Creating Customer Loyalty
Originally published by Ron Baker on LinkedIn: Creating Customer Loyalty
I recall obtaining a new customer—during my days practicing public accounting—who was the owner of a successful travel agency. Her husband had passed away the prior year and she had never had to deal with the tax and accounting aspects of her business.
Her husband had been using the same CPA for over 20 years and when I asked (as I made a habit of doing) why she left her CPA, her answer was very laconic and poignant and one I will always remember: “He showed no compassion.”
From what I could determine, the CPA’s work was technically proficient. My customer had no complaints about his price or the quality of his work. She even trusted him.
When I called him to ask for copies of certain documents, he was shocked he had been replaced. It wasn’t the technical quality, but the service quality, that made all the difference to her, not what she got, but how she got it.
Donald E. Peterson, former chairman of Ford Motor Co., said upon bringing that company back from the precipice of poor financial performance, “If we aren’t customer-driven, our cars won’t be either.”
If you study human behavior, people are loyal to their spouses, schools, neighborhoods, communities, not-for-profits where they donate money and services, and so on. It is not so much that loyalty is dead in the business world, it is that a reason to be loyal is rare.
Companies have to earn the loyalty of their customers, which goes far beyond just being trusted and providing technically accurate services. It requires providing service experiences that exceed the customer’s expectations, as well as personal transformations to guide them in achieving their dreams.
How does a firm increase the loyalty of its customers? Let us consider this question by analyzing why firms lose customers.
Why Firms Lose Customers
Many companies learned the hard way they could score high on satisfaction surveys and yet still have customers defect. That is because satisfaction measures the past, while loyalty attempts to measure the future.
Customer satisfaction surveys are fraught with dangers—low response rates, not addressing relevant issues, biased questions, and so forth. When conducting exit interviews, firms face the same challenges. Most customers are reluctant to give the firm the real reason why they left, so they tend to respond by saying, “You were too expensive.” Yet, the majority of defections occurred because of service deficiencies, and the impression the company did not care about them, a sort of perceived indifference.
The Rockefeller Corporation studied why customers defect and found the following:
1% The customer dies.
3% The customer moves away.
5% The customer has a friend [who provides the service].
9% The customer is lost to a competitor.
14% The customer is dissatisfied with [some aspect of] the service.
68% The customer believes you do not care about him or her.
To corroborate the Rockefeller study, according to an article in the Journal of Accountancy, accounting firms lose customers for the following reasons:
“My accountant just doesn’t treat me right.” [Two-thirds of the responses].
Accountants ignore clients.
Accountants fail to cooperate.
Accountants let partner contact lapse.
Accountants do not keep clients informed.
Accountants assume clients are technicians.
Accountants use clients as a training ground [for new team members].
And to turn the coin over, this is why people select accountants:
Interpersonal skills
Aggressiveness
Interest in the customer
Ability to explain procedures in terms the customer can understand
Willingness to give advice
Perceived honesty
Notice how price and quality are conspicuously absent from the above lists. The fact of the matter is that most defections are the result of human failings and perceptions of indifference, rather than price or technical quality. In other words, it is how people are treated—or mistreated—that determines their willingness to remain loyal.
The late marketing professor Theodore Levitt offered this analogy in a 1983 Harvard Business Review article:
The sale . . . merely consummates the courtship, at which point the marriage begins. How good the marriage is depends on how well the seller manages the relationship. The quality of the marriage determines whether there will be continued or expanded business, or troubles and divorce. The era of the one-night stand is gone. Marriage is both necessary and more convenient.
The marriage analogy is not perfect, because the onus is really on the firm to instill a sense of loyalty in the customer; it is not a 50-50 partnership.
Firms need to invest at least one-half of their advertising and marketing budgets for retention, rather than acquisition, which demonstrates the value the firm places on its existing relationships.
No firm has a right to attract new customers if its existing customers are not delighted with its service.
Customers will continue to patronize those firms that give them a reason to be loyal and your firm will get the behavior it rewards. Customer loyalty is worth rewarding.
A Nordstrom team member expresses the attitude needed to ensure customer loyalty: “We are trained to make the customer, not the sale. We are trained to make customers.”
Your firm’s best customers are your competitors’ best potential customers and you should always act as if they are at risk. By providing a value proposition that differentiates you from the competition, you can engender loyalty amongst your customers—increasing their switching costs—while making it difficult for any competitor to offer more value.
In our next post, we will explore what separates excellent service companies from mediocre ones: how they deal with customer complaints.
