Big Red Car here. The weather is cloudy in the ATX today. We are in mourning but I can’t tell you why just yet. It is a sad, gray day. Appropriate for mourning.
So The Boss is visiting with a couple of his CEOs and he was giving them an old school definition of customer loyalty.
They liked it — clueless really. [Haha, Big Red Car, do not be dissing The Boss's CEOs. That is both impolite and rude.]
So then they began to discuss how things had changed. First let’s see where this all started from, eh?
Traditional measures of customer loyalty
Traditionally loyal customers were defined by the following considerations:
1. A loyal customer will patronize your business as opposed to all other alternatives.
2. A loyal customer will provide your business a natural, unsolicited, word of mouth recommendation to friends and strangers.
3. A loyal customer will be willing to pay just a small premium to patronize your business.
4. A loyal customer will recognize the business relationship as a meaningful personal relationship and not just a mercantile relationship.
5. A loyal customer will invest energy in the relationship both in the form of reputation validation but also in personal engagement with the business.
6. A loyal customer will tell you when something is going wrong.
7. A loyal customer will not abandon you when something goes wrong but give you an opportunity to correct the shortcoming and to continue the relationship.
8. A loyal customer will wear your tee shirt or baseball cap and be proud of the association.
What can be seen from this list of traditional measures of customer loyalty is that the relationship is real, filled with positive feelings, imbued with energy and enjoys great communication. Not every customer relationship rises to this level of loyalty.
Realistic expectations for loyal customers
In the customer loyalty business, a 15-30% segment of all customers are typically “loyal” customers as measured by the foregoing definition. Some are more loyal than others — fans or evangelists.
Not every customer is going to evolve into a loyal customer.
But every customer has the potential to become a loyal customer and CEOs should not be willing to concede a single customer in the grand view of things.
The quality of the business relationship, service, product and customer service will ultimately determine the level of loyalty — from none to insane, cult like status — that any customer exhibits.
This is all an evolving art and while it is very important, it is one of those things which can be improved on an iterative basis. Don’t become a slave to it all. Just improve it gradually but do some work on it every quarter, if you can. Iterative improvement.
Pro tip: Do not minimize the importance of old fashioned customer service. It is very, very, very important. Customer service is both routine in implementing your service or product but also quite special when troubleshooting when something goes wrong. You can create a loyal customer by the manner in which you solve their problem even when you have totally screwed things up.
Testing customer loyalty
A thoughtful CEO can probe for and test customer loyalty using simple and practical tools. Here are some pragmatic suggestions:
1. Conduct a journeyman like focus group — on some set period of time, like quarterly so you can track the trends — in which you discuss the issues outlined above and get real world feedback from the customers themselves. Avoid the temptation to conclude that any 10-person cross section of customers represents all of your customers but do not ignore what you learn.
2. Conduct a Customer Satisfaction Survey polling to answer the questions identified above as the measures of customer loyalty. Do this on a periodic basis and track the trends over time.
3. Analyze your customer buying patterns — total customers in the database, number who have purchased your product or service in the last 12 months, average spend trend (going up, staying the same, going down) — and track this trend.
4. Identify what percentage of your customers represents 80% of revenue. Track this trend.
5. Identify what percentage of your customers represents 50% of revenue. Track this trend. This may be a surprisingly low number.
6. Identify the percentage of revenue from your top 15% and 30% of customers. Track this trend.
7. Conduct an experiment using one of the measures of traditional customer loyalty — as an example the willingness of a cross section of customers to provide a recommendation or to refer their friends. Do this at different levels of inducement.
8. Develop a formal customer loyalty program which models, encourages and induces the desired behavior. Provide a system of rewards which is consistent with a good CTA v LTV balance.
As you can see, there are a lot of available tools but none of them are wildly conclusive and the trend of such analytics may be more important than the absolute numbers themselves. This is why this effort must be done over a protracted period of time.
What is customer loyalty in the Internet age?
Well things are a bit different today in the Internet Age — really, Big Red Car? Or are the measures just a bit different?
Haha, you got the Big Red Car on that one, Old Sport. Here is what they look like today.
1. A loyal customer will still patronize your business as opposed to all other alternatives but today’s loyal customer will know the alternatives better and they are as big as the Internet itself.
2. A loyal customer will still provide a recommendation but it is more likely to be on Yelp or some other reputation based website. Reputation sites are now an integral element in the customer loyalty arena. Companies have to engage in this arena constantly.
3. The premium that a customer is willing to pay is a diminishing number. This is particularly true when the product or service drifts toward a commodity or when a manufacturer’s warranty is the first line of defense. This is where the Best Buy dilemma rears its ugly head. Best Buy has devolved into the showroom for Amazon. You look at the product at Best Buy and buy it on Amazon.
4. There is much less personality inasmuch as the nature of communication has become email and phone rather than face to face. In this new paradigm, the importance of timely communication, trouble shooting and old fashioned hands on customer service becomes increasingly more important and literally the face of the company. Your company is that person answering the help desk phone.
5. The customer is much less personally connected and their investment in reputation reporting is going to be much more antiseptic. Theya re just as likely to skewer a business and its product or service or customer service as they are to praise it. Arguably they are more likely to provide negative feedback as it generates powerful emotions while excellent service has become de rigueur.
6. The customer is likely more hasty in throwing the relationship overboard as the Internet based transaction is simply less personal. There are now global alternatives and there is always a new kid on the block with a new competitive angle.
7. The customer is likely more willing to display or somehow applaud your brand and public presence. There is simply more focus on the branding and logo and typography of a web based presence.
8. Customers are willing to become part of a community — rather than just a name in a database — and willing to take this association to incredibly high levels of commitment, involvement and passion. Witness the Apple cult and other such communities.
9. The quality and relevance and importance of customer reviews and testimonials — customer driven content — is a powerful new development and when harnessed correctly is arguably more powerful than any other measure of customer loyalty. It literally sells products. Take a look at LL Bean’s customer reviews of its product lines. This is the voice of a salesperson not just a customer.
10. A new kind of customer has emerged — the brand evangelist who is like a brand stalker in their level of engagement and energy. Think of Apple Fanboys and you get he concept here.
In just this short discussion of the issues of customer loyalty in the age of the Internet, one can see how the game has changed. And, Old Sport, that is a damn good thing.
In the age of the internet when businesses occupy virtual real estate on the Internet, a company can project an image that is competitive with long standing and well established businesses simply by the quality of their virtual real estate and graphical presentation. Websites are now art. Take a look at Williams Sonoma’s website and tell me the site itself does not make you want to buy something.
Monkey see, monkey do — more relevant than ever. Don’t be the pioneer, be the quick second wayfarer. Let the pioneers garner the arrows.
The internet provides the opportunity to build communities of “customers in waiting” whose initial connection may be subject specific and then that subject draws them into converted traffic which becomes a customer. Customers in waiting become part of the community and only then become customers. Again, look at the Williams Sonoma site and the depth of information that is provided in support of the product lines. Famous chefs, great recipes — and, oh yes, you will need some stuff that Williams Sonoma sells to execute those wonderful recipes.
You are now no longer building customer databases, you are now building communities which subsume customers as an integral part of the community. You then have a natural constituency to which to introduce new products and services. Look to Apple and Google as great examples of this community building.
A modern company needs a dashboard to track its performance in real time — Internet time. This dashboard must include some measures of customer loyalty. Document the trend. Drive the trend in the right direction. Make the trend your friend.