Loyalty is a Two-way Street

Most companies involved in retail or commercial sales are always looking for customer loyalty. It seems that companies often forget there is another side to loyalty. The other side of the relationship is being loyal to your customers.

We are often reminded as we see companies advertising special deals for new customers we, the current loyal customers, get nothing for remaining loyal. Upon reflection it would appear the new customers are more important than loyal customers to the company as they advertise special deals for new customers only.

This is a problem that many companies are ignoring; namely, negatively affecting their loyal customers by not being loyal to them.  Loyal customers expect loyalty in return and when they don't see it demonstrated, there is a distinct possibility that their loyalty may be negatively affected. Although little research has been performed to measure the extent of this situation of providing additional value to new customers while ignoring old customers, we think there is an opportunity to increase customer loyalty by demonstrating company loyalty to their customers.   This may be demonstrated in several ways (some of which are being tested at the present time).  For example,

1. Say thank you to your customers with an occasional surprise gift or token (which may even be a marketing give away e.g. logo desk products such as pens, note pads, etc)
2. Occasionally give special deals/discounts to existing customers only.
3. Exchange products and/or services with your customers (especially B2B customers)
4. Find ways to assist your customers to increase or improve their business (customer meetings where your customers can network with others who are also using your products or services)

The bottom line is that companies must learn to see loyalty as a two-way street.  It is one of the best ways of building lasting company-customer relationships.

The Internet Impact on Customer Loyalty.

This blog is a continuation of the previous blog that look at the traditional measures of customer loyalty. Again the Customer Institute regrets the inability to identify the author of the following information.

The Internet is has changed many of the basic concepts of customer loyalty. The following list represents a number of the ways in which customer loyalty may appear from an Internet perspective.
1.       A loyal customer will still patronize your business but will know the alternatives better.
2.       A loyal customer will still provide recommendation but is more likely to be on a reputation-based website.
3.       The premium that a loyal customer is willing to pay is getting smaller. This becomes more obvious this product or services become more commoditized.
4.       There's much less face-to-face communication.
5.       The customer is less connected with the company and hence the personal bonds between customers and company personnel are becoming a thing of the past.
6.       The customer is easier to make the relationship since the transactions are less personal.
7.       Customers are willing to become part of the community to be willing to take this association to high levels of commitment such as the Apple cult and other similar communities.
8.       Customer reviews and testimonials are becoming more important.
9.       A new kind of customer has emerged. That customer may be a brand evangelist or happy wanderer with no loyalty.

The bottom line is that the Internet has become the great equalizer in the in the business community. There is no difference in the virtual real estate of a small start-up company with virtual real estate of established industry giant.  On the Internet these two very different kinds of companies can appear equal.  The companies of today and tomorrow must manage their websites will is in terms of appearance and in real time.

Traditional Measures of Loyalty

The customer Institute recently uncovered the document with some excellent measures of customer loyalty. Unfortunately, there is no attribution to the writer of the document. The traditional measures of customer loyalty that are apparent in the market today include the following:

1. A loyal customer will patronize your business as opposed to all other alternatives.
2. A loyal customer will provide your business and natural, unsolicited, word of mouth recommendation to friends and strangers.
3. A loyal customer will be willing to pay just a small premium to patronize your business .
4. A loyal customer will recognize the business relationship as a meaningful personal relationship and not just a mercantile relationship.
5. A loyal customer will invest energy in the relationship both in the form of reputation validation , but also in personal engagement with the business.
6. A loyal customer will tell you when when something is going.
7. A loyal customer will not abandon you when something goes wrong, but gives you an opportunity to correct the shortcoming and to continue the relationship.
8. a loyal customer will wear your T-shirt or baseball cap and be proud of the Association.

The bottom line is that customer loyalty from a traditional perspective is based on relationship filled with positive feelings. . However, not every customer relationship will rise to this level of loyalty.  The traditional measures noted above change when customer loyalty is examined in the Internet age. This will be the subject of a future blog.

An Update on Customer Rage

 The WP Carey School of Business at Arizona State University has published the 2013 update of the customer rage study. The 2013 version is the sixth study wave. A general conclusion from the study is that if a company handles a complaint well, the customer is more likely to become loyal.  If the company does not handle it well they are likely to lose approximately 12 percentage points in brand loyalty than if the customer had never complained at all.

