Is Loyalty Just a Habit

William McEwen of Gallup wrote an interesting article titled "Is Loyalty Dead?" He starts by referring to a study by Catalina Marketing that has reported that more than half of the average brand's highly loyal customers became significantly less loyal in 2008 than they were the year before. His question is whether this is just a reflection of the economic climate or is there a sea change in the customer's mindset of what loyalty is.

The definition of loyalty has been considered sacrosanct for many years even though we have gone through several generations of new consumers (generation Xers and then generation Yers). It may be time to stop and reconsider our basic definitions of loyalty. Can we expect these new generations to act identically as their parents did?

When we look back at what we thought were loyal customers we might want to think of them as loyal or, as an alternative, maybe they were merely buying out of habit. if they were buying out of habit, then there is no "glue" to hold them to a particular company. Mr. McEwen points out that habits reflect past behavior and may not represent future behavior. While past behavior might suggest some form of loyalty, companies need to be concerned about the future behavior of their customers.

Mr. McEwen also notes that Gallup research has shown that customers' intentions are only weakly related to behavior outcomes such as continuing to buy. If, however, the intention is complemented by strong feelings of emotional attachment to what they are purchasing, then the customer's indication of an intention to buy is valid. I believe the Gallup research would also show that customers who say they definitely will continue to buy a brand but have no emotional bond with that brand will wind up acting the same as those who say they're uncommitted or they might not continue to buy the brand.

The key point made in the article is that loyalty entails more than an intention and habit. Loyalty results from a strong bond of emotional engagement. AS I have noted in past blogs, loyalty is not a passive state. Loyalty occurs when a positive emotional bond is built between the company and the consumer. Loyalty measures the strength of the relationship. A customer who continues to purchase from a company but has no emotional bond is no more loyal than his habit of selecting the company out of habit.

In the larger picture companies buy businesses for the value of their customers. But customer loyalty is not always associated with the brand. It is possible to buy a brand but that may not include the relationships. The customer relationship must ALWAYS be earned. If customers don't feel the relationship, it should not surprise anyone that their buying habits might change.

The bottom line is that loyalty will always be defined by trust-based relationships. Thus a company must engage in actions that will lead to enduring, trust-based relationship. Remember customers do not have relationships with a company or a brand, they have relationships with people

Thinking of the Customer as an Asset

WE know that customer lists can be considered an asset and we also know that the net present value of a customer can be used to assess the value of a company. I think there is more to the customer than being on a list or looking at its net present value. Of course, the net present value makes sense because that value represents real dollars. What I am suggesting is that the net present value might need some adjustments to incorporate some of the complexities of customers.

There are at least 4 tangible assets on the balance sheet; namely, facilities, equipment, inventory and cash.
There are at least three intangible assets; namely personnel skills, name in the market, customer data base.

The customer asset has the following characteristics:
1. Highly complex
2. Changes value with time
3. Changes value with the size of the customer
4. Changes value with the level of support needed for the customer
5. Changes value with the age of the products/services offered.

The Oxford dictionary defines asset as: property available to meet debts; any possession; any useful quality.
My definition of the customer asset is: TREASURE. By this I mean the customer is precious; something valued for its rarity as a beloved or highly valued person.

What makes the customer an asset can be defined using the Oxford Dictionary definition; namely, customers are a form of property that provide revenue to meet debts and customers represent a possession without which there is no business.

The bottom line is that we need a better value of managing customers and I believe that looking at the customer as an asset may give us some insight that will translate into better customer relationships, increased loyalty and increased revenue and margins.

I think by viewing the customer as an asset of the company, the customer will be viewed more strategically. This perspective should translate into increased efficiency and productivity within the company.

I would appreciate feedback on this approach to analogizing the customer to an asset.

The Cost of Poor Service

A survey sponsored by Genesys Telecommunications Laboratories,Inc in collaboration with Datamonitor/Ovum has some very interesting results. The 28 question survey was conducted with a sample of 8,880 consumers from 16 countries. A minimum of 500 surveys were completed for each country. The countries surveyed were Australia, Brazil, Canada, China, Czech Republic, France, Germany, India, Italy, Mexico, Netherlands, New Zealand, Poland, Russia, U.K. and United States. The respondents were selected from all age and income groups. They were asked about the frequency of their interactions with businesses via the Web, through contact centers and with their mobile devices. The purpose was to determine the impact of their interactions with their purchasing decisions.

This survey was aimed at financials services, cable and satellite TV and a variety of telecommunications companies. The survey results indicate that these industries in these 16 countries lose about $338.5 Billion per year as a result of poor customer service when customers defect and/or abandon their purchases as a direct result of poor customer service. This translates into $243 per year per customer. Of this total 63% was lost to a competitor and 37% led to the transaction being abandoned.

These losses are broken down as follows:
1. Financial services lost $44 billion in revenue
2. Cable and satellite TV lost more than $37 billion in revenue
3. Wireless carriers and internet service providers each had $36 billion in lost revenue.
4. Land line carriers lost $33 billion in revenue.

