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Customer Loyalty

Running an organization that is customer-centric is a marathon.  Human behavior can be mercurial.  Trends from one industry segment suddenly disrupt another sector in the highly connected and interdependent system that comprises society.  A global pandemic sends rational planning out the window and accelerates emerging trends and changes that were suppressed or sometimes completely ignored. And the biggest challenges today are understanding changing human behaviors and accepting the fact that the customer is the point of purchase, whenever, wherever, and however they demand to be served.  Unfortunately, most organizations end up in a defensive mode if they don’t anticipate the future and deeply understand their customers.

What does all this add up to? The correlation to all the topics and challenges we have surfaced over the past weeks. Today we are diving into understanding customer loyalty, the importance of achieving it and, of course, how to measure it.  Gaining, maintaining, and growing customer loyalty is hard work. It is also one of the most important achievements that should be the prime driver of the success of your organization.

What Is Customer Loyalty?

According to Oracle, “Customer loyalty describes an ongoing emotional relationship between you and your customer, manifesting itself by how willing a customer is to engage with and repeatedly purchase from you versus your competitors. Loyalty is the byproduct of a customer’s positive experience with you and works to create trust.”  That relationship is what every organization strives for and although each organization has a slightly different perspective of what the relationship comprises (membership, subscription, return purchasing, ongoing consumption, etc.), the basics are the same for all.

At 2040, we advise our clients to use critical thinking and a systemic approach in their organization to war game customer loyalty. This is no easy task given the current trifecta of a global health crisis, market disruptions and a newly empowered and woke culture.

In strategizing customer loyalty, what is often overlooked is the nature of customer relationships and the reality of how humans think. We also see an inability to take the right actions to improve loyalty.  And even more important, we see a lack of understanding in how to collect, measure and more critically, understand the relationship that drives loyalty.

Critical Calculations

Let us begin with a customer loyalty measure that is often relegated to marketing and rarely used as an overall organizational metric or KPI. Customer Lifetime Value (CLV) and the data points that roll up to it reveal how it can provide a view into the value of a loyal individual and groups within your customer base.  CLV reflects demonstrable financial results if the relationship is curated over time. Remember, customer acquisition is expensive; customer retention is more cost-effective and generally drives the most positive performance.

Many organizations focus solely on new customer acquisition, spending large sums of time, effort, and funds to gain conversions. Those who focus on customer acquisition above and beyond anything else have problems with retention and customer loyalty. This can lead to a high percentage of lost customers due to a lack of established loyalty and low relationship value. In this scenario, the acquisition must overproduce results to buffer that loss.

Let’s reflect for a moment on what we shared last week: measuring what matters. If an organization is measuring customer acquisition without a comparison to the lower cost of maintaining longer-term relationships based on loyalty, then the measurement of customer acquisition is a performance data point in isolation and a faulty view into overall organizational performance. It is a measurement of short-term gain with little relevance for the longer term.

A CLV calculation and trend analysis over time can provide a clear understanding of current market performance and enable meaningful insight into customer loyalty. This includes insights on whether what is offered continues to meet changing needs and expectations of every individual.

CLV can also be an indicator of changing behaviors and preferences. Close monitoring of CLV along with indicators of “satisfaction” can give an organization early warning signs of loyalty slippage and decreasing resonance with the quality and applicability of the offer and its value.

Understanding Types of Loyalty

Understanding your stakeholders is non-negotiable. Understanding the types of loyalty that your organization should seek is equally non-negotiable. Emarsys, an SAP company that specializes in personalized consumer communications across digital and physical channels, set out to study customer loyalty from the consumers’ perspective, rather than the organization’s to better align loyalty objectives, strategies, and tactics. They identified four key types of loyalty customers feel for brands.

Incentivized Loyalty

This is the most ubiquitous type of loyalty and least impactful. It is based upon giving customers/members discounts, incentives, and rewards. However, those perks may not generate repeat purchases. And even more problematic, the type of customer who is motivated primarily by discounts and incentives is not necessarily the best prospect for long-term loyalty. They are often quick to switch up if a cheaper option is available from a competing brand.