One of the key findings of the study is that satisfaction in 2013 study is no higher than the satisfaction reported in 1976.  A quote from one of the authors of the study notes “people are frustrated that there are too many automated response menus, there are not enough customer care agents, they waste a lot of time dealing with the problem, and have to contact the company an average of four times to get resolution.”

The top 10 highlights of the study are:
1.       The amount of people reporting customer problems went from 32% in 1976 to 50% in 2013.
2.       The number of households experiencing customer rage increased 8% since 2011.
3.       Yelling has increased from 25% to 36% and cursing from 7 to 13%.
4.       The product, most responsible for enraging customers is cable and satellite TV.
5.       Only 2% of the most serious problems involved dealing with the government.
6.       Customer complaint on social networking sites has increased from 19 to 35% since 2011.
7.       56% of customers who reported a complaint said they received absolutely nothing as a result. his is an increase of 9% since 2011.
8.       Customer satisfaction doubled from 37 to 74% when companies offered an apology along with  any other monetary action to resolve an issue.
9.       Despite the rise of the Internet, customers complained 11 times more by phone than through the web.
10.   Satisfied customers tell an average of 10 to 16 people about their problem and its resolution, whereas dissatisfied customers tell about 28 people.

The study was based on a phone survey of approximately 1000 households, and was performed by NOVO 1.

The bottom line is it appears Americans are becoming more dissatisfied with products and services and are expressing that the satisfaction more than the past. The answer is that companies must commit adequate resources to address customer problems. Research continues to show that companies who provide positive results to the customer experience have higher levels of customer loyalty and financial performance than companies who do not.

What is Happening to Loyalty?

The research company fast.MAP partnered with the Institute for Promotional Marketing (IPM) completed a survey to understand what is happening to competitive loyalty programs in the UK.   Some of the findings from this study suggest that loyalty may be changing in the consumer marketplace. If this study is relevant outside the UK, then companies must be aware of the changes in customer loyalty and think through the impact of their strategy in the marketplace.

Some of the more dramatic findings are:
1.     8 out of 10 shoppers use all different types of promotional programs by brands other than the ones they would normally purchase.
2.     More than half of the different types of promotions being used in the market had been used by 9 out of 10 consumers.
3.     3 out of 10 shoppers are tempted by a free sample to swap brands. 96% of the shoppers were tempted to use a different brand by price promotion and 31% claim they are doing this often.
4.     1 out of 3 shoppers stated they often used reward or loyalty schemes for products they do not usually buy.

With these staggering statistics, customers appear to be less loyal than the past.  Brand loyalty can no longer be taken for granted. If these statistics are representative of the current market in other countries outside the UK, companies may be forced into price discounting as a normal mode of business. One possible explanation is that the current economic environment may be leading customers to shop strictly for price. If this trend continues, brands with a strong market presence will see their product prices becoming totally elastic with little or no differentiation for brand names.

The bottom line is customers will always be adapting to changes in the market, the economy as well as changes in technology and competition. In difficult economic times price becomes a significant variable. However, customers know value and understand the implications of good customer service versus poor customer service. A price war should not be the preferred answer for a company; rather, providing value-added offerings to the company product or service may be the key to survival and maintaining profitability.

What is "Deal" Loyalty?

The Edgell Knowledge Network found in a recent study that actual brand loyalty among consumers of partner loyalty program is not any different than consumers who were not part of the loyalty program. In other words, there appears to be no significant difference in loyalty between consumers who were members of a loyalty program and those who were not. The same study found that approximately 81% of the members in a loyalty program did not fully understand the entitlements associated with loyalty nor how they could claim the program loyaoty rewards. According to the results from the same survey, the average consumer belongs to approximately 18 different loyalty programs.

It's been noted in this blog in the past that customer satisfaction is an instantaneous measure that reflects only the outcome.of a particular event.  Loyalty programs that provide points or rewards for a sinble transaction of some type are nothing more than relabeled customer satisfaction programs.. The idea of providing rewards as incentives does not create loyalty.  Some researchers describe this type of loyalty as  "deal loyalty" since it contains no aspect of relationship building and only depends on the "deal".  The customer is "loyal" only as long as the "deal" is offered.

