This is part of a series of posts on modern approaches to customer loyalty aimed at improving it through customer engagement. A fuller discussion is available in my new book, You Can’t Buy Customer Loyalty, But You Can Earn It.
Lots of CRM vendors talk about personalization but their idea of how to do it leaves a lot to be desired. They do personalization very late using a just in time approach to accessing customer data to support a sales or service encounter in the moment. This certainly is important and it achieves the goal of personalizing the encounter by producing a catalogue of data including the customer’s history, demographics, and other relevant information. With it a customer-facing employee or automated process can make intelligent decisions in the moment and offer, among other things, next best actions or offers. So there’s a lot to like with this form of personalization.
But why wait until you’re in the moment of truth to personalize? This kind of personalization implies, or should imply, another form that’s further upstream from the moment. In my last two books I’ve written a lot about moments of truth. Briefly, they should be predictable and every business ought to know what they are. Typically, customers experience moments of truth, times when they want or need something from a vendor that the vendor should be able to provide.
Moments of truth are driven by reasonable expectations that are based on marketing, brand promises, or the nature of a product or service. For example, there is an expectation of ease of use for most electronics today. That’s a vague idea but its based on the vendor’s responsibility to research customer attitudes and habits, to start with, and to design solutions to the expectations that arise from them.
When a vendor takes on understanding moments of truth and succeeds the results can be powerful. One of my favorite examples is Starbuck’s loyalty program mediated by its mobile app. Starbucks started by trying to figure out how it could enhance its customers’ store experience and discovered that at busy times, customers had to wait in two lines that could be rather long—one line for ordering and another for pickup. Eliminating the wait time became one of the drivers for the mobile app that lets people order from their phones even while en route to the store. Upon arrival it is now a simple matter of picking up the order.
With its app, Starbucks gave customers the ability to customize or personalize their visit, the onus is on the customer and there’s little need to crunch massive amounts of data.
Proactive personalization doesn’t require a mobile app though many businesses have made great use of the smartphone as a platform. Another great example of personalization is Hilton Hotels and its HHonors app. With it, customers can reserve a room, see a map of the property and select a room, order services, and even turn the phone into a room key. Similar to Starbucks, Hilton puts control of many aspects of the experience in the palm of a customer’s hands.
As we’ve seen personalization can mean many things and it’s not always about data or certainly not just data—it implies relationships. For this reason community can have a big impact on how a vendor approaches customers. In most of my research it is hard to come across any situation where a vendor maintained tight control of the information customers could access. In most cases personalization involved giving up that control in favor of giving customers the ability to control their destinies. It involves an amount of trust but I can’t think of a situation where trusting customers wasn’t a good idea.
A case in point is SOL Republic.
This is the last of four posts on the key attributes of customer loyalty.
If you want to successfully engage customers, or anyone else for that matter, it helps to have a model of what success looks like. This idea isn’t new. Elite athletes train themselves to see a perfect race in their mind’s eye, or to imagine the arc of a ball to its flawless conclusion. Scientists model physical and chemical reactions that occur at a scale too small to view directly. Business people use spreadsheets to specify business plans and they are really no more—and no less—than models for how a business operates and makes money. It is so common in fact that the business model is one of the most overused terms in business today.
But as good as we humans are at modeling, when it comes to the vendor-customer interaction we think we can wing it; but that’s a mistake. There are too many failure points for engaging customers, and too much is at stake, to wing it. We’ve all been customers and each of us has at some point had to convince others of our point of view and maybe we think that such modeling is just intuitive. But whether we make an explicit plan or