Developing Customer Loyalty

“More and more these days we hear it said, ‘Your customer is your only true asset.'”

What will the stock market do next? Which way will interest rates go? How much are my competitors’ actions going to squeeze my margins? How much of my business will the Internet take away — and how soon?

Sometimes it seems that we live in a world filled with unanswerable questions — a world that’s been designed to pile anxiety upon anxiety.

How do you escape (or at least minimize) this anxiety? How do you create a business which is not at the mercy of forces beyond your control?

You already know the answer: by building a database of loyal clients who will bring you referrals and repeat business into the indefinite future. Surely this is the key to creating more income with less stress, even to achieving early retirement.

The research, including my own interviews with top originators, suggests that the average proportion of referral business within the mortgage industry as a whole is 20 to 30 percent. However, for originators who have made, and carried through, a commitment to build loyal client relationships, this figure jumps to 70 to 80 percent. Indeed, there are many hugely successful originators whose business is entirely based on referrals and repeats.

More and more these days we hear it said that “your customer is your only true asset.” This is a very profound statement, especially in our industry. It effectively demands that we regard loyalty building as fundamental to the way we do business. It means that you can choose to manage your clients’ relationships for your benefit — or you are bound to be a powerless spectator while they do as the moment or mood moves them.

The arithmetic is pretty simple. Let’s say that every current client knows 10 people they might refer to you in the course of time. Then each of these will also know 10 people … and so on. After only three referral generations this gives you a pool of more than 11,000 potential new clients.

It’s not just the sheer numbers of referrals and repeats that matters. You also benefit from their higher quality and the reduced cost of doing business with them. A loyal client and their referrals are less likely to shop on rates and more likely to convert. And the research suggests that the cost of re-selling a loyal client and their referrals is something like one-fifth the cost of making a cold sale.

Of course, building loyalty is a long game. It’s not a quick fix in a down market or a way to make an instant killing. There are no shortcuts — particularly in the mortgage industry where purchases are infrequent, expensive, and perceived as high-risk by the consumer.

So building the loyalty of your clients has to be founded on a very conscious commitment to the kind of business you want to create a business in which qualified prospects come to you for your services at least as much as you go out cold to the marketplace. Hand-in-hand with this commitment goes the equally conscious realization that it may take three to five years before this vision of the future will be fully achieved.

We can define five levels of loyalty. Every client must move through each level. How long they remain at a particular level depends on the attention you give them.

Level 1 — Awareness

At this level your client is able to recall (unaided or aided) who you are, where you work, and how to contact you.

Level 2 — Recognition

At this level your client remembers what you stand for, what uniquely differentiates you and your service from your competitors.

Level 3 — Preference

At this point your client has a clear predisposition to return to you for mortgage-related services and to refer their friends and family.

Level 4 — Commitment

At this stage your client will think of no other source for mortgage-related services for themselves, their friends, and relatives.

Level 5 — Endorsement

At this level your client, in appropriate circumstances, will actively promote you and your services to their community of contacts.

Relationship marketing is the methodology that’s available for moving your clients through these levels of loyalty in the fastest and most cost-effective way. This will ensure that they not only become, but also remain, powerful endorsers of you and your services.

To be most effective, your relationship marketing program needs to have both a strategic and a tactical component. The strategic component consists of a prescribed sequence of client communications — one every two to three months. This consistently reminds the client who you are, how to contact you, and what you want from them (referrals and repeat business). The tactical component complements these strategic communications by delivering topical, time- or place-specific messages. For example, this includes information about new services, rate movements, or local market conditions.

Remember, your objective is to build and maintain loyal relationships with your clients such that they will see you as their one and only source of mortgage information, advice, and services. To this end, all of your communications — both strategic and tactical — must always be attractive, interesting, and valuable. Consider the following points.

• Project a memorable, professional image.
• Be clear about what you are offering and about what you want.
• Don’t try to befriend the client or pretend to be an expert in other areas of their lives.
• Don’t be intrusive or manipulative — for example, by communicating with the client at a work address (unless that’s their preference).

How much should you invest in building a client’s loyalty? Rules of thumb are difficult because circumstances vary. However, there’s probably good reason to put about 10 percent of the money you make on a deal back into the client relationship. The more appropriate question is: what rate of return should you expect on such an investment? Always assuming that the investment is spent wisely, you should be looking for something like 10 times your money back after three to five years.

Should the same investment be made in every client? To begin with, probably yes, until such time as you have a sensible basis for discriminating among them. Traditional segmentation models aren’t always helpful. These are based on an analysis of purchase behavior, using factors such as recent contacts, frequency and purchase value — none of which work well in the mortgage industry.

Worse still, some immediately available and temptingly obvious criteria are bogus, such as purchase loans versus refi’s, and high versus low value loans. These give no true indication of the potential value of a client as a source of future income. Criteria that might be relevant include age, family status, years in the local community, and attitude during the transaction just closed. Above all, however, responsiveness to your marketing communications is likely to provide the best measure of potential value. You will need to track this for 12 months or more before a clear pattern emerges.

One obvious challenge is: how can you do all this when your time is already full and you don’t necessarily have the skills required? Some have determined that outsourcing to a specialist marketing operation provides the expertise in relationship marketing and in the underlying technologies that deliver affordable solutions.

Whatever way you come at it, the key word is “commitment.” You must make the commitment to creating or finding the best program and implementing it consistently.