The most frequent reasons the consumers mentioned for leaving (the apparent dissatisfiers) are:
1. Being trapped in automated self-service
2. Being forced to wait too long for service
3. Repeating themselves
4. Representatives that lack the skills to answer their inquiry.

The consumers were asked to identify the factors that have the greatest impact on improving customer satisfaction. The four most frequent responses are:
1. Competency
2. Convenience
3. Proactive engagement
4. Personalization.

There is a customer wish list which includes the following:
1. Provide better integration between self-service and assisted service.
2. Be able to start in self-service and then switch to an agent without having to repeat all the information previously entered (Don't ask me twice!)

The bottom line is that poor customer service is expensive. The good news is that this study appears to have some statistical rigor and thus has believability. The dollars of loss shown in this report should provide a wakeup call to companies in these industries. How can any company stand to lose $243 per lost customer and expect to maintain a viable business? Time will tell if these companies are listening.

As the authors of the report so wisely note "differentiating on service, especially in service-centric industries, such as finance and telecommunications, is how enterprises can retain customers in today's challenging business climate."

A Word about Trust

Thee was an interesting article by David Kiley and Burt Helm in Business Week in the September 17th edition. The first point they make is that trust is the most perishable asset. They point to a survey conducted a phone survey from May 26th to July 3rd by the public relations firm Edelman. The key statistic from the survey is that 44% of Americans said they trusted business and that statistic is down from 58% in the fall of 2007. This decline in trust has caught the attention of some major companies, such as Ford Motor and American Express.

Trust is what drives profit margin and share price according to Larry light, CEO of Arcature, a brand consultancy in Stamford, Connecticut. The poll indicates the consumers are becoming more suspicious not just in products and services but the companies as a whole.

Companies are beginning to understand that brand names are important. As I mentioned in an earlier blog that hyper-loyalty is what companies strive to achieve with their customer base. Companies such as In-And-Out Burgers and Federal Express have achieved some form of hyper-loyalty (customers not only recommend the company but will actually encourage others to use the companies products and/or services.

Trust and company reputation have become ever-more intertwined with customer loyalty and marketing. It appears to have permeated the entire corporate structure to the point that trust and reputation are no longer limited to the PR department. The idea that products and services are separate from the brand and reputation of the company doesn't work well anymore. Consumers at all levels are doing more research than ever before with the advent of the internet. With their research they can read reviews of products and services and discover what their peers are saying.

The bottom line is that trust is becoming more important when considering customer loyalty and market share. One of the words that seems to be descriptive of this enlightened customer approach is "authentic." When you think of In-and-Out or Federal Express you see an authentic company. I use the word authentic in the strictest form of its dictionary definition; namely, the company is being what it is represented or claimed to be. A good synonym is genuine or real. Companies that can attain this image in the market may find they have hyper-loyalty with their customer base. The question to be considered in future blogs is what is how does a company become authentic.

Happy Employees Do Not Make Satisfied Customers

There is some interesting research being done in the UK. Rosa Chun is a professor of business ethics and corporate social responsibility and Gary Davies is a professor of corporate reputation at Manchester Business School. They have been investigating the validity of the assertion that seems to stem from the 1994 Harvard Business Review article "Putting the Service-Profit Chain to Work" and the subsequent book by James L. Haskett that happy workers equal happy customers. The concept of happy employees equal happy customer has been a mantra of high profile executives such as Gordon Bethune, the former CEO of Continental Airlines and many other public, private, non-profit and governmental organizations.

These academics have created a survey of customers and staffs of 49 business units and 13 service organizations in the UK. The survey covers fields ranging from financial services to retailing.

They start out with the statement that they haven't seen any hard data that supports the idea that happy workers equal happy customers. In fact, their research failed to confirm that service businesses with more-contented staff also have more satisfied customers. They found a positive correlation between happy employees and happy customers in only one firm where the business units with employees with higher satisfaction also had happier customers. There were two firms in their sample that had negative correlation between happy employees and happy customers.

Perhaps one of the most startling outcomes of their study was the factors that apparently increased customer satisfaction seemed to decrease employee happiness. The researchers admit there is a great deal of evidence that there is a causal link between happy customers and higher profits but there are a great number of steps to reach happy employees equal happy customers (or loyal customers). It appears that using a happy employee in a service role is not enough to win customer loyalty.

The bottom line is this research is important and needs further verification because there are many companies that hold the belief that happy employees equals happy customers and that this new knowledge may well change their strategy of how to create satisfied and loyal customers. There are several areas that need further investigation; namely,
1. What is meant by happy and how is it measured? (These definitions may be answered in the full documentation of the research.)
2. Would either of the definitions of happy include the topic of compassion that was discussed in my blog from yesterday (April 14th)?
3. What is the satisfaction criteria that indicates a satisfied customer?
4. It is not clear how many actual employees and customers were included in the sample.

I look forward to further information about this very important relationship since there are so very many companies that are spending a great deal of their resources to create "happy employees" with the expectation that it will lead to satisfied customers and perhaps loyal customers.