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Customer Loyalty: What it is and how it can be measured

Customer Loyalty: What it is and how it can be measured

One of the most prevalent misconceptions in today’s business environment is the idea that a repeat customer implies customer loyalty. Business owners and managers like to believe that a customer who brings business again and again is a loyal patron of the establishment. While this may not be far from the truth, there is a subtle difference between a ‘loyal customer‘ and a ‘repeat customer‘.

 

What makes customers loyal?

Let us see the various reasons why a customer may be choosing to do business with you repeatedly:

  1. It takes a lot of effort to go elsewhere
  2. You have achieved cost leadership in your segment
  3. Old habits die hard
  4. They may have developed bonds with your employees (rather than your business)
  5. They are keeping you as a ‘safety back-up’ while actively searching for alternatives

In each of these cases, a competitor can swoop in and win away your customer by attractive discounts, aggressive campaigning or simply upgrading their service offering. It turns out that loyalty is above repeat customers.

Customer loyalty may be loosely defined as a strong belief in your customers that your organization’s product or service is their best available option, maximizing their value appeal. Loyalty is expressed by customers when they stand by your business through thick and thin, when they are not seeking out competitors, and if approached by them, ignore them. They will spend extra time and effort to approach your establishment.

 

How can you build more customer loyalty?

To sum up, customer loyalty is much more than repeat customers, and it goes a long way in building your brand. Here is how you can build loyalty among your customers:

  1. Reward your customers for choosing you over competitors.
  2. Treating your employees well – it is said that employees are the first customers of any company. The surest way for you to induce a sense of customer service in your employees would be to treat your staff just as you would like your staff to treat your customers.
  3. Maintaining accounts of your repeat customers and keeping track of repeat customers preferences and dislikes.
  4. Keeping in touch with your customer base over the Internet – advertising all major events on social media, and a personal email on birthdays and anniversaries.

Easier said than done! Any business operating in the service industry would probably already be doing, or have a plan in place to start doing each of these tasks to strengthen their customer base. The important question that remains then is – how to measure what impact has it created?

 

Measure Customer Loyalty

Quantifying customer loyalty however, can get tricky. There is hardly anything to be gleaned by asking your customers directly if they are loyal to you, as customers may easily report being loyal to several businesses simultaneously! To measure customer loyalty, we need answers to questions that address the behaviors and attitudes of truly loyal customers:

  1. Likelihood of recommending your company to other people.
  2. Likelihood of continuing purchase of products and services from your company, equal to or more than the current quantity.
  3. Believing that your products or services are the best in the market at the current price level.
  4. Opinion formed of staff members who directly interact with and deliver service to them.
  5. Ease of giving honest feedback to your company to help overcome any shortcomings in service quality.

These are few of the questions that can help a business determine which of their customers are strongly attached to the brand, while which are most vulnerable to leaving for a competitor at the first notice.

Measuring loyalty is just a piece of the puzzle. The other part is to figure out why few customers are loyal, few are vulnerable and several lie between the two extremes – let’s call them neutral. And since the best information is always the one that is obtained from the source itself, businesses should invest in developing systems that enable them to collect feedback from their customers about their service level, areas of improvement and any gap between their expectation and actual delivery.

So, are you doing your bit to figure out your customer loyalty?

The breakdown of investments in Customer Experience Management

The breakdown of investments in Customer Experience Management

More and more companies are waking up to the fact that customer experience is an area demanding substantial investment of time, money and effort in their business. And for good reasons, as these figures reported in leading studies indicate:

82% of people stopped doing business with a company after a bad experience

Over 79% of people told others about their bad experience, 55% went online to vent their anger, and 66% wanted to discourage others from buying from the company

85% of people agreed to paying more for a better customer service experience

55% are willing to recommend a company for their good experience, above product or price

The report went on to mention that a negative experience in receiving the service was a bigger cause of switching brands than poor quality of the service itself

Clearly, a superior experience means a higher NPS ©, more customer loyalty and an increase in average customer spending – translating to more revenue per customer. In the long run, a superior customer experience would go on to differentiate your brand’s offerings from those of your competitors, affording a significant competitive advantage.
The other part of the question is where the investments need to be made. Successful businesses have since long made investments to improve customer experience in the following ways:

 

Better hiring

We discussed how a customer-centric company makes effort to hire customer-centric people as staff. This has the twin benefits of a better service experience for the customers and higher employee job satisfaction, leading to lower employee turnover and a reduction in the costs involved with training and recruitment of new employees.

 

Strong customer loyalty programs

Rewarding regular patrons will provide a big incentive for your customers to spend more and visit more frequently. It is a known fact that more business from existing customers comes cheaper than attracting new customers.

