a few cents, but if you can’t offer an offsetting experience, they will one-stop shop.
  • Small business rewards only matter so much. Big businesses can lure and harness customers with rewards programs. But, studies show this link is tenuous at best. For example, United Airlines’ frequent flyer points are nowhere near to turning people away from the perceived value in flying Southwest. A flyer may keep his/her United frequent flyer plan open because the boss pays for the flights or because United goes to some places that Southwest does not, but all things considered, Southwest has the edge in value – and an attractive travel incentive plan to boot.
  • Small business needs to learn that customer loyalty is not a tangible asset. You cannot trade on it even though it may figure into the price of your goodwill. You are missing the point of loyalty and corrupting the principle if you think of loyalty as leverage, as customer ownership. A goal – not a strategy – loyalty is driven by total customer experience.

When businesses learn to drive this total customer experience – and to price it accordingly, they will define their future success. If they fail to do so – and do so soon, they’ll wonder what they missed.


by Steven Schlagel