True loyalty programs are built on the basis of establishing a long-term positive relationship between the company and the customer and is not accomplished with a single "deal" or even multiple "deals".  Loyalty of customers comes from the relationship between the customer and the company without the need for an instant reward. The reward is the relationship.

 Since there is no apparent difference in loyalty between customers involved in a loyalty program and customers who are not, the question is, why bother with that type of the loyalty program .  If the money spent on a loyalty program which provides points or rewards of some type were redirected to building individual customer relationships, the long-term benefit will probably be significantly greater.

The bottom line is that there is no shortcut to customer loyalty.

Customer Experience is important

Greg Lederman has written a new book titled "Engaged!: Out-behave Your Competition to Create Customers for Life".  He makes the point that the value of the customer experience is a significant factor in creating fierce customer loyalty. He suggests that the customer experience is really the brand of your company as much or more so than your company logo.

In his book he offers eight key principles to manage the customer experience. The principles are:
1. Keep every employee on stage, delivering an experience
2. Keep your team happy to create engaged customers
3. Don't just announce your culture, make it visible
4. Focus on culture change rather than culture talk
5. Turn common sense into common practice
6. Build relationships and stop surveying customers
7. Incent engagement with training and recognition, rather than rewards
8. Build trust in you as a leader by managing the experience.

Lederman suggests that highly engaged organizations grow profits as much as three times faster than the competition. Other benefits that he mentions are that they can reduce staff turnover by as much as 87%, improve performance by 20%, and increase customer satisfaction by at least 12%.  He suggests that companies who provide memorable experiences will create what he calls fiercely loyal customers.

The bottom line is that he makes some obvious and some not so obvious points that every corporation should consider as significant aspects for their customer relationships. A few of the eight points have been given very little attention in the literature. The idea that building relationships is even more important than serveying the customers is not very popular. However, upon reflection, it is easy to understand that loyalty come from the customer experience, not from a survey.  Making the case for the customer experience as a significant component of corporate strategy is as exciting as it is novel.

What makes a sticky customer?

There has been some interesting research completed recently which needs to be reported. One of the key findings was that the most important factor in getting customers to return to your site or company or business was identified as “decision simplicity”. Decision simplicity means the ease of getting the information the customer is looking for in the midst of marketing propaganda or advertising that is being offered at the same time. In other words customers come back to you when you make it simple (not complicated) for them to make a decision or a purchase without overwhelming them with other information.

Another study has found that companies can increase loyalty by helping customers make their buying decisions with the least effort. Another way of saying that is customers don't want to work hard in making a decision or to complete a purchase.  This conclusion came out of a study by Francis Frei  and Anne Morriss in their study of service businesses.  

The idea of making it easy for the customer has been discussed before in this blog. You will find in a previous blog a research company that focuses on customer effort as a metric.

Your company will become more appealing to customers as you find ways to simplify the policies and procedures that your employees are instructed to follow when dealing with customers. Customers are your best consultants and they are free. Listen to them about how to simplify your processes.  Simplifying your organization and your processes for dealing with customers is often constrained by internal politics and personalities. Customers, on the other hand, do not have these constraints.

The bottom line is that every company should strive continuously to simplify the policies and procedures of their customer contact personnel. This also includes simplifying all social media that influences or guides customers to your business. By keeping it simple your customers will appreciate the efforts you take to make it easy for them to do business with you. Some call this stickiness which is another way of saying making it easy for your customers to stay and come back is the best way to create customer loyalty. 

Numbers Have Different Meanings

Numbers carry different connotations in different parts of the world. An interesting article was written by Natalie Kelly of Smartling Corporation.  In this article she points to a several places around the world where numbers have meanings other than their numerical values.

For people who live in United States the number 13 carries with it a meaning of bad luck. For this reason, many buildings do not have a 13th floor nor do airplanes have a row 13. On the other hand, there are some numbers that carry with them a positive connotation rather than negative. For example, a product priced at $6.66 would be considered lucky in China because that number sounds like the phrase “things are going smoothly" when spoken.  In fact, many Chinese companies will hang 666 above their door. The Christian world, on the other hand, considers the number 666 to represent Satan and hence carries a very negative connotation.

