One Often-Overlooked Secret to Customer Loyalty

One of the many inspiring stories told by Fred Reichheld in his classic book The Loyalty Effect has to do with Nissan’s Infiniti brand and Toyota’s Lexus. More than 20 years ago when they were launched in the US, each high-end brand was carefully engineered not only to produce an automobile of flawless quality, but also to offer the best, most personalized customer service.

Yet these two brands developed very different patterns of customer loyalty. Early on, Lexus achieved a remarkable 63% repurchase rate among first-time buyers, while Infiniti only achieved a rate of 42%. While 42% was still far superior to the typical car-brand repurchase rate in the United States, which usually ranged from 12% to 30%, it was considerably less than Lexus, despite the fact that each brand had similarly sterling quality.

So what was the big differentiator? Why did Lexus customers show so much more loyalty than Infiniti customers?

According to Reichheld, it had to do primarily with the different types of new customers recruited by these two car companies in their initial marketing. Lexus went after Cadillac and Mercedes drivers – customers who tended to be older and attracted to comfort, long-term value, and reliability. But Infiniti positioned its brand to go after Jaguar and BMW drivers – customers more interested in style and performance. The customers Infiniti targeted, in other words, tended to be “experiential” customers who simply had a personal preference for new and novel experiences. An Infiniti owner, when seeking to purchase a new car, might say to himself, “Wow! That Infiniti was great! Now I want to try something else…”

The obvious lesson: If you want loyal customers, start by trying to recruit the kind of customers psychologically more predisposed to be loyal in the first place.

But this introduces another problem, doesn’t it? Customers who are personally more inclined to loyalty are going to be inherently more difficult and expensive to acquire.

One Ingenious Way to Recruit New Customers

Trying to solve this problem, Lexus found that one of its most effective recruiting tools consisted of the recommendations of existing customers. And this was way before LinkedIn, Facebook, Twitter, Google+, and other social media platforms made customer recommendations and word of mouth into the kind of marketing industry it is becoming today.

Lexus figured out a truly ingenious way to secure such personal recommendations en masse.

Their secret? Well, in the ordinary course of business their dealers accumulated sales leads through advertising, promotional activities, and showroom visits. They also had a growing database of existing customers, and feedback surveys revealed which of these customers were the most sincerely enthusiastic about their new cars, as well. So one of the most effective selling programs Lexus used was to have a dealer organize an elegant, catered dinner or other event at their dealership, at which they would show off the vehicles. The dealer would invite sales prospects for this free dinner, promising that there would be absolutely no selling or arm-twisting at the dinner. In fact, a dealer would tell invitees, Lexus sales people were not even invited to the dinner!

However, in addition to the sales prospects themselves, the dealer would also invite many of its existing (and very happy) Lexus customers, and the seating was arranged in advance so that each sales prospect was seated between two happy current Lexus drivers...