 

Reduction of customer effort

An old adage says that customer is king. And to make customers feel like royalty, businesses make efforts on the part of their customers. By making their menus/ service areas less cluttered and more amenable to locating products and support staff, they have effectively made efforts which otherwise their customers would have to make every time they made a purchase.

 

Technology

A superior customer experience would entail quick resolution of problems, something that would require fast and seamless transfer of information across the business. It may not suffice if a customer’s feedback is shared once they leave the premises – real-time, on-premise feedback is more valuable in the sense that it allows the business to appease the customer before they leave, eliminating any threat of negative reviews from going online.

 

While most businesses would be tempted to consider the above as costs, a business focused on improving its customer’s experiences will treat these as investments, and the kinds that pay big dividends.

Making your business Customer-Centric

Making your business Customer-Centric

Successfully running your business in a competitive industry is no easy task. Particularly in the service sector, where customer is king, and more so in the modern age, where information spreads like wildfire and any inconsistencies in service trend on the Internet at the speed of light.

Given that, it appears that customer-centricity of businesses in the service sector is no longer an ambition – it is a need. It is not something that great companies can thrive on – it is something that all companies will need to practice to survive in the game.

We already discussed how customer experience may well be the cornerstone of the Blue-Ocean strategy in the customer-service industry. What remains to be discussed, however, is how your business can go on to become customer-centric. Here are six things you need to watch out for once you decide to adopt a customer centric approach for your business, if not already done so:

 

Clearly establish and commit to your brand value

The very first thing you need to focus on is the promise that your brand makes, and set up procedures to consistently deliver it. This is crucial, because brands are essentially promises. And a company that consistently delivers on this promise will by default, gain strong brand recall among its customers.

For example, a budget restaurant associates its brand with economic pricing, attracting customers by the promise of “low prices”. Over time, sensing shifts in the industry, it may desire to improve its service offering, but if it dilutes its original promise of “economic meal”, it will witness a steady decline in its customer base.

 

Integrate all your business units

The first step in making your business customer-centric is probably to integrate all of your (seemingly) disjoint business units into one cohesive army dedicated to providing the best customer service.

The company’s goal of customer-centricity must be clearly communicated throughout all business units, particularly the front-line staff, which actually interact with the customers and act as representatives of the company.
The same message must be communicated to the hiring team, to ensure that only the most customer-oriented candidates join the organization. An on-board training program upon recruitment will strengthen this philosophy. In short, customer-centricity is a paradigm shift that will require all hands on deck.

The senior management must be sensitized about the importance of investment in systems and procedures to enhance customer experience and proper feedback management.

In short, it is imperative to have all hands on deck to achieve thorough customer-centricity.

 

The devil is in the details

Putting your customers in the centre of everything you do would require paying acute attention to the minutest of details that other businesses wouldn’t. This will create an indelible impression on your customers about their experience, effectively insulating them from an aggressive competitor snatching them away with lucrative campaigns.

As an example, a hotel looking to make itself more customer-centric would go an extra step in hospitality by perhaps placing a set of fresh flowers in its appointed rooms to welcome its guests.

This point overlaps to some extent with the concept of “customer delight” discussed earlier, but differs slightly in the sense that it can be achieved at a fraction of the cost involved in delighting a customer.

 

Embrace technology to incorporate customer feedback into the business model

The customer-centric culture thus developed will produce the best results when supplemented with customer feedback. Well, by default, a customer-centric organization must obviously incorporate customer feedback to know how well it is satisfying its customer’s requests.

But our problem is a little bit more complicated than that. If you are to truly rise above the competition in terms of customer service, you need reliable systems that can not just collect customer feedback, but quickly slice and dice the collected data to quickly know which areas you are clearly lacking in, which areas you are really doing well in, and how the various units fit in providing the customer the best of experience when dealing with your company. This information gathered via incisive customer feedback management processes can help you refine your customer service strategy accordingly. Key metrics such as the NPS © may be employed to measure the success of your approach.

A robust customer feedback collecting and reporting mechanism with these features is a vital component to enable customer-centricity in any business.

 

Develop the culture

Ultimately, it is the people that run and affect the organization. All technologies, procedures and brands amount to nothing if not accompanied with and attitude of “putting the customer above all”. A systematic culture of treating the customer like royalty is crucial to any business wishing to go customer-centric.

A very crude example of this culture would be the staff members of the Taj hotel, who selflessly came in the way of flying bullets to save their guests of a few hours. Was their ultimate sacrifice due to the expectation of a very generous tip, or the threat of some punishment from their management? No – their sacrifice was the epitome of hospitality that has become a part of the legendary history of Taj hotels worldwide.

 

No customer gets left behind

Here are some statistics about the need for customer retention and the potential magnitude of negative customer experiences:

  • A 10% increase in customer retention rate translates to a 30% increase in the value of a company
  • It is 6-7 times more costly to attract a new customer than to retain an old customer
  • It takes 12 positive customer reviews to make up for one negative experience

Word of mouth travels geometrically – even exponentially in the digital age. As such, any business having an ambition to become customer-centric would be wise to implement system wherein any customer’s grievances are resolved instantly, while they are still in the process of transacting with the business.

The importance of becoming customer-centric cannot be stressed enough in today’s competitive scenario. But managers are often at sea when it comes to implementing it is practice. They key lies in identifying technologies that are available to help them address this gap – and absorbing them into their business model, along with steady development of a culture and attitude of always placing customer before self.

Customer Satisfaction v/s Customer Delight

Customer Satisfaction v/s Customer Delight

The business of dealing with and serving customers is tricky and unpredictable. What works for one segment of customers may not be the most suitable option for any other customer segment. To complicate matters even more, customer experience is often manifested over several “layers”, depending on how much the service delivery matches their service expectations.

In an age where businesses are competing tooth and nail for every incoming customer, merely satisfying customer may no longer suffice for retaining old customers, much less acquiring new ones. Sample the following scenario:

Imagine you walk into a hotel upon entering a new town, with the expectation of a clean lodging and food, and a decent ambience. Any hotel or inn meeting these expectations will provide you with satisfaction. Delight will result when a hotel exceeds your expectations of these basic necessities and possibly even surprising you – for example, arranging for your transfer when you leave, or replacing the linen in your room without your asking for it.

Meeting customer expectations of service are crucial to customer satisfaction and running a business successfully, but true customer loyalty can be gained only when the service exceeds customer expectations.

 

 

“Customer delight is that phase of customer experience when the service offered exceeds the service expected.”

 

 

While satisfied customers may leave the business feeling happy, they may not return. They may well be swayed by swanky advertisements or deep discounts offered by competitors the next time around. On the other hand, a customer who is delighted by a service exceeding his expectations will become a loyal patron of the brand forever, since the brand will always evoke a positive memory of association for him.

There are four reasons to invest in additional effort in delighting customers, as it can pay rich dividends in a very direct way:

 

Increased customer retention through loyalty

A delighted customer will develop strong loyalty for the brand that provided him with the delight, and will be far less likely to “experiment” with a new brand. Studies have shown that it may be 4 to 9 times more costly to attract a new client than retain an existing one.

 

More profitable customers

In addition to retaining existing customers, customer delight can also induce customers to spend more on their dealings with the business. Research has shown that, on an average, delighted customers end up spending more than merely satisfied customers.

 

Network externalities

Delighted customers turn into brand evangelists for the company. They will spread word of their positive experience around, shooting up the NPS score© of the company. 92% of customers consider word-of-mouth as the most reliable source of information, so delighted customers may well become a strong asset for the company by bringing in more and more customers, leading to a virtuous circle.

 

Industry leadership

The enhanced network of customers developed over time may turn the business into an industry leader on the basis of service differentiation. This will enhance the brand recall of the company. It is common knowledge today that brands such as Xerox, Google and Jacuzzi have become synonymous with the product or service they are offering. That is the power of brand recall – when potential and existing customers will think of your company first and then consider what they need to purchase from it!

 

While it is established that concentrated efforts by businesses to delight their customers with enhanced levels of service will produce results in terms of increased customer loyalty and a much stronger brand, prudence is advised as this strategy comes bundled with two pitfalls:

  1. It may be a conundrum for businesses as to what lengths they need to go to delight their customers. After all, budgets are shrinking, and the profit gained from incremental investments begins to decrease after awhile – the iron law of diminishing returns.
  2. Add to that the burden of raising the bars of your service level forever in your customer’s eyes. Delighting a customer once might alter their opinion of what constitutes a fair level of service for the price they are paying.

As with any other conundrum, the solution lies in the middle – identifying when and how to delight customers. Certainly, in today’s business environment it is not advisable to delight every customer, every time; it would be unwise to even attempt that. In fact, in most business dealings, it would make sound commercial sense to just suffice customer’s expectations. Exceeding customer’s expectations will produce the best results if offered when the situation demands it.

In our example of the hotel cited earlier, arranging for the guest’s next travel plan would make sense when the guest is checking out at an odd time, such as late at night, or has to catch an early morning train or flight.

Building brands and NPS © takes time and can be perfected with judicious experimentation. Delighting customers by surprising them with unexpected service may turn out to be a unique way to create value and build a strong brand legacy. And the right start would be to implement instant customer feedback systems telling you what your customer’s opinions are about your service at present.

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