The number nine is a bad luck number in Japan because when spoken aloud it sounds like “suffering”.  For that reason it is unlikely to see a product priced at $9.99 in Japan.   The number four also carries some negative connotations in Asian languages. The number four is spelled the same as the word “death”.  Hence, it is unlikely to see an Asian company using this number or combinations of this number, such as 4444 in a telephone exchange.  The Japanese filmmaker Fuji has taken steps to avoid using the number four in its marketing and goes from a series 3 to a series 5 for its products.

There are two numbers in Mandarin Chinese that have very negative connotations. The address 7456 sounds like “to make me angry” and the number 250 when spoken can mean “imbecile".

The number 17 is considered very unlucky in Italy.   The Vietnamese consider it bad luck to have three people in a photograph.

The bottom line is that numbers often have meanings other than their numeric value and hence when presenting numbers to your customer base you should do your homework and make sure that the numbers do not carry negative connotations.

Loyalty is not black-and-white

There have been a number of articles written regarding loyalty as if it were a black-and-white topic. The authors have made loyalty appear to be a term something like pregnancy. You're either pregnant or you're not. This kind of writing is not correct and is confusing, at the very least. Companies are looking for loyal customers, as if there is only one kind of loyal customer. We think it is time to address this issue of loyalty.

Can I be loyal to company without giving it all my business? Of course I can. Many companies are loyal to a given set of suppliers.   Just because I go to a specific restaurant, can I still be a loyal patron and frequent other restaurants?  Because I buy a particular brand of shoes, do I have to buy all my shoes with that brand in order to be loyal? 

The obvious answer to the above questions is that customers can be loyal to companies or businesses without giving them all their business. I can be loyal to a company by giving them most of my business. I can be loyal to company by giving them some of my business. Let's look at a few examples of loyalty. In each of the four following ten purchasing sequences I am loyal to company A.

1.     A A A A A A A A A A (all 10 purchases to company A)

2.   A B A C A D A E A F  (5 purchases to company A)

3.     A A B A A C A A D A (7 purchases to company A)

4.    A B C D A E F G A H  (3 purchases to company A)

In each of these preceding sequences, I continue to return to company A. The degree of loyalty can be thought of as a percentage of my pocket (the amount of money I have to spend) relative to my spending at other businesses or companies.

One way to view loyalty is the degree of commitment that one company has to another to purchase or utilize its products or services. While this may not be a pure academic definition of the word loyalty, it is intended to show that there is a degree of variability in the word loyal when dealing with customers and companies. To a certain degree, loyalty is connected to trust, but trust does not guarantee loyalty to the extent shown above in the first sequence.  It is present in all four sequences.

 A more personal way to think of this is that we have friends to whom we are loyal and while at the same time we have friends who are only acquaintances, and to whom we have less loyalty. The degree of loyalty that we give to other people is no different than the degree of loyalty customers will give to different companies with which they do business.

The bottom line is that we must not look at loyalty as a black-and-white parameter. There are degrees of loyalty, which we will give to different companies depending on a number of reasons. The challenge is to find ways of differentiating the different degrees of loyalty. That is a subject to be dealt with in a later blog.

Do You Think Your Customers Don't Know You Are Watching Them?

The book 1984 brings to mind the concern that big Brother is watching you. The Radicatti Group recently published the results of the study that shows that as much as 83% of all e-mail traffic is spam. Customers are wary of sharing their e-mail addresses and personal information for fear that information will be used for purposes other than their benefit.

There is an anxiety in the marketplace that companies are being too invasive with respect to their customers. With this comes the assumption that collecting data from the customers invades their privacy. The underlying customer assumption that many companies make is customers lack a faith in believing that the information gathered by the company is for their benefit.  This assumption may no longer be true.

If 21st century companies do not understand that customers already know that they are watching them and accruing information about them, they are either naïve or don’t care. In fact, there is a cultural shift with customers that is slowly taking place. Many customers no longer see data collection as being inherently invasive; rather customers are beginning to understand that the data they provide has the potential to reduce costs (and prices) and improve services.

The key gradients to move customers from not trusting the company to use their data are: (1) trust and (2) communication. In other words, 21st-century companies need to focus on communication with the customers so they can build a strong relationship and understanding of how the information will be used. This only occurs when there is trust between the company and the customer.