At 2040, we continue to reinforce that organizations must seek to build long-term relationships. Rarely will one win on price and if one does, it is for the short term. Discounts and incentives have negative results as over time, continuously reduced prices or perceptions of such via incentives lead customers to believe the product is of diminishing value. Discounts also compromise any future ability to raise prices and impacts customers’ acceptance of the increase.

Silent Loyalty

This is customer loyalty where the customer demonstrates some measure of loyalty to an organization but isn’t willing to talk about it. Often their reticence is because they feel little excitement for the organization and what it offers and represents. Or even worse, they feel embarrassed or shame about patronizing the organization. Silent loyalty may result from a professional need or necessity, not a want.

Silent loyalty does have value because this customer is a recurring customer. But the challenge is that the silently loyal customer isn’t a vocal recommender of the organization and what it offers. Word of mouth remains paramount to gaining new customers cost-effectively. If you have loyal customers who aren’t positively recommending you, then you are incurring high costs of acquisition with the limited potential return.

Keep in mind that first and foremost, humans tend to not like to make their own decisions, particularly when the subject matter or need is out of the realm of their own experience or expertise. As such, they will reach out to family, friends or peers and seek information, advice and of course a recommendation. Silently loyal customers are not going to deliver as trusted influencers.

Ethical Loyalty

The new darling in corporate circles to drive customer loyalty is to stand for ethical, social responsibility (ESR) and other brand purpose goals. This may serve a feel-good purpose for brands, but it doesn’t necessarily drive loyalty. This type of loyalty allows for individuals to feel purposeful about their interaction and relationship with an organization, because the organization shares the same values, influencing the frequent purchase of products and services.

Many organizations have taken strong positions on social, environmental, and other issues. Generally, these positions and the public communication of such, go beyond former social responsibility practices. This type of ethical loyalty can produce value and impact the CLV calculation. However, priorities change and putting your brand stake in the ground with ESR requires being an astute student of human nature and societal issues.

True Loyalty

True loyalty is the gold standard when it comes to customer organization loyalty. Organizations that aim to instill true loyalty must keep vigilant to build customers’ trust and never waiver from that goal. One bad experience may not erode true loyalty, but even when true loyalty is earned, continued loyalty is not guaranteed.

The achievement of true loyalty must be continually monitored and take center stage in all organizational decision-making. Achieving and maintaining true loyalty results in decreased expenses and increased earned revenue. The truly loyal base continues to partake of the organization’s offerings and services, ensures positive word of mouth across their own networks, generates a solid and valuable recommendation engine, and limits the need for continual new customer acquisition activities.

Sustaining true loyalty requires a constant and deep understanding of the customer base. Customer-centricity means removing an organization’s own internal perceptions and institutional knowledge, and instead of recognizing how customer behaviors, needs and wants may be changing.  An organization that rises to the occasion will be successful over time and for the long term.

Each of these four mindsets demands an understanding of why customers love or align with your organization. Is it the quality of products, consistency of service, values you stand for or is it as simple as rewards?  “Personalization is the thread which covers every type of loyalty,” says Payal Hindocha, Emersys’ director of customer engagement solutions. It is even more important for keeping and nurturing true organization loyalty. “The deeper the customer relationship, the more insight you have and better the chance your organization has of driving true customer loyalty.”

How to Instill Loyalty

There are three essential pillars of ensuring customer loyalty: trust, personal value, and experience. Trust is the most important factor in any relationship. You lose trust, you will be hard-pressed to regain it. So, how do you instill trust that endures? Every customer is savvy and informed, just a keystroke away from you. Be honest and transparent and do not falter from authenticity. Build a community and share honest feedback among your customers, member, and subscriber. Tell your story and personalize your value to every individual. Offer great customer service and take advice from your community on how to make your organization better.  And finally, build a good reputation fueled with a high Net Promoter Score.

