Customer Service and Customer Loyalty

How to Use Customer Service to Drive Small Business Loyalty

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Updated June 25, 2019

At its most basic level, customer service is an organization's ability to supply their customers' wants and needs.

But this definition leaves out the transactional nature of customer service, and it’s this transactional aspect that drives customer loyalty. "Customer loyalty exists when a customer chooses to do business with a company even when a less expensive, more convenient, or higher quality alternative is available somewhere else," according to the National Business Research Institute.

You can say, for instance, that a warehouse model business — where goods are laid out, customers choose items themselves, and carry them to a self-serve checkout — supplies a customer’s need for a product or products (assuming the customer finds what he wants). But from the customer’s point of view, there’s no customer service involved in such a business model.

Customers assume that customer service involves an interaction with another human being, whether that person helps them find something, choose something or buy something. (How to Help a Customer takes a closer look at the basic customer service transaction.)

And that’s the core of good customer service — bringing old customers back, and attracting new ones through the “good news” that current customers are spreading about your business.

A Better Definition of Customer Service

For businesses, then, a more useful definition is that customer service is a business’s ability to satisfy its customers. Because only satisfied customers have the potential to become loyal customers.

Companies can have all the elements of customer service in place, from wait-staff through return policies, but if customers are not satisfied with the way their transaction was handled or its results, they won’t be back.

Customers and business managers alike like to talk about what good customer service is (and isn't), but this definition by ACA Group sums up what excellent customer service is beautifully: "Excellent customer service (is) the ability of an organization to constantly and consistently exceed the customer's expectations."

Accepting this definition means expanding our thinking about customer service; if we're going to consistently exceed customers' expectations, we have to recognize that every aspect of our business has an impact on customer service, not just those aspects of our business that involve face-to-face customer contact.

Why Good Customer Service Is Critical to Small Businesses

For small businesses, committing to continually strive to provide the best customer service possible is especially important because:

1. Customer loyalty is crucial to most small business’s bottom line. Good customer service is the prime driver of customer loyalty. On average, loyal customers are worth up to 10 times as much as their first purchase according to the White House Office of Consumer Affairs.

2. Good customer service saves small business’s money. Depending on which study you believe, and what industry you’re in, acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one (Harvard Business Review).

3. Businesses (especially small businesses) can’t survive long-term bad press. Customers judge the customer service of every business they deal with — and they’re much more likely to share bad ratings with other people than good.

What happens after poor customer experience?

78 percent of customers cancelled a transaction or intended purchase after poor customer service (American Express Survey)

96 percent of customers don't bother to complain to the business, and 91 percent never come back ("Understanding Customers" by Ruby Newell-Legner)

Dissatisfied customers will tell between nine to 15 people about their experience — and about 13 percent of dissatisfied customers tell more than 20 people about their poor experience, according to the White House Office of Consumer Affairs. On the other hand, happy customers who have their issues resolved tell between four to six people about their experience.

The stakes are even higher given that complaints about customer service are easily disseminated on social media platforms such as Facebook and Twitter and reflected in online reviews (such as Google reviews).

4. Providing top-notch customer service is one of the few ways small businesses can compete with larger retailers.

In fact, as Daniel Butler, vice president of Retail Operations for the National Retail Federation, points out, this “buyer experience” is where owners of small stores have a big advantage over their chain-store counterparts.

“They can actually be in touch with their customers and make a personal connection.”

How You Can Use Good Customer Service to Build Customer Loyalty

1. Set Customer Service Standards

Employees and customers alike need to know what the expectations are. Customers need to know what your business is willing to do for them and employees need to know how you expect them to provide your products and/or services to the customer. Just telling them is not enough; you need to create a document that lays out what you consider to be acceptable customer service standards.

2. Put the Right Staff and Processes in Place

As Liz Tahir says, there is no way that the quality of customer service can exceed the quality of the people who provide it (10 Tips for Effective Customer Service). So your small business needs to have the resources in place to provide the kind of customer service that will meet or exceed customers’ expectations — whether those resources are front-line counter staff or efficient product distribution systems that will get your product delivered to the customer on time.

Customer service software that provides a help-desk solution or customer relationship management (CRM) can simplify and streamline many of your customer service interactions. You can also provide your employees with apps that will enhance customer service. Retailer Lowe's, for instance, gives its customer-facing employees six apps designed to help them serve customers, including an app that helps employees determine dimensions for customer home improvement projects.

3. Train Your Staff

Employees who are dealing with customers need to do more than just be friendly if they are to deliver good customer service. Get over the idea that enthusiasm and a smile are enough (although they are a great start); effective customer service training must be reinforced and taught on a recurring basis.

4. Treat Your Employees as Your First Customer

No one enjoys being served by a grumpy disgruntled person. Unhappy employees will never create happy customers. So keep your employees happy. When your employees are happy they will look forward to work, because they are valued and appreciated, says Laura Lake — the kind of employees who are ready and willing to value and appreciate your customers.

5. Solve Customers’ Problems Quickly and Easily

Customer problems are the best opportunities to create loyal customers. Research by the Customer Contact Council found that exceeding customers’ expectations had surprisingly little effect on customer loyalty; it was the amount of effort a customer had to make to resolve problems that correlated strongly with customer loyalty. In fact, 94 percent of customers who were able to resolve issues painlessly said they would purchase again from that company. Learn how best to deal with customer complaints.

6. Create a Customer Loyalty Program

Customer loyalty programs can not only help create loyal customers but help you gain new customers. For instance, studies have found that recipients of restaurant loyalty rewards are twice as likely to refer a new customer immediately following a reward redemption (Thanx). Successful loyalty programs can also boost your small business’s bottom line as they provide motivation for loyal repeat customers to buy more — always a more cost-effective and easier way to increase sales than attracting new customers.

7. Assess Your Customer Service Regularly

Customer feedback is a great tool for improving customer service and customer loyalty. Your customers are literally telling you what they like or don’t like about your products or services regularly in person, through email, by phone or through social media. Use these interactions to identify consistent issues and act upon them.

You should make sure that you also seek the opinions of your less vocal customers, by conducting customer assessments and/or using customer surveys.

For small businesses, the watchwords for customer service should be assessment and improvement. Upgrade Your Customer Service in 3 Steps will show you how you can improve the basic elements of the customer service your small business provides.

Best Practices: How to Provide Good Customer Service

Remember the golden rule, treat customers the way you would like to be treated? That’s no longer good enough in a world where customers have so many different choices as Matthew Hudson points out in How to Build Customer Loyalty. Instead, treat customers the way they would like to be treated. These articles, that cover best practices in customer service, will show you how: