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.