Communicating personal value makes your organization matter to every individual.  We live in an all-about-me culture, and successful organizations communicate with stakeholders as individuals, valuing them personally.  Accenture has researched consumers during the pandemic and reports, “People are looking inward, elevating concepts of relationships and responsibility and re-evaluating their priorities. Now, many of them are applying their new mindsets to where, what, and how they buy, engage, subscribe, and join. Through their choices, they are purposefully seeking to influence their communities and the environment, and to confirm how they see themselves in the world.” Responding to these inner-directed mindsets demonstrates that you value your stakeholders and respect them. Feeling valuable can make the difference between “should I stay, or should I go?” Here are a few steps to take to solidify personal value, according to Inc. Magazine:

Understand what Drives Value for Each Customer

Talk to them, survey them, and watch their actions and reactions. In short, capture data to understand what is important to your customers and what opportunities you have to help them.

The key to talking and engaging is asking customers to give you advice. As our clients know, 2040 believes that organizations routinely construct surveys, questions, or even construct customer service scripts to get the answers the organization wants. Asking questions that don’t correlate to the individual or the relationship they have with your organization will lead to a compulsion to check a box or fill in a blank, but rarely will it lead to objective input and/or feedback. Treat your customers based on their relationship with you and you will be surprised with the open and insightful input and –yes advice — you will get.

Understand your Value Proposition

What value do your products and services create for stakeholders? What does it cost them versus the benefits? We find organizations are quick to talk about their product or service features and functions but rarely are they able to articulate the benefits the customer receives or how the “features and functions” correlate to how customers find value and fulfill a need, want, or solve a problem. Reorienting your thought process towards benefits can aid in thinking more clearly and distinctly in terms of the customer. The reward for an organization is clarity of how to deepen the customer relationship and achieve true loyalty.

Create More Value Relative to Competitors

Different stakeholders have varying perceptions of your value relative to your competitors; it could be based on geographic proximity, for example, or a product attribute that one segment may find particularly attractive.

Acknowledging differentiation and delivering it to individuals leads to reinforcement of why they began their relationship with you and why they keep coming back. Don’t miss the opportunity to offer gratitude for the continuing commitment they have made and express appreciation for the role they play in being an advisor.

Create a Win-Win Price

Satisfied customers that perceive a lot of value in your offerings are usually willing to pay more, while unsatisfied customers will leave, even at a low price. Using “cost-plus” pricing (i.e., pricing at some fixed multiple of product costs) often results in giving away margin unnecessarily to some customers while losing incremental profits from others.

Historically, marketing practices are based on the fact that customers will feel an urgency to convert if there are dates and deadlines when they may lose the opportunity to pay at a lower price point.  Research shows that customers that pay a non-discount rate or pay a higher cost equate to higher perceptions of value. In short, higher cost results in a perceived sense of coveting and an individual justifies the cost.

Invest in Your Most Valuable Customers

Disproportionately allocate your investments toward the customers and segments that you can best serve and will provide the greatest value in return. Also, allocate your growth capital toward new products and solutions that serve your best customers or can attract more customers that are similar to your best customers. Remember, a focus on your existing customers and working towards achieving true loyalty will produce a recommendation engine to bring more and more similar individual customers to you. Investing in your most valuable customers increases direct and indirect revenue, decreases the cost of acquisition and allows an organization to more firmly forecast future revenue.

Ensuring a positive experience is key to retaining customers and making them loyal. Personalize each customer journey, track the results to apply these insights to similar customers, building a matrix of segmented customer journey mapping. Common customer pain points are actually easy to rectify: inability to find a contact to ask for help; long wait times; messaging that is irrelevant. Creating self-service systems provides better and relevant options for customers. Build an omnichannel ecosystem to seamlessly manage each customer’s history and engage with him or her optimizing the personal journey across the entire lifecycle. Innovations to the customer experience (CX) are often hidden in plain sight.  Your teams who interact with customers on the frontlines often have the most creative (and practical) suggestions for improvement. Empower them to be innovators.  Use critical thinking to test, re-test and implement new ideas. And finally, make your customers part of your story.  They can serve as influencers, advisors, thought leaders and evangelists for your organization in the role of peer-to-peer advocates.

Tools for Maintaining Loyalty

Customer loyalty has been under siege during the pandemic.  Individuals have reassessed what is nice versus what is necessary — essential/nonessential. The use of tech tools can accelerate how to identify stakeholders with CLV and then analyze this customer data to get in-depth insights into customer buying habits, engagement, experience, and expectations.

