Tuesday, April 27, 2010

More Thoughts on Disloyalty

Maritz Marketing Research published a research report titled "Customer Disloyalty". The report was written by Dr. Dan Lockhart. He starts out by saying that loyal customers have the following characteristics:
1. Like your product and/or service
2. Frequently purchase your product and/or service
3. Feel your product and/or service is worth what they paid for it
4. Feel that your product and/or service is better than your competitors'
5. Feel you product and/or service meets their expectations or desires
6. Recommend that others purchase your product and/or service.

He then defines disloyal customers as "anti-customers for the following reasons:
1. They dissuade others from patronizing our business
2. They bring law suits against you
3. They may complain about you to the media
4. In extreme cases they may picket your business.

According to Dr. Lockhart there are 4 stages of disloyalty:
Stage 1 - the customer is dissatisfied or has unmet expectations or desires.
Stage 2 - there is an attempt to correct the situation if the company is aware of the dissatisfaction or unmet expectation.
Stage 3 - If the company fails to correct the problem the customer may refuse to make any additional purchases
Stage 4 - If the customer feels he/she has no other option that customer may attempt to influence others not to buy from the company.

These four stages represent the downward spiral that begins with a dissatisfied customer and ends with a lost customer.

The research report uses a tree to show where customers get lost through the various stages of disloyalty. The tree starts with 1200 customers. The first stage (two branches) shows that 960 customers (80%) have no problem and 240 have a problem. Of the 240, (the second stage with two branches) there are 48 customers with a problem (this represents 20% of those with a problem who don't tell anyone and start down the path to disloyalty). Of the 192 that do tell someone (the third stage with two branches) 86 get excellent results (45%) and 102 do not get excellent results and start on the path to disloyalty. Finally in the fourth stage there are two branches that show half of those who received excellent response decide to purchase again and the other half chose not to repurchase. When all of these probabilities are combined there are 197 customers out of the original 1200 (16.4%) who end up on the road to disloyalty.

One of the obvious conclusions that can be drawn from this discussion is when companies do not handle complaints very well they are accelerating the decline from dissatisfaction to disloyalty. The data used in the research paper to create the probabilities was from a client and hence has some validity. While these probabilities represent the performance of just one company, the conclusion drawn by Dr. lockhart makes sense.

The bottom line is that managing customer complaints well appears to have a dramatic positive effect on customers with the implication that the company also benefits in terms of reducing the number of customers that may become disloyal. The challenge for companies is to examine the magnitude of these four stages that lead to disloyalty. One way to think about these four stages is to see them as cracks in the organizational structure. Then it becomes a management problem of how best to fill the cracks.


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