Category Archives: Customer Service

Customer Loyalty – is there a Right Kind?

Your Customer's Emotional Experience
Image by 33 Interactions via Flickr

We talk a good deal about customer loyalty nowadays, but do we really understand it and know how to gain it?

The “1 to 1” gurus, Peppers & Rogers, define three sorts of Customer Loyalty:

  • Emotional Loyalty – this is about how customers feel about your brand;
  • Behavioural Loyalty – the way customers respond, and whether they actively seek to do business with you;
  • Profitable Loyalty – those customers that help you to make money.

Emotional Loyalty was the first level of understanding of the concept of customer loyalty, with early marketing designed to appeal to the emotions and build a bond with customers in this way. However, it became apparent that while customers might feel emotionally close to your brand, that didn’t necessarily mean they would buy from you, or do so on a regular basis.

This led to the concept of Behavioural Loyalty where marketers sought to find ways of bringing the customer to them to do business, and do so regularly. Of course, in many cases Emotional Loyalty was ignored as the focus was on getting the customer to purchase from you.

More recently, with the advent of tools to analyse customer purchases and overall costs more accurately, companies are discovering that on average only around 20% of customers are profitable for a business, with 60% being around break-even and a further 20% losing the company money, so they then focused on trying to find ways to increase the percentage of profitable customers and either remove the unprofitable ones or make them profitable.

However, isn’t the key really to do the first two well and use this to leverage the third? It really is not about focusing on just one aspect of loyalty, but rather about understanding how all three interact and driving your business accordingly.

On the emotional level, you need to be clear about what your brand stands for and ensure that you deliver what you say you will do – never over-promise and under-deliver as that is the quickest way to kill your brand’s emotional loyalty.

To keep your customers coming back – and we all know that repeat customers are best – your marketing must understand their buying behaviour and ensure that you continue to interact with them to capture the maximum share of their wallets. The Lifetime Value concept is key here.

But, of course, you must ensure you do so profitably – and this is not just about margin, but about the total costs of doing business with each customer. A high margin customer can still result in a loss for you if, for example, they are consistently returning items for credit, needing expensive support resources, paying late, and so on, while a low-margin customer who pays cash and never needs support can be nicely profitable. Be clear about where the costs are for each customer.

A great example of a company that does all three well is Amazon: just look at the brand recognition, the fact that you know they it’s a reliable supplier of books, DVDs, etc., at good prices, with a no-quibble replacement policy, and then see how it constantly offers you new items based on your buying behaviour. Amazon’s systems are not only providing its marketing engine with ongoing offers tailored to your likes, but make purchasing easy, so its internal costs are low as there is minimal need for support.

But, after all, if you really think about it, isn’t this what business is all about anyway: getting customers who feel good about doing business with you as you provide a consistently great customer experience, coming back over and over again to make purchases that are profitable for you?

So, to answer the question as to whether there is a Right Kind of Customer Loyalty, the answer is clearly, “No.” To be successful you need to ensure you are focusing your business on all three – Emotional, Behavioural and Profitable. And, in the famous words of a song first made popular in the mid 60s, “Do What You Do, Do Well.”

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Small Customers – A Neglected Resource

The efficiency focus of the past 18 months may well have added substantially to the risk profile of companies, while simultaneously reducing their profitability.

After all, efficiency for most means focusing on the largest customers – allowing one to reduce headcount (less people, managing fewer customers), reduce transaction costs (fewer, larger transactions) and, in many eyes, reduce risk (bigger customers are more trustworthy).

However, aren’t your biggest customers the ones that demand, and generally get, the best prices? Do your biggest customers not get the longer payment terms they request? Are your biggest customers really less work than others?

And what about the impact on your business of the failure to pay of one of your biggest customers? As we’ve seen, they’re far from invincible.

Conversely, most businesses will find that their smaller customers:
• Deliver better margins;
• Will pay more promptly (if for no other reason than you have more leverage);
• Are no more work than the larger ones, and often less so as they are less demanding;

On top of this, the impact of a failure on your business is far less severe, and you substantially reduce your overall business risk by spreading a given value across a number of customers, instead of concentrating it in one place.

What’s more, as business starts to pick up, the companies likely to grow most quickly will be the small ones – a 20% growth on $1 Million revenue is generally a good deal easier to find than a 20% growth on $1 Billion revenue. So having a good number of smaller customers will improve your growth prospects, too.

Analyse the true profitability (return on working capital, including all costs) by customer segment: you’ll find it a very interesting exercise.

I’m not for a moment advocating that you fire all your biggest customers, but rather that you not just focus on larger customers at the expense of smaller ones. As with all things in life, you need to achieve a balance.

Small customers should be embraced as much as large ones – after all, if you have a ready resource that will help you grow faster than the market average while improving your profitability and simultaneously reducing your risk, shouldn’t you make the best use of it?

What’s the Future of Banking?

One significant side-effect of the global financial crisis has to be a major overhaul of the world’s banking systems. They’ve been shown to be badly broken.

 After all, what is the current state of play with banks in general, when looking at their supposed core competencies?

  • Lending – very little lending activity going on, and only to those that don’t really need it (the very credit worthy);
  • Deposit-taking – although this continues, albeit at a lower rate due to the general economic woes, it’s done with caution and concern as the public no longer believes in the security of banks (the old adage about being as safe as a bank just doesn’t apply today);
  • Investment advice – does anyone trust the investment advice of banks any longer?

 And then there are peripheral activities such as credit cards – banks lowering limits, and now even looking at penalising the credit-worthy that pay up their credit card bills on time: surely a brilliant way to chase away customers…

Talking of customers: the issue of customer service is still something that few banks understand – they’re not open when customers want them to be, and are seldom found where they’re wanted. Fortunately, technology in the shape of Internet and Telephone banking is allowing us to work around these limitations.

And yet, the self-same group that precipitated the economic disaster of the past couple of years through the sale of very dubious investment instruments apparently repackaged to hide their source, believes that they continue to deserve multi-million dollar bonuses “to retain talent.”

What talent, and why should it be retained, considering the mess the world is in as a result of their activities?

Now that so many banks have been shown to have an extremely dubious business model, isn’t it time to relook the very essence of what they should be doing?   

Let’s see a complete separation of activities, so that banks focus on banking and investment houses focus on investment consulting – it’s clear that the “Chinese Walls” in financial institutions were full of holes.

Banking needs to be about rendering a service to the community – after all, a prosperous and stable community base is good for the bank’s business, and a prosperous and stable bank is good for the community. Banks need to focus on the business of taking deposits and making these funds available for loans to build businesses, put people in homes and generally provide a secure growth engine for the longer term. The short-term focus that we came to see in so many businesses (see: The Perils of Quarteritis) is just not acceptable.

And this model need not necessarily result in low returns for depositors – look at the success of microfinancing from Grameen Bank (and, now, others), both for the bank and the community. As with everything, there will be some elements that give lower returns, while others give higher returns. With careful, skilled management, depositors should be able to see appropriate returns while borrowers can secure appropriate loans.

It’s time for financial institutions to rebuild the trust that they’ve lost, and return to being of service to their communities again, rather than simply serving the bankers’ own interests.

Social Networking in Business – Good or Bad?

One of the most vigorously debated issues today is the place of Social Networking in the workplace:
• Should companies be using Social Networking in their marketing mix?
• Should staff be allowed access to Social Networking while at work?

Much of the debate stems from a lack of understanding of what Social Networking is all about and how it should be used, or not used. Many people, in fact, still equate Social Networking with inane information about where somebody is currently sitting doing some introspective navel-gazing, whereas it can – and should – be a highly effective medium for raising the profile of the business, encouraging interaction with all stakeholders and generally enhancing its position in the market.

A great example here is Twitter. While there has been much attention given to an August study from Pear Analytics suggesting that only 8.7% of all Tweets pass along value, the fact is that this misses the point of what a tool like Twitter can really be used for in a business marketing environment. It could, for example, be a wonderful way for customers to get quick status updates on service issues (Direct Tweet the Job Number to your Service Dept) or to see where a shipment is (Direct Tweet a Waybill Number to your Shipping Dept). What about having special-interest customers following a particular product group in your company for news on that product and, possibly, special offers? In fact, the uses for this sort of interaction are limited only by imagination…

Facebook, too, is not simply a tool to show who was drinking too much at the last party. Rather, in the right hands it becomes a great way to promote your business to a wide audience and to gain a set of “Fans” who, by their very presence, are opt-in customers for your marketing efforts. This can be a direct, company page where you share information on your company (or simply a specific product group within your company) and encourage feedback from your “Fans” or can be a more subliminal way of getting your company noticed through making available information of more general use such as the (very topical for this article) Social Media for Small Business set of guides published by Dell.

Of course, if you’re going to open yourself up for public feedback with systems like Twitter and Facebook, it’s essential that you have somebody monitoring your name/page and responding to the inevitable negative comments that will crop up from time to time – thereby turning negatives into easily-seen positives.

Then there are tools like LinkedIn – a great way to find people for your business and to manage your own business profile for those looking at potentially working with you (yes, prospective employees do research your company to see what is out there!).

By tying all of this together with your own Social Networking platform of customers, etc., you can promote your business, conduct online training or product releases, run polls to test issues, manage events and generally make your customers feel part of “your family.” What’s more, you no longer have to contend with outdated mailing lists as your “fans”/customers keep their information updated for you…

So – in answer to the question as to whether companies should be using Social Networking in their marketing mix, an emphatic YES. The secret is to define your objectives and utilise the appropriate tools, remembering, too, that these will evolve and change over time.

And as for the second part of the question – whether employees should have access to Social Networking sites – if this is a part of your marketing mix, your employees need to be a part of it, too. Where there is evidence of individual abuse, as will happen (just as it does with the telephone, coffee breaks, etc., etc.), action against those individuals can be taken – it’s just a question of the right level of monitoring and control, particularly as the lines between work time and leisure time blur in this connected world.

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Keep it Simple, Stupid

What is it about the human race that while we all apparently prefer ‘a simple life’ we delight in adding layers of complexity to everything?

Much to nobody’s surprise, I imagine, a recent McKinsey article, “Consumer Electronics Gets Back to Basics” showed that something like 2/3rds of consumers valued simplicity and price over a more comprehensive set of features. And yet, product after product is designed to have more features than its predecessor – generally at an incrementally higher price or, at best, the same price.

Just look at today’s ‘bloatware’ as an example. Remember the days when Bill Gates declared that “640KB ought to be enough for anybody” referring to the, then, new PC’s maximum memory capacity? Nowadays, you’re lucky to get away with less than three thousand times that much (2GB)! And yet, how many of us use more than 10% of the features available in today’s ‘productivity suites?’ I don’t, and many consider me a ‘power user.’

Oh, and don’t believe that the complexity is simply as a result of more capacity – people have been calling for simpler PCs for decades. In a Newsweek interview back in 1995, Oracle Chairman Larry Ellison said that the PC was too complicated and difficult to use then, predicting the PC would soon be replaced by simpler desktop devices – the ‘network computer,’ a no-frills computer/terminal that performs basic chores easily and simply and sells for less than $500. Perhaps Oracle’s recent purchase of Sun Microsystems will enable him to move us all in that direction some 15 years later: Sun already sells this type of device – they call it a Sun Ray.

The big surprise for many vendors last year was the Netbook. Initiated by Asus, this basic notebook PC really set the proverbial cat among the pigeons. The form factor was first tried in the mid 90s with a notable lack of success (it was called the sub-notebook in those days), so there was a healthy dose of scepticism when it was announced last year. Acer, as the first major multinational vendor to see the opportunity, quickly produced its own line of netbooks and gained enormous market-share as a result: seeing a significant increase in unit sales last year, just as the downturn was biting most companies. Here was a classic case of people wanting simplicity – what a pity, then, that the software was not also available in ‘Lite’ versions, meaning that many early adopters of netbooks ended up returning to the larger, more powerful machines that could handle the software workload.

But it’s not just in PCs that simplicity is the watchword. A couple of years ago a start-up company, Pure Digital Technologies, introduced a simple, one-button solid state video camera that runs on a couple of AA batteries. This device, the Flip, quickly grabbed 14% of the US video camera market surpassing all but the long-time market leader in sales. It’s a wonderful little camera and perfect for recording those ‘moments’ of life – I know, I got one soon after launch and swear by it. Interesting, then, that Cisco acquired the company a few months ago – is simplicity to be Cisco’s driver now?

This desire for simplicity is evident in many other areas of life, too – look at how people are embracing simpler airline and hotel offerings: companies offering easy-to-use services that do what’s needed at a reasonable price. The same goes for other products, like the success of Tide Basic laundry detergent.
And here’s the key – to succeed, products and services must be well-made, practical, offer the set of basic features that people need (read: market research is critical) and be seen as offering great value. Properly done, this can be achieved at increased margins to the over-featured products we’ve become used to, so increasing shareholder satisfaction along with customer satisfaction.

As the saying goes, “Keep it Simple, Stupid.”

Isn’t this what we all want?

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Is there value in a Repeat Customer?

Why is it that although every marketing book / article I’ve ever read tells me with authority that it costs 5 (or more!) times as much to get a new customer as to sell to an existing one, so few companies understand this?

Do their executives and marketing people not read?

I know you’ll have many examples of such wasted opportunity, and I’d love to hear those that stand out in your mind, so to get the ball rolling, let me give you a couple of – to me – amazing ones…

Newsweek is top of mind at the moment as I have just received my annual renewal notice. This ongoing piece of optimism on their part really baffles me as the renewal fee is almost exactly TWICE what I would pay to take out a new gift subscription, and that excludes the (admittedly dubious) value of the little extras they send with gift subscriptions.

When I queried this with the “Customer Service” people at Newsweek a couple of years ago, all I got was a rather terse note saying that the renewal price is the best available offer for my country. This in spite of me providing them URLs to prove otherwise in my original query… So, each year for the past several years I’ve allowed a subscription to lapse and taken out a new gift one, saving myself a tidy sum in the process.

This is, of course, a lot more expensive for Newsweek: apart from the trinkets, they always allow a lapsing subscription to run on for a few issues while they send out several reminder letters.

Why not just give subscribers the same deal (without the trinkets) and save on the letters, too?

Another great example is that of Consumer Electronics stores – full disclosure: I love gadgets and electronics stores. The opportunities they miss to get steady repeat business are legion! Let’s face it: they have my information as I invariably pay by credit card and they could easily ask me to sign up for a “loyalty card” or just permission marketing.

But they don’t.

Each time I visit, I’m treated as a brand new customer (not a great experience in most cases to be honest). They miss opportunities to sell me upgrades or add-ons for products I’ve previously purchased (unless that’s the purpose of my visit). They don’t keep records of what sort of things attract me so I can be carefully guided by the marketing people to buy more. In fact, they have no idea who I am at all – and yet the company executives that I’ve come to know from some of these stores are searching for extra sales, especially in these tough economic times…

When are companies going to wake up to the real, lifetime value of their customers?

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