5 Essential Ways to Create Loyal Customers in a Buyer's Market

*This article orginally appeared on my website: frugalentrepreneur.com

Building customer loyalty is one of the challenges of running a small business. You may get people in the door or to your website, you may even get them to buy your product or service, but how can you keep them coming back for more?

Over the past few years, as consumers have become more cost-conscious and value-driven, getting customers to “go past the discount” has been particularly challenging for many small business owners. In a recent study conducted at Rice University, researchers sought to determine the effectiveness of promotions via social discounting sites, such as Groupon, to the small businesses that run them. The results: these promotions were profitable for two thirds of the small businesses surveyed, but not so for the remaining third who were to a large extent dismayed by the “extreme price sensitive nature and transactional orientation of consumers using these promotions.”

When it comes to creating loyal customers, “create” is the operative word. Given the currently strong buyer's market, if you want your customers to come back (and tell their friends about it) then you have to make the effort to build a relationship with them. What follows are some small business tips to building strong customer relationships that will endure even under difficult economic conditions:

1. Focus on creating product or service value. As consumer spending has dropped to all time lows, many small business have resorted to deep discounts and extensive promotions to bring customers in the door. While offering discounts and promotions are effective marketing tools that can lead to repeat business when used properly, they are not always the appropriate solution, and sometimes such tactics can even hurt your brand and reduce sales.

Some effective market-building strategies include: producing a quality product or service, using low-cost or no cost add-ons that create the perception of added value (for example offering a free e-book or “gift” redeemable at the time of purchase).

2. Listen to your customers, and show them you're listening. Even if you are providing quality goods or services, they may not necessarily be in line with your core market's needs, wants, or attitudes. An important strategy in bringing customers back to your business is actively asking them for feedback, making an effort to seriously consider what's being said, and then showing customers that you appreciate this feedback whether or not you act on it.

You may learn some valuable things in the process. Maybe a change in your hours of operation will bring in more business. Perhaps customers would be more happy if your product was tweaked or expanded in some way. Whatever the case, you''ll never know if you never ask.

3. Invest in your workers. Keep this equation in your head at all times: Happy Workers = Happy Customers. And those Happy Customers, the ones who had a good experience, not just a good discount, are the same ones who will come back again and who will recommend your business to their friends.

In the same Groupon study mentioned above, the most important factor which determined whether a Groupon promotion would ultimately be successful was the employee satisfaction with the event. Where employees felt happy to be involved, happy that the event was generating business, and happy to serve customers, it virtually guaranteed that the promotion would be a success. (In my next post, I'll discuss some tips on how to create happy employees in your small business on a shoestring budget.)

4. Reward repeat business. Having an effective customer loyalty program in place is a vital element in generating repeat purchases (for a good, in depth article on the subject, go here). Customers will be more likely to patronize your company when they see that their business is rewarded with some added value, upgrade, or future discount. This is one reason why the social network Foursquare is an appealing marketing tool for local small businesses: it provides an unique platform with which to reward loyal customers and word of mouth advertising.

5. Generate goodwill. Another way to increase customer loyalty is by doing acts the generate goodwill and positive associations with your brand, such as offering a product or service to the community at large for free, or getting involved in community-related projects One good example of this is the Verlo Mattress Man, who went around performing small, random acts of kindness in the community.

Another example is the way the owner of Taylor Guitars responded Dave Carroll's viral YouTube music video "United Breaks Guitars" which chronicles the story of how United Airline employees mishandled his Taylor guitar and the indifference with which his claim for compensation from United was met.
In response, the owner of Taylor Guitars created a video offering his support and helpful tips to those who travel with a guitar (You can see the video here and pay attention to the comments below). By the way, he also gave Carrol two Taylor Guitars for free as well as other supporting equipment.