One point that companies overlook is that they are asking for something of value from their customers (information about the customer) without “paying” them for it.  In this sense “paying” the customer means giving the customers something of value in return for the valuable information that they have just given the company.  

The bottom line is customer data has value to the company and the company should be willing to return value directly to their customers for that data. Customers in 21st-century are wise enough to know that you as a company are watching them and capturing data about them. When you communicate with your customers and show them that the information they share with you will be used to improve the quality of your products and services, they will be able to see and appreciate why it is important for them to provide that data. The next step is to return something of value to your customers.

 

Trust is required by the company so that customers will provide accurate information. Trust is also required by the customers that the information that they share is for the sole benefit of the company to improve the level of product quality and service. We can only hope that the company and their customers will honor that trust.

What About the Customers in the Middle?

There is a general rule in the market that customers will generally only offer feedback when they either have a really bad experience or great one.  If you believe that customers rarely say a word when their experience falls somewhere in the middle you are missing some valuable information. The point here is that most of the customers will typically be in the middle and they are the ones that will drive the success or the failure of business.

Most companies maintain a well-oiled customer satisfaction measurement system. There may be additional dimensions to the measurement that will lead them to believe that they are also measuring customer loyalty. When companies measure customers that have either had a bad experience or good experience, their measurement is inherently biased. They have missed the opportunity of measuring their entire database of customers from this selection process.

Most customers will reside in the middle and will not have had either a bad or great experience.  They are generally ignored and not measured.  In order to understand the customer experience of your entire customer base it is necessary to include those customers in the middle.  ForeSee, a survey company, ran an experiment that compared customer satisfaction scores from satisfaction surveys (which probably measured responses from customers with a recent experience) and then compared the scores from a random sample survey which included all customers. They found that the random sampling does a better job of measuring the wider range of customer experiences rather than just a select group of customers that often respond to the surveys from good and bad experiences.

A boss I had many years ago reminded me not to expect what I don't inspect.  The bottom line is that measurement of customer satisfaction must be done properly. The process of customer selection must include the customers in the middle.  If you are currently measuring only the customers with bad experiences and customers with great experiences you may be missing out on some rich information that resides with the customers in the middle. 

Satisfaction Has a Legal Meaning

You may not be aware that the term "satisfaction guaranteed" has a legal meaning.  The Federal trade commission’s advertising rules are very specific about using the term "satisfaction guaranteed." Most courts when addressing cases regarding satisfaction have stated that satisfaction means "what ever a reasonable person would expect from a product or service."

The Better Business Bureau code of advertising and FTC rules both suggest that the term "Satisfaction guaranteed" should be used by a seller when advertising only if refunds for the full purchase price can be expected when requested by a customer. If there are any limitations or restrictions on a guarantee, those conditions should be clearly and prominently displayed for the customer.

Here are a few examples of a proper “satisfaction guaranteed” ad:

1.       We guarantee your satisfaction with our product/service.  If you're not completely satisfied, we will gladly refund the full purchase price.

2.       Return the product in its original package within (some limited amount of time) and we will fully refund your purchase price.

3.       If our service does not meet your complete satisfaction, your full purchase price will be refunded.

This is serious business. Businesses have been taken to court by customers and have been penalized a significant amount of money. The bottom line is that satisfaction is not only a wonderful word for marketing but also brings the responsibility of making the customer “satisfied".  There is a very strong trend in the market that customers are becoming more litigious. Not all customers are nice customers.

What Customers Say

There's been some interesting research performed Dr. Wes Schultz and Dr. Robert Cialdini that suggest the answers that customers provide might not always be correct. If you politely ask a customer a question regarding what they're thinking or what they may doing in the future, customers will most likely give you an answer.  According to the research, the answer the customer provides has a reasonable likelihood of being wrong.

In many satisfaction surveys customers are asked to provide reasons why they gave a specific answer or what they are likely to do in the future. Some of the confusion that may arise when asking for comments comes from the fact that the customer may currently be considering the response to the current survey while at same time being asked how he would behave in the future. While this has not  been specifically studied by Drs. Schults and Cialdini, it's the first step in recognizing that we often ask too much of customers during the time they are taking a survey.

