Customer Loyalty 101 (Part 1)

Strategy Matters[su_dropcap style=”flat”]H[/su_dropcap]OW DO YOU separate the truly great from the good companies, or the good from the bad? Why is it that only some companies treat you for what you are: a valued customer? Answer: They understand you, take extra steps to keep you happy, recognize your long-term value, and genuinely thank you for your business.

We see our customers as invited guests to a party, and we are the hosts. It’s our job ever day to make every important aspect of the customer experience a little bit better

– Jeff Bezos, Founder & CEO of Amazon

Yet, in today’s wired environment, even the best companies need to do far more than in the past to keep customers loyal. Never to rest, the competition is constantly offering new features to attract new business. Customers are increasingly looking elsewhere for what they perceive as better deals, while paying less attention to a company’s brand. Their expectations are elevated with more choices than ever before for similar goods and services.

Customer Loyalty-direction-choicesTo a large extent, the Internet has redefined the competitive playing field and what it takes to keep customers loyal. It has made price transparency among rival products very accessible thanks to e-commerce sites like Amazon, eBay, & Social media and mobile technology expose customers to a multitude of choices when considering the next purchase, including product reviews. Whether one is shopping for a hotel room, airline ticket, or rental car, customers are challenged to stay loyal when tempted with so many choices just a click away. Clearly the threat of substitutes, competitive pressures, and low switching costs represent a daunting challenge for most companies. The famed strategist Michael Porter addressed these factors in his Five Forces Model. What used to be an 80/20 rule (20% of the customers accounted for 80% of the turnover) has shifted closer to a 60/40 ratio. Translated, this means that it’s becoming much more difficult for companies to sustain customer loyalty, to keep them coming back for repeat business.

You may wonder if a company’s brand is still important and worth the investment. In most cases, I argue ABSOLUTELY, especially when a company’s market strategy goes beyond low price to generate customer demand. A company’s brand is symbolic in that it gives customers (and shareholders) a basis that speaks to quality, value, and image. To bolster its brand, companies need to consistently deliver on these attributes, especially for products perceived more as commodities than unique offerings. Companies should give customers something extra to make them feel valued and the product worth buying.

I submit the following three recommendations to keep customers loyal to a particular brand, while recognizing that much more detail is needed to qualify what’s listed below:

  1. Greater investment to differentiate the products and services offered as a means to stand out in the market, to keep the competition from stealing your customers, and to attract new ones. Looking beyond price, what are the important ideas that align to customer needs that companies can consistently delivery? For instance, why is the Hilton Hotel experience so much better and predictable than switching to a low-cost provider (e.g., Airbnb or Motel 6)? To find out, some companies have adopted a Design Thinking approach to empathize with customers, to fully understand the problem space in need of creative ideas from which to innovate. The goal is to have customers willing to pay extra for a premium feature that delights their needs. In response, companies need to go beyond the ordinary to create value that cannot be easily replicated among its competition.
  2. Going the extra mile to keep customers happy. You older readers may remember the Camel cigarette ads about “walking a mile” to experience a pleasant outcome. To some, it was worth the extra effort. Most customers need a compelling reason to stay loyal to a brand. As Jeff Bezos implies above, the customer is king, they need to be treated that way. In general, customers remember the little details that companies do (or not do) to keep them happy. It is the unexpected experiences that customers remember and tell their friends about that truly matter. Indeed, customer referrals can be extremely valuable. An often overlooked asset is the customer-facing employee. As such, they should be empowered to listen and make on-the-spot decisions to safeguard the customer experience. Employees should be treated well and managed so that they exhibit a positive attitude in dealing with customers. Yet most companies do a poor job in keeping their employees engaged in a positive way. A recent Gallup Survey reports a majority of employees (51%) are “not engaged” in their jobs. Imagine how that might play out with customers.
  3. Fully embracing social media. Virtually all companies, more so than ever, need to be actively connected with the outside world. Clearly we live in a “wired economy.” What is shared within this virtual space connects with many, it influences what people think and feel about a particular brand. Volkswagen is an excellent case in point in terms of what can wrong over social media following its fraudulent emission practices. (Unfortunately, VW’s lame apology missed the mark.) Social media must be part of a company’s strategy as a means to create positive visibility, and respond appropriately to negative comments. Companies should actively participate in Twitter, Facebook and other social media channels that connect to customers. They need to monitor comments, respond / influence what is being said, and use positive messages to bolster the company’s brand. Moreover, marketers need to leverage multiple channels (including digital) to convey the right message to the right customers in order to retain and attract new business.

Getting a good handle on these three areas is a good start. Doing so will help companies strengthen their brand power among customers and attract new business. Most seasoned leaders know that this is neither simple to do nor a one-time fix. The legendary CEO Jack Welch once said:

Strategy is dynamic, fast, and real … it’s a constant act of motion. You pick a general direction and implement like hell”

The intent of this post is to broad brush several areas in need of attention as part of a company’s ongoing strategy. Much more on this topic of brand strength and customer loyalty remains to be said. One thing is for sure, though, resting on a company’s laurels and assuming customers will remain loyal is a recipe for disaster. Don’t believe, then recall how Blockbuster, DEC, and Oldsmobile ignored trouble signs and ultimately perished. Too big to fail only applies to large governments with tax dollars to spend.

See Part II for further discussion on customer loyalty.


Dr. Robert Bornhofen
Dr. Robert Bornhofen
Dr. Robert Bornhofen is a scholar-practitioner with over 25 years of experience. As a scholar, he currently teaches strategy at Cornell University and the University of Maryland Global Campus. As a practitioner, his corporate career includes a variety of leadership roles at Fortune 500 companies IBM, Delta Air Lines, & Citibank. Dr. Bornhofen earned his Doctorate degree at the University of Maryland, a Master of Science degree from Colorado State University, and a Bachelor of Science degree from the University of Minnesota. As a conference speaker, Dr. Bornhofen presents at various industry forums. His current focus is on innovation within the water utility sector. As a researcher and author, Dr. Bornhofen published over 20 papers on topics related to innovation strategy. Passionate about change, Dr. Bornhofen embraces the creative spirit that goes into problem-solving, where smart people come together to transform great ideas into extraordinary outcomes. His articles reflect this passion and desire for continuous learning.

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