Short Message Service (SMS)

Building Customer Loyalty

By Brendan B. Read,
Senior Contributing Editor

There has rarely been a greater focus by companies on retaining customers’ loyalty to maximize their lifetime value than now. Enterprises of all sizes are finally “getting it” that it costs them five times more to obtain new buyers than to serve existing ones, that there is ROI in this strategy if customers stay loyal: who if very satisfied also drive in new ones with no added marketing costs.

“In any customer lifecycle, the cost of obtaining and servicing new customers comes in the early days of the relationship with them,” explains Tony Compton, director of CRM product marketing, Infor. “As their loyalty grows, companies begin to
minimize servicing costs. In the end, it will cost less to service happy, loyal customers and much of the value of their future
transactions can go to increasing margins.”

Yet there has rarely been a time when customers are more fickle and more quick and able to spread the word globally at the speed of light. The Internet and social media especially have empowered customers, placing them in charge. The slogan “you’re only as good as your last performance” is becoming the buying motto.

Ryan Pellet is Convergys’ (News - Alert) vice president, global business units. He points to recent Convergys and market research that found that firms which are successful at retaining more of their customers (i.e. achieving greater loyalty) drive a three percent market capitalization increase for their companies over those who are not as effective. At the same time the data also showed that while over 85 percent of customers say they are generally satisfied with overall service, only one-third would remain loyal after a single bad experience.

“The recession has made customers more determined to protect their ‘rights’;
they are not willing to settle for less than the best experience… every time,” Pellet
points out.

The downturn has exacerbated two apparently income-driven splits between preferences based on price and on service. Steven Jeffes and Kirk Olsson, Cognizant Business Consulting, Customer Service Practice, has seen an increase and a decrease in loyalty at the same time for different segments of customers. They report that traditionally price-sensitive customers have become even more so, making these customers less likely to be loyal and churning more frequently among product and service providers to find the best deal, regardless of loyalty incentives. Yet another group of customers has responded well to enhanced loyalty programs, more flexible and attractive incentives, and better customer service.

If one factor outweighs the other then it would be service over price, within reason. Buyers also tend to stick with the products and services they know and are reasonably satisfied with.

“Many people will go elsewhere if the prices are lower, yet overall customers will stay loyal if you give them great service,” says Dianne Durkin, president and founder of The Loyalty Factor.

“And they’re willing to pay extra money for high quality products and service. They will give up spending someplace else to get it.”

Developing a Loyalty Strategy

A customer loyalty strategy must be built on attractive products/services and pricing. To retain and gain market edge firms need to look at ways to lower production or service delivery expenses while maintaining high quality. This approach also cuts leads to fewer cancellations, returns and service calls or e-mails – happy customers don’t tend to contact companies – resulting in lower costs.

Durkin cites IKEA International, which offers quality products at fair prices as an example. They have not cut corners whereas other manufacturers have got prices and margins and cannot keep up with quality.

“High quality at reasonable prices, more than anything else, is the key to loyalty,” says Durkin.

Borge Hald CEO Medallia points out that this “do it right” strategy is becoming very important to retain younger customers (Gens X and Y), which data collected by his firm and that of his clients reveal are less forgiving than the previous population cohorts.

“As the younger generations become a larger part of the customer base, they raise the bar for companies,” says Hald.

Ideally products, services and companies should have a buzz about them. That attracts committed loyal ‘fans’ that are happy to buy more, willing to participate in product trials, and who eagerly recommendthe firms’ offerings to others.

“As companies increase their share of customer ‘fans’ and reduce their share of customer detractors, the business results can be dramatic,” reports Hald. “In a typical case ‘fans’ of one specialty retailer purchased two times more than ‘neutral’ customers and drove the same amounts of additional sales through word of mouth recommendations.”

With the fundamentals in play companies need to learn all they can about their customers: attributes, demographics, geographies, and their buying behaviors not just of that firm’s products and services but of others so that they can see spendingpatterns. Enterprises must also find out and understand customers’ perceptions about their companies and offerings.

“In a down economy, one’s company has to be a marketing machine,” says Durkin. “That means pulling together customer data, all touchpoints and channels to make sure one knows who is buying and who isn’t buying and how that has changed and why. Companies must ask customers ‘how can we help you, how are we doing, what are we not doing, what things are we doing that we should stop doing?’”

Infor’s Compton says firms must make analysis-based decisions on what is known about customers, their propensity models, channels of preference and influencer communities. Gone are the days, he says, of making customer relationship management decisions based on gut feelings or emotional reactions to trends in the market.

“Those companies which strive to understand their customers through the analysis and utilization of data can employ an intelligent customer interaction strategy across multiple channels and engender long-term customer loyalty,” says Compton. “Many companies and senior marketers don’t effectively use the data they already have within their four walls – those that intelligently use customer data can lead, compete and win, right away.”

Customers are also motivated differently even when it comes what makes and keeps them loyal. Firms must then take steps to find out this for each segment.

“All customers are not created equal in terms of loyalty needs,” Jeffes and Olsson points out. “So customer service might be the most important to some premium customer segments, while others are much more concerned with how well the company communicates and interacts, e.g., social media interaction, while yet others are predominantly fixed on price or incentives.”

They recommend that firms develop a deep understanding of the specific needs of the customer base and sub-segments. From there they can create a very specific and tailored programs based on these identified needs (such as price saver and award plus segment/program), and seek to meet or exceed the expectations of each segment group.

“The bottom line is that people care about people and companies who care about, listen to, and respond effectively to them,” report Jeffes and Olsson. “If companies offer a unique product with pleasant customer service at a fair price, with the proper loyalty reward/incentives, then people will want to return and refer the product or service to others.”

Making Loyalty Happen

Whatever loyalty strategy is developed steps must be put in place to execute it successfully. Durkin recommends having a customer retention strategy focus, approved and championed at the top, backed up by policies and procedures, including metrics and training, to carry this out. The strategy must also be communicated repeatedly to ensure that it is understood by employees so they can carry out these policies effectively.

“The CEO needs to clearly articulate this vision of loyalty, and its importance to the company,” says Durkin. “Each department manager then needs to carry this forward and be very explicit with each and every employee on how they will contribute to the customer service vision and strategy.”

In developing plans to execute a loyalty strategy firms need to take a hard look at offshoring and self-service, especially IVR for their contact centers. Offshoring affords otherwise unaffordable live agent contacts but at the price and risk of increased escalations and repeat calls and customer dissatisfaction. Self-service provides lower-cost quick responses to inquiries but customers prefer not to talk to machines; deploying it also loses opportunities to build customer relations and added revenues via cross-selling and upselling.

“Hiring and keeping quality people in domestic contact centers is the most cost-effective and productive investment that companies can make,” says Durkin. “They can purchase expensive self-service tools and often times their costs are much more than the cost of investing in their people who come into direct contact with their customers.” The Cognizant team points out that companies also need to keep their costs manageable. One of the best means of doing that is by matching the channel (and location) to the value of specific customers.

“Companies would want to determine the optimal mix of the customer preferred communication channel with the most cost-effective channel against the backdrop of the customer value,” says Jeffes and Olsson. “So while it might be cost-prohibitive to communicate with lower value customers via phone 100 percent of the time it might make sense for premium customers if this is their preferred communication channel. In keeping the communications
matrix optimally balanced the needs of companies and customers are likewise kept in balance.”

A master key to enabling loyalty is hiring and training the right agents: those who can ask the right questions, can understand and get to the problems quickly, demonstrate empathy to the most difficult customers, and who can resolve customers’ issues and build relationships with them. To make that happen, firms also need to use retention/loyalty-focused metrics, such as first contact resolution (FCR).

“Often times, contact agents have been trained to fix customers’ problems as opposed to building customer relationships,” explains Durkin. “You can ‘fix them’ while at the same time building a relationship. This means learning specific relationship-building techniques that allow customers to express their needs and feel valued. One good way of doing this is by encouraging them to thank customers even if this adds a little time to each call. It shows customers they are appreciated and their problems are also being resolved.”

Jeffes and Olsson recommend that firms use more customer-oriented metrics such as customers’ qualitative rating of the handling of customer issues and concerns in feedback to ensure loyalty rather than traditional and tactically-focused metrics such as FCR and calls per hours. For example, while a customer call might meet a time per call metric and their issue might have been resolved in the first call per that agent, the customer might have had other feedback that they wanted to share, but felt as though they were rushed or cut off from the call.

“Then the corresponding customer satisfaction score for that call might be much lower than anticipated if it were measured,” says Jeffes and Olsson.

A successful loyalty program is one where the firms listens to customers and follows up on what they are saying to improve products or service and correct issues. Convergys’ Pellet recommends that companies collect the customer experience as from call recordings, screen interactions and surveys, and social media and examine them with analytics tools to understand what customers are saying. These methods close the loop with feedback to customers. Doing so he says will correct the current perception that over one-third of customers say companies do not listen to or act on their feedback.

“Companies who will prevail in this economy will tie the ability to identify feedback and quickly incorporate and react to the feedback via refined customer experience processes,” Pellet points out.

---

The following companies participated in the preparation of this article:

Cognizant
www.cognizant.com

Convergys
www.convergys.com

Infor
www.infor.com

Loyalty Factor
www.loyaltyfactor.com

Medallia
www.medallia.com

 

CIS Magazine Table of Contents