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The Evolution of Customer Loyalty (Part II)

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? In Part I on this topic, I addressed several problems associated with poor customer service and outlined three high-level recommendations. In this post, I offer additional advice for the willing leader looking to build brand strength for their company, to truly understand what it takes to keep customers happy and loyal. To set the stage, allow me to reiterate how the retailer Amazon views the customer:

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

Clearly what Amazon claims to do is far easier said than done. Based on a quick literary search, there is enough content published on customer loyalty to write a book series. In this post I submit three factors that affect loyalty: leadership, customer stickiness, and marketing. Collectively, these factors have shaped customer loyalty in an era where consumers are continuously tempted by the competition to switch brands, where product reviews and public sentiment further challenge loyalty like never before. In response, companies need to work smarter in order to strengthen their brand, hold onto their loyal customers, and attract new ones.

Leadership

Why does it seem that most organizational ills point to ineffective leadership? Well, that’s certainly the case when evaluating companies based on their ability to keep customers happy. Let’s face it, leadership sets the tone to how employees function and behave. It plays a huge role in shaping the organizational culture. As part of the company’s strategy, leaders need to: (a) be actively behind strategic initiatives; (b) fix what’s holding a company back in serving customers; and (c) persuade employees to adopt new, improved ways of doing business. For competitive advantage to be achieved, organizations MUST develop core competencies that resonate with customers and exceed what the competition offers. In addition to Amazon, this is what Apple, Chick-fil-A, and Kroger routinely do to earn industry recognition in customer service.

It reasons that the really good leaders make time to review customer service metrics, ask insightful questions, and take action in order to achieve goals. A simple measurement such as the Net Promoter Score can be used to understand how customers feel about the company by asking one simple question: would you recommend company XYZ (your organization) to a friend? Where NPS scores are low, leaders need to simply ask “why?” On the surface, what might seem to be a simple issue may in fact be a symptom of a deeper, more serious problem (e.g., inadequate training, tools, or instruction). Only by studying the problem can leaders truly understand the fix needed. Evidence exists to show a strong correlation between NPS score and a company’s ability to deliver customer service. Notable companies with high NPS scores include USAA, Southwest Air, and Pandora – all industry leaders.

In addressing customer service as a leadership issue, Dr. Rob Elkington makes the following generalization that fits many organizations:

Employees tend to not have a clear understanding of the organization’s vision and mission, and so act in ways that actually undermine that vision and mission … [they] may not have enough time to deal adequately with customers, and/or they have not been trained to deal adequately with customers.”

This situation clearly points to questionable leadership practices. When evaluating performance, focusing too much on quantitative measures (e.g., number of customers served) over qualitative factors can overshadow and distort the customer experience. While employee productivity and operating profit are critical elements to company survival, so too is the ability to treat customers in a sensitive and professional manner that generates loyalty and new business referrals. This should be a rally cry for organizations: never lose site of the customer, for without them companies are doomed to fail.

Customer Stickiness

I make a distinction between customers that are but mere transactions versus relationships defined over time that lead to repeat business. For example, my cable company is the former type; my State Farm insurance agent is the latter. By choice, I am stuck to State Farm based what my agent does to keep me loyal, as it will take more than just a lower price for a competitor to lure me away.

So how does a company strengthen its customer loyalty by being “sticky?” Among several ways of doing this, I offer the following for consideration:

  • Servicing Customers: As noted in Part I, companies need to do an extraordinary job of servicing customers, to excel beyond what the competition does to maintain a positive experience. I love it when the company employee gets sticky with me —the customer—by asking if there is anything else needed to earn my business. This is a great example of what a simple question can do to promote customer satisfaction when implemented throughout the organization. (Is my cable company reading this?) Customers want to feel a “human connection” or a sense of empathy and trust from companies.
  • Engaging Customers: Companies should routinely engage with customers through a variety of touch points over time, e.g., social media. A great example of this is coffee retailer Starbucks through its “mystarbucksidea” interface over the Web.

MyStarbucksIdeaAs illustrated to the left, Starbucks gets sticky with its customers by asking: How can we make your customer experience better? Not only is this source a steady supply of ideas, which is especially valuable to product innovators, but the simple act of asking for input generates a deeper relationship with the customer. This gets even easier for the small “mom & pop” companies where more direct opportunities exist to get sticky with customers, to ask for and act on ideas to strengthen loyalty. There is no excuse for a company not to get sticky with its customers.

Other examples of touch points include social media sites Facebook, LinkedIn, & Twitter, among others. In terms of electronic messaging, both RSS and SMS feeds to customer devices can keep the company relevant through information shared. Technology aside, the content needs to be of interest to the customers while doing a subtle sell of the brand. Many stock brokerage firms connect this way and do so relatively well to get sticky with investors.

  • Creating Communities: Companies can do more to stick with their existing and potential customers through greater use of online communities. Three great examples come to mind that qualify what it means to be sticky:
    1. BeingGirl (Proctor & Gamble). Analogous to being a “digital big sister,” P&G provides a worldwide online forum for young, teenage girls to connect and find out answers to sensitive questions. This exchange generated over 2 million hits per month (2010) between P&G and its young female customers.
    2. H&R Block. The public is able to connect with H&R’s community of tax experts to seek answers to questions. In 2012, approximately 1 million answers to 1.5 million unique visitors contributed to a 15% lift in business versus the prior year when there was no social media in the marketing mix.
    3. Harley Owners Group (H.O.G.). Another great example of how Harley Davidson uses an online forum among its 1+ million enthusiasts to promote brand. To attract enthusiasts, the forum addresses H.O.G. rallies & events, chapters, H.O.G. Ladies, and merchandise for sale.

I argue that virtually all companies that pursue non-private customers need to create similar user communities. It should be part of their strategy. Unlike the past, technology is inexpensive and readily accessible to support this type of stickiness between company and customer. Deeply embedded ways need to transform, they need to leverage new technologies and trends toward social networks as a means to bridge companies to customers, and in a manner that is interactive, informative, and influential.

Marketing

In my opinion, marketing is everything a company does on a daily basis to influence customers to act. Core to marketing is the ability to create AND convey value directly to the customer. Most leaders know about the 4 P’s to marketing (i.e., product, price, placement, & promotion). Within the context of this posting, focus is placed on the first “P” (product) as seen through the customers’ eyes.

To create value, companies must sense and capture specific customer needs, as segmented into different customer types (e.g., age, gender, & education level). For instance, how do the needs among the Millennial generation differ from the Boomers when selecting household furniture or a new credit card? Having this answer can be invaluable in knowing how best to promote the brand and service customers. If done right, well-defined customer segments can reveal unique insights that might otherwise go unnoticed at the macro, one-size-fits-all level. Companies should periodically analyze these segments to stay current on customer needs, trends, and concerns. With customers in mind, marketers must align consumer needs to what the company can offer to create value. Getting the product right and sustaining its relevance to the customer will strengthen loyalty.

Loyalty Programs

Can customer loyalty be bought by the highest bidder (discounter)? It depends. Selecting an insurance agent or interior designer can be far different than deciding who to buy gasoline from when filling the tank. The remainder of this section is for companies that compete for business through other means besides low price, where opportunity presents itself to earn customer loyalty.

Let’s first be clear on terminology. Many confuse the term “loyalty” with “rewards.” Loyalty denotes advocacy and commitment, not points or discounts. Consumers may be influenced by points/discounts without being loyal to a particular company. While many of us may admit to being hooked on rewards (e.g., frequent traveler points), I question whether the persistent use of this practice makes economic sense, especially for companies that cannot provide enough value in their products to create customer demand. No doubt, rewards can increase sales volume, but at what cost? The retailer Bed Bath and Beyond is a good example of how generous customer rewards (discounts) can backfire at the expense of profit.

The ideal situation for branding is when companies are able to differentiate their offerings so that customers see the added value and are willing to come back for repeat business, where the total experience exceeds that of the competition. Notice how the Apple iPhone and Louis Vuitton bags hardly ever go on sale. Earning customer loyalty through superior products is far more lasting than relying on discounts to stimulate demand. Two examples follow of companies that use other types of “currency” to attract customers; in particular, through social causes and online games as a means to create emotional attachment to a particular brand.

  • Social Causes: In the first example, Starwood Hotels (now part of Marriott) focuses attention on protecting the environment to attract customers in a program called “Make a Green Choice.” According to a 2010 study, 41% of U.S. consumers claim to have been influenced through a social or environmental clause as part of their decision to purchase an item. I suspect that this percentage has since increased as social causes became more widely accepted among the public. In this case, Starwood is using a popular social cause to turn guests into brand advocates. Other notable companies that leverage social causes to promote their brands include Starbucks, Disney, and Microsoft.
  • Gamification: As for online games, this is another way that marketers are attracting, cultivating, and retaining brand enthusiasts. The objective is to create an enjoyable and social online experience – one that generates a desired behavior among customers. In fact, 24% of the U.S. online audiences play branded social games at least once a month (Comscore). My own personal experience involves “competing” in a game that WebMD sends me, to test my knowledge of good health. I now have a stronger affinity for WebMD as a trusted brand, which provides a greater sense of loyalty.

Perhaps the greatest value to loyalty programs is that companies are able to identify with individual customers, to measure and understand their specific behaviors. This can be useful knowledge for a smart company looking to embrace the top 10 to 20% of its customer base that represents a sizable slice of revenue. For instance, airlines, hotels, and banks use different metal types (e.g., gold, silver, & bronze) to brand their customers based on economic value. Perhaps the most cherished of brands is the America Express Centurion Card. The recognition and benefits associated with premium loyalty programs can be extremely effective in holding onto customers and attracting new ones.

Conclusion

Taken together—Parts I and II—we begin to see the emergence of some key themes that contribute to customer loyalty. As depicted in the illustration below, I argue that customer loyalty is influenced by the outer ring of variables. In this post, attention is given to leadership, customer stickiness, and marketing within the context of these variables. This is where leaders, strategists, and employees need to focus their attention. Recalling our rally cry around the customer, each of these variables influences buying decisions, when consumers contemplate whether to remain loyal to a brand or go elsewhere.

Customer Loyalty visual

Clearly more can be done to strengthen customer loyalty beyond what is covered in this posting. As said in Part I, and worth repeating, resting on a company’s laurels and assuming customers will remain loyal is a recipe for disaster.

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Dr. Robert Bornhofen
Dr. Robert Bornhofenhttp://bornhofen.weebly.com/
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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