July 19, 2012
Earning Customer Loyalty in a Disloyal Marketplace
BY Mary Mahoney
Many companies are not attending to the things that keep customers engaged, which is key to sustained growth.
Brand-building is supposed to be all about loyalty-building. Companies invest billions creating, nurturing and protecting brands so that they can command a price premium. Brands are supposed to ensure consumer loyalty to specific products and services for reasons other than price.
Then why are some customers stubbornly disloyal? Why are they ready to jump ship from their supposed favorite brands every time they receive a new Groupon offer? Like it or not, customers today are more than ready to leave their longtime brand relationships to take advantage of deep discounts and promises of increased value or quality.
According to Time magazine, hundreds of thousands of cable TV subscribers cancel their services every quarter. The Los Angeles Times reported that 5.6 million Americans switched banks during the last three months of 2011, including 610,000 who swapped financial institutions to protest new debit card fees.
The Accenture 2011 Global Consumer Research Study sums up the dilemma: “On the one hand, consumers claim they are more satisfied with the companies they do business with. Yet on the other, they feel less loyal to companies, increasingly switch providers and shop for better deals as their expectations continue to rise.
“Satisfying customers, providing more competitive pricing, offering more compelling products or even delivering better service are no longer surefire ways to gain and lock in customers. Many companies are not attending to the things that keep customers engaged, which is key to sustained growth.”
Accenture lists these five “blind spots” that erode customer loyalty:
- Failure to set the right expectations when the customer relationship begins
- Failure to let customers know they are appreciated
- Overlooking signals from customers that they aren’t satisfied
- Failure to provide a way for customers to engage with the company easily and quickly (notably, the social media)
- Relying too much on technology to satisfy and retain customers
It’s not that companies don’t understand the financial value of retaining customers. If you ever tried to cancel a credit card or cellular phone, you know firsthand how far banks and telecommunications providers will go to keep you. Many will forgive an errant late fee, issue a refund or offer discounts as retention incentives.
The Corporate Executive Board, an organization that helps more than 16,000 senior executives drive performance through best practices, notes that the cost of “saving” customers by literally buying back their loyalty is expensive, likely will not succeed on a long-term basis and may encourage customers to request concessions on a regular basis.
Some companies maintain telephone call centers devoted exclusively to saving customers. A study by McKinsey & Company, a global management consulting firm, studied 14 of these so-called “save desks” across five industries in 11 countries. McKinsey found that the worst performers tended to offer cash incentives, especially arbitrary refunds.
Instead of cash incentives, successful save desks offer incentives designed to retain customers and encourage them to spend more. The McKinsey study cited a cable television provider that offers unhappy customers a free trial sports package. Not only does this approach save 15 percent more customers, but many of them end up subscribing to the extra service!
“All told, we found that save desks taking the more targeted approach were up to three times more profitable than those that didn’t,” McKinsey said.
The study concludes that senior management commitment is critical. “When senior management is committed to running save desks well, they can boost profits significantly, a lesson learned by at least one mobile telecom company, which found that its save desk was worth $5 million in profit for every 1 million subscribers.”
The Corporate Executive Board’s Customer Contact Council advocates reaching out to customers before they actually become disloyal. A recent council survey found that just 44 percent of companies proactively contact customers who suffer a poor experience. Not surprisingly, the study said those customers often jump ship to competitors.
“In short, reaching out to customers to resolve the issue and understand what went wrong in the interaction can actually serve to recover customers before they require hefty discounts,” the Council said. “The catch is the timing for proactive outreach: recovering customers who are trending disloyalbutnot yet disloyal.
“Customers who are already disloyal actually require thesave desk. But for customers who are merely trending disloyal, companies have a good opportunity to save them by simply resolving the issue.”
An article in the May 2012 issue of Harvard Business Review by Patrick Spenner and Karen Freeman of the Corporate Executive Board observes that companies have reacted to vanishing brand loyalty by “ramping up their messaging,” overwhelming customers with “relentless and ill-conceived efforts to engage.”
The best way to keep customers is to “keep it simple,” suggest the authors, who based their article and conclusion on surveys of more than 7,000 consumers and interviews with hundreds of marketing experts who were asked what makes consumers “sticky,” that is, likely to make a purchase, buy repeatedly and recommend a product or service.
“The single biggest driver of stickiness, by far, was ‘decision simplicity:’ the ease with which consumers can gather trustworthy information about a product and confidently and efficiently weigh their purchase options,” the article said. “What consumers want from marketers is, simply, simplicity.”
The success of Apple Inc. – designer of what arguably are the most popular consumer technology products ever including Mac computers, iPhone, iPad and Apple TV, among others – is attributed by many to the simplicity of its software and hardware. Apple products are easy to figure out and operate – even intuitive.
To make customers “sticky,” marketers must simplify consumers’ decision-making and help them navigate the “purchase journey,” according to Spenner and Freeman, who say effective marketers use three tactics: 1) minimize the number of information sources consumers must touch; 2) provide trustworthy product information and 3) enable consumers to weigh their options by identifying the features that are most relevant to them.
For more on this subject, I recommend an ebook entitled Engagement, Winning the Battle for Customer and Employee Hearts and Minds by Bob Caruso of J.D. Power and Associates, which is a compilation of white papers by his organization, Allegiance, Peppers & Rogers Group, CustomerThink and others. It’s available as a free download from Allegiance.
“The passionate pursuit of customer loyalty isn’t about pricing or gadgets or perfectly performing products,” Caruso says. “It’s about customers and gaining the love, respect, trust and commitment of those customers.” To achieve that objective, companies must “become highly proficient in gathering, acting upon and internalizing the voice of the customer.
“Rather than relying on infrequent or periodic research activities, successful businesses will engage their customers in a continual dialogue. After all, the time, energy and resources a company invests in engaging its customers and employees are efforts well spent that can pay off in substantial economic dividends and having more loyal employees and customers.”