How to Build Customer Loyalty

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We are all consumers and have our own needs and desires. We engage in tens of thousands of transactions each year. Some small and some large. In fact, some of our most memorable experiences are purchasing those special items. A new car, getting measured for a new suit, a new home; these events really weren’t so much about consumption and more about an emotional experience. The surroundings, the smells, ambient noises, lighting, subtle things that surround the transaction all combine to form an experience.

As human beings, most of us have certain standards for a “successful” transaction.”

  • The ability of the customer to accomplish what he/she wants,
  • Ease at doing so,
  • Emotional feelings about it

Over the multitude of transactions, we create certain subconscious benchmarks. Compare the daily task of purchasing regularly at a convenience store where the cashier engages you with a smile and small talk compared to a cashier with a disinterested blank stare of going through the motions. Will it make you change your buying habits? Probably not as the first two elements have been met. However, to others, just one touchpoint with a disinterested cashier can make the difference in seeking another experience somewhere else. This is just common sense but will management be aware of the lost business? Even if they did, would they know what was causing the lost revenues?

However, going out to an expensive restaurant or traveling on an airline we require much more in the way of experience. It starts with the process selection, making reservations, the physical surroundings, the expected level of service, etc. Human nature being what it is will rate each experience compared to other similar experiences. However, most people will rate on the general overall experience without knowing exactly what makes an experience special. Indeed, most companies who know how important it is to know how their customers view the product or service will limit the feedback to a simple question: “On a scale of one to ten, how would you rate your overall satisfaction?”

That is a pretty weak endorsement. In fact, if your business is in New York City, customers will let it be known of their dissatisfaction there and then!  Indeed, “satisfaction” is no real indicator of success.

When Bain and Co. surveyed 362 companies they found that 80 percent of the companies thought they delivered a superior customer experience. When independent consultants surveyed the customers, they found that only 8 percent rated their experience as superior.

How to Build Customer Loyalty 1What is really important is the creation of “Loyal Customers.” Mainstream marketing teaches that there is a sequence of building loyal customers. First, it starts with a baseline satisfaction level which graduates over time to Loyalty which in turn evolves into advocacy and the holy grail of personal recommendation to others.

Satisfaction does not lead to Loyalty

Studies have shown that a large proportion of customers exhibit satisfaction but also low or mediocre levels of loyalty. 

The importance of Loyalty

Customers who have high satisfaction but low loyalty scores are both expensive to acquire, and quick to depart. Consider these findings from the banking industry

How to Build Customer Loyalty 2

  • A 10% increase in repeat customers adds 75% to profitability
  • A 5% increase in repeat customers adds 40% to profitability
  • A 5% decrease in profitable customer base will shrink profitability by 37% 

For retailers, there is an anecdote that a bad experience will be heard by 9 other people. The same hold for an excellent experience. That is what makes repeat customers so important. Indeed, loyal customer word-of-mouth marketing is the Holy Grail for a company.

Dr. Noriaki Kano, author of the 2006 book Guide to TQM in Service Industries, developed the Kano Analysis to help improve, prioritize, and meet customer needs at optimal levels. It also focuses on the way to determine wants and needs based on customer satisfaction tools. The Kano Chart depicts the relationships of the customer experience as focused on the following:

Dissatisfiers or Basic Needs – The customers expected features or characteristics of a product or service. These needs are typically “unspoken.” If these needs are not fulfilled, the customer will be extremely dissatisfied. An example of an “unspoken” need for restaurants and hotels is cleanliness. These factors can be things such as clean silverware, cloth napkins, ambient odors, music, table clothes, bathrooms, carpets and a host of other variables that may be more subconscious the obvious.

Satisfiers or Performance Needs – Factors that can decrease satisfaction by their degree (cost/price, ease of use, speed). These needs are typically dependent on customer preference such as asking for custom features such as “dressing on the side,” “Wifi”availability or a table away from the kitchen.

Delighters or Excitement Needs – Unexpected features or characteristics that impress customers and earn the company “extra credit.” These needs also are typically “unspoken.” Think of the Doubletree Hotels. Those who stay there are delighted by a freshly baked, chocolate chip cookie delivered to their room during turn-down service. [1]

Ok, a “delighter” is really a differentiator but how exactly can the effect of delighters be measured. Moreover, what about identifying and measuring the dissatisfactions?

The importance of identifying Dissatisfactions

When most companies seek customer experience input, they use CSAT and Net Promoter® Score (NPS®) to obtain a measure of loyalty. However, these methods suffer from a lack of depth and richness. The Temkin Group’s report “The State of CX Management 2012,” reveals that 56% of large companies ($500M in revenue and higher) use NPS. And it’s a fair bet that much of the remaining 44% employ CSAT. These metrics are popular yet are based on a single question. For NPS, the question is very specific: “How likely are you to recommend our company/product/ on a scale of 1-10. CSAT, on the other hand, can vary in how the question is formulated. However, it’s usually some form of overall satisfaction rating on a scale of 1-5.

But the real concerns that should be addressed are on those factors that create dissatisfactions. Once these are known, management can fix those loyalty killers.

Enter Big Data

Big Data is all the craze, and well it should be. The ubiquity of devices, networks, and computing power is about to change the very nature of marketing. Indeed, some experts feel that the collection of massive amounts of data from a universe of diverse sources will yield treasure when it comes to understanding patterns of consumption and personal preferences. In the Movie, The Minority Report Tom Cruz’s character is walking by a store in the mall of the near future, and a camera picks up his image and faces recognition taps into the purchasing preferences of the character and displays items on a video screen that would be of interest. All this happens within a period of seconds. As with much of science fiction, fantasy is becoming a reality before our very eyes.

The internet and other media are empowering consumers like no other time. Product information, comparative ratings as well as purchasing transactions all over the globe are allowing consumers’ real power. Indeed, most consumers are fatigued by the self-serving marketing message coming from companies proclaiming how wonderful they are. Indeed, social media is providing a platform for consumers to avoid the hype and make better-informed decisions.

Bottom-line is the bottom-line, and whoever has the deeper understanding of the ever changing customer needs and wants as well as the competition will make a major impact on attracting and retaining loyal customers.

[1] http://www.isixsigma.com/tools-templates/kano

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