Saturday, August 29, 2009

Brick and Mortar Loyalty is Different Than Online Loyalty

Michael Greenberg has presented an interesting note in his article of August 25th published in the Multichannel Merchant that makes an interesting case that loyalty for brick and mortar companies is very different from loyalty for companies that are online. The obvious point is that customers who visit brick and mortar companies have to travel some distance to comparison shop whereas the online company is only a click away from all of its competitors. He provides two interesting definitions for loyalty.

The overall definition for customer loyalty according to Mt. Greenberg is a reflection of preference and choice. Within this definition he defines RATIONAL loyalty as the rational decision to choose one provider over another for a given purchase. It is measured by share of wallet.

The second definition is EMOTIONAL loyalty which reflects an attachment of the customer to a brand and is not measured by share of wallet. It is measured by word of mouth, referrals and participation in company programs with the customer.

The main difference Mr. Greenberg sees between online and brick and mortar is that online the company has the ability to track nearly all customer behaviour and transactions on the web. The brick and mortar company usually is limited to perceptions usually measured by a customer survey with little or no measure of
customer behaviour.

There are two strategic aspects to these differences.
1. The brick and mortar company can make friends with the customer and build personal bonds whereas the online company has little likelihood of building personal relationships.
2. The online company has the ability to track nearly all customer behaviour and thus can focus entirely on the driving customer value. Since online companies lack the ability for personal relationships that brick and mortar companies have, they must fight for every new customer on equal footing with every competitor (large or small is not easily perceived online).

Mr. Greenberg provides a list of actions that online companies should consider as a means of building customer loyalty.
1. Improve the online experience by making the shopping experience easy.
2. Reward loyalty by appealing to the rational loyalty element and giving the customer a financial reason to return.
3. Clarify the brand by making sure the brand message is consistent.
4. Listen and respond by watching and managing complaint rates and monitor social media for poor feedback. Avoid the likelihood that customers with a bad experience will share it with friends and coworkers.
5. Enable community by allowing customers to share their experiences with others through reviews and forums.
6. Communicate relevantly by eliminating irrelevant communications. Communications should be relevant, timely and useful and track your brand.
7. Minimize negatives by improving an unpleasant experience so it is neutral or better and no longer the source of bad perceptions. (When a bad experience is solved, it will often result in higher loyalty than a customer with no bad experience).

The bottom line is that online companies must act differently than the brick and mortar companies. When all your competitors are only one click away, the online company must offer some reason for the customer not to make that click. This topic needs more investigation; however, Mr. Greenberg has given some interesting perspectives and a real challenge to the online businesses. I think he presented an interesting idea that loyalty has two dimensions; namely rational and emotional. While this makes sense to the casual observer, there is no discussion on how these two definitions work together. The interaction of these two definitions of loyalty is an obvious topic for futures blogs.

Saturday, August 22, 2009

Forget Surveys

William Cusick, CEO of Vox, Inc. has written an opinion article that states that satisfaction surveys don't work. His premise is that customers are irrational based on what he says is recent evidence that "fully 95 percent of our cognitive processing is subconscious." From this he notes that customers are pretty poor at telling others what they like or don't like and why they feel that way. He sums it up pretty well with the statement "how can you get closer to the truth, to determining real, actionable steps to drive customer behaviour, when you don't know what they're thinking in the first place?"

His next point supports his premise when he says that our actions are driven by emotion much more than logic but behavior leads to the truth. He makes a strong case for employing observation of customer behavior over other techniques like surveys. He doesn't ask customers. Instead he tracks customers out in the field to the actual retail stores and notes their behavior in real time. I think he sums it up when he says "to get to their hearts' desires, its much more effective to devote your company's time and resources watching customers actions, and not probing their feelings."

The key point that Mr. Cusick is making is true and we have known this for a long time. The hidden agenda behind Mr. Cusick's opinion article is that his company sells analysis of online businesses. He makes a good point that customers can be accurately tracked online and grabbing the web tracking numbers is not difficult.

The bottom line is that customer actions are definitely more powerful than a survey. As my mother used to say "actions speak louder than words." The drawback that keeps every business from observing their customers is that it is very expensive, especially if you want a large sample and your customers are located throughout the United States and possibly around the world. In addition, customer perceptions may not give you the whole truth but there is knowledge found in large samples of customer feedback. If this were not so, the many companies who use surveys would have quit surveying and saved their money long ago. Obviously, many companies have seen benefits gained from what the customers reported on their surveys. I can personally attest to this truth. I don't think it is time to stop surveying our customers.

Friday, August 21, 2009

Age Makes a Difference

There is something to be said about the "older" worker. A recent study by the Lancaster University Management School of 400 McDonald restaurants at various locations in the United Kingdom provided some unexpected results. The key result was that customer satisfaction was, on average, 20% higher in restaurants that employed kitchen staff and managers who are 60 years and older.

A McDonald official provided the following explanation. The older workers' cumulative experience, work ethic and people skills appear to have an impact on the younger staff. This same McDonald's official indicated that restaurants with a mix of old and young staff meant higher profits for the chain.

The bottom line is that companies are starting to realize the value of older workers. These workers not only bring experience to the job, but an understanding of the value of the job. A friend of mine once posted a bright orange placard in his service organization that read "Customers are what make paydays possible." Needless to say that phrase became the mantra for his organization and brought a clear mission statement to every one in his organization. As a passing note I might add that his organization was VERY profitable.

Saturday, August 15, 2009

Can Customers Be Too Satisfied?

I have often preached that you can't have too much customer service since it is customers that make paydays possible. Based on a new study I may want to re-think my philosophy.

Researchers at the Chartered Institute of Management Accountants have uncovered some very interesting findings. They have found the financial benefits of keeping customers generally happy start to drop once you hit satisfaction levels of 90 to 95% They also found that good customer service is expensive and that companies can overspend on satisfaction. They also found that customer service can cost up to 60% of the costs in high-tech companies.

The bottom line is that you can sometimes overdo a good thing. We all generally believe that the better you are at customer service, the more money your company will make and the more loyal your customers will become. We all know that eating food is good is good for you but overeating is bad. It is difficult to draw the same conclusion about customer service, however once customer service is viewed from the point of profitability, the business model changes from never providing enough customer service to providing the most profitable amount. This should not be interpreted to mean that the most profitable amount of customer service is NO customer service. No customer service is a short term strategy with very little likelihood of long term success.

There is an Edelman Award paper that showed that a company with an inbound call center that took orders for product could improve profits by increasing the number of personnel. However, even this scenario has a limit. The company found that customers were not willing to wait on the phone to place an order so by increasing the number of personnel taking orders their sales increased more than the cost of the increased number of personnel in the call center. However, there was a point of diminishing returns. The solution was to find the number the maximized profit.

I once had a client who clearly understood that he could provide too much service. My assignment from him was to effectively create a business model that would provide the relationship between customer satisfaction and cost. In this way he could determine how much more an increment of improved service would cost. His insight was ahead of his time. I think industry now has the tools to build a similar model.

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