These scientists performed a study of several hundred California homeowners and asked them to predict which of four messages would be most successful at persuading them to take steps to conserve energy and reduce their overall energy consumption. The four messages were 1. Conserving energy, helps the environment; 2. conserving energy protects future societies; 3. Conserving energy saves you money; 4. Many of your neighbors are already conserving energy.

The results of the study suggested that the message about what the neighbors were doing was the least likely to influence their behavior. The researchers, however, discovered that this was the most effective message when it came to changing the behavior of the neighbors. One conclusion was that even though most of the neighbors denied its effect, the desire to keep up with the Joneses was the real driving force.

While there is much to be said about the other experiments performed by these researchers, the bottom line maybe simple. One conclusion that might be drawn from this research is that people don't always act consistently with what they have said.  If this conclusion has merit, those who are performing customer satisfaction and loyalty surveys may want to reconsider both the design of the survey and interpretation of survey comments. In the end it may be more important to watch the way the customers act rather than to act on what the customers say.  We are sure someone's mother must have said at one time or another "it's not what you say but what you do that counts."

Customer Retention of Contract Customers

The customer Institute usually publishes information regarding a specific research topic. This blog will be different in that it is primarily commentary. The topic of this blog "customer retention" will focus on companies that have long-term contracts with their customers. Customers with long-term contracts are very different from customers that are dealt with one event at a time with no long term commitment.

A study was done by the customer Institute several years ago that examined the migration of customers between competing companies. The objective of the study was to examine the roles of customer acquisition versus customer retention. One of the most interesting outcomes of the study was that the impact of customer retention (increasing the rate of contract renewal) on market share was greater than the impact of customer acquisition.

One of the challenges that companies (with long-term contracts with their customers) have is remembering the value of that customer even when the long-term relationship has been legally consummated and now is the time to start supporting the customer. Companies can easily become complacent once that long-term agreement is signed.  It becomes very easy to give the long-term customer lower priority than the potential new customer. However, it is important to remember that the long-term value of the customer (with the long-term contract) is greater than the short term opportunity.

The bottom line is that companies who develop long-term contracts with their customers need to focus on  retaining those customers. Long-term growth in market share comes from increasing retention rates of those customers with long-term contracts. In other words, the long-term customers represent your greatest opportunity for growth and market share.

The Five Dimensions of Customer Behavior

There was an interesting article written by Danica Alann in the January 2012 issue of Quirk's Marketing Research Review titled "transcending brand and loyalty."   In the article she reflects on the research by Pinker, who wrote about how the mind works.

Adweek in September 2008 made the following statement:
 "Whatever the methodology, it's increasingly clear that customers desperately want goods and services, communications and marketing campaigns that dazzle their senses, touched their hearts and stimulates their minds - delivering a positive experience that will remember. Businesses will live or die not by the attributes they promise but by the brand experiences and  value they offer customers at every touch point."

There's been considerable research performed that has confirmed Pinker's five dimensions.  Those five dimensions are sensorial, social, behavioral, cognitive and emotional. A brief description of each of these dimensions is described below.
1. Social is the dimension of interacting with others. It is a dimension that creates a bond between the customer and the company.
2. Intellectual is the dimension of thinking. It is the dimension that causes me to reflect and try to understand and compare experiences.
3. Sensorial is the dimension of senses. It is the dimension that interacts with one or more of my five senses of smell, touch, sound, taste, hear.
4. Emotion is the dimension concerning my emotions.  It is the dimension that affects the way I feel or react to a situation.
5. Behavior is a dimension concerning my actions. It is the dimension that describes my physical reaction or responses to the situation.

In her article Ms. Allen translates these five dimensions into more consumer-friendly words of talk, think, since, feel and act.  These words make it easier to develop strategies that will best capture the customer dimensions most appropriate for specific products and services.

While not all five dimensions will have equal weight in any service encounter, all will be present. It is the challenge of the company who wants to understand its customers to determine how each of these five dimensions are working with their customers. For example food-service companies will obviously focus on the senses, such as sight and smell of their products. On the other hand, companies that sell products such as cars, boats, motorcycles and airplanes would probably be interested in the sight and emotional impact of the product on the customer.

The bottom line is that a better understanding of the dimensions of the customer should lead us to better metrics.  The remaining question is how to translate these five dimensions into an overall metric that best represents the customer.