A key methodology. often not used appropriately. is the Net Promoter Score (NPS). One question: “how likely are you to recommend?” is the single most influential measure of loyalty.  NPS can be very powerful when put into action.  Surveys, on the other hand, are the predominant method for customer insight collection. Most surveys are sent periodically regardless of when the customer last interacted with an organization. Most surveys are structured to give an organization the answers they seek not true insight, feedback, or advice. Surveys are not reliable because we fall prey to our ability to remember. Humans tend to forget over time and often lose details of an encounter or conversation. We also tend to remember something more positive than what the experience actually delivered in the moment. Faulty memory stems from our focus on goal attainment, not process. The end justifies the means, in this case. We remember that we “survived” and achieved the goal; our memories focus more on the accomplishment than the details that got us there. Also, don’t sell our subconscious short. A negative feeling about the organization will flavor how we speak to others about it and why we may hesitate to recommend.

There are also more complex and expensive ways to create mechanisms to understand, manage and curate loyalty. Akula says, “Investment in advanced technologies like big data analytics, machine learning, natural language processing and deep analytics can help offer better personalization, predict attrition, identify customer pain points and design effective loyalty programs.”

How to Create a Culture of Loyalty

A functional organizational culture tosses out reliance on traditional siloed models and instead utilizes a systems-thinking strategy across departments and functions. Powered by critical thinking, a holistic approach ensures an organizational culture that has the agility to foster customer loyalty.  Rose Hollister, Kathryn Tecosky, Michael Watkins, and Cindy Wolpert write in MITSloan Busines Management identifying seven key characteristics of such a culture. You will recognize how each of the characteristics relates to the synergies between the customer and the organizational system to align effective strategies and operations. They all must come together to achieve change and transformation that generates strong true loyalty.

  1. Customer Centricity
    Understanding and prioritizing the needs of customers rather than focusing on products or profit.
  2. Ecosystem Focus
    Prioritizing the well-being of the entire multiorganizational system and not just the organization.
  3. Analytical Orientation
    Fully embracing the power of data and analytics in decision-making rather than relying only on experience or judgment.
  4. Collaborative Reflex
    Proactively engaging in cross-organizational collaboration and teamwork rather than working in silos.
  5. Bias to Action
    Valuing speed, not risk minimization, over perfection.
  6. Learning Mindset
    Engaging in experimentation and rapid learning.
  7. Leader as Enabler
    Empowering and energizing people while holding them accountable.

These seven characteristics are mutually reinforcing and together they constitute the foundations of a culture that can maintain customer loyalty by adopting new technologies and business models and responding to evolving business and social environments.

The Bottom Line

Organizations need to understand each customer and what has brought her or him to the door and return individually. “Then build loyalty to move them up the loyalty value chain from a lower level of loyalty to the highest of true loyalty. By treating each customer differently, you can provide them with the emotional element of being valued as an individual,” Hindocha explains.  And how do you do this?  You ask the right questions, establish measures that are shared across all departments, divisions, and areas in your organization — and use team-based evaluations to make sure everyone is on the same page and measuring what matters.

2040 MVP Workshops

2040 regularly works with clients to help them define their value propositions for different market segments. To do this effectively, we produce workshops as a cross-functional effort to ensure everyone has input. We have found that far too many organizations fall into the siloed habit of viewing customer loyalty as another department’s responsibility. In our workshops, senior leadership works alongside frontline employees to team-create a program that is relevant and responsive. We start with the customer’s need, then identify current products, programs, services that offer features that meet those needs. We then identify the benefits derived from the features so that these can be communicated to the prospective customer in a way that is meaningful. And finally, we put this into a marketing message which can be used and further tweaked for marketing outreach.

Get in touch with us to mobilize a fresh approach to ensuring customer loyalty. We deliver a stimulating experience matched with actionable results!

Get in touch with us!

2040 helps organizations navigate the sea changes of finding their new normal. We offer actionable expertise in the strategy and operations of digital growth and engagement, empowering an empathetic workplace culture, strengthening your value proposition and driving revenues.  We’ve been in your shoes and we know what impedes transformation … and what unlocks it.

Onward and upward from the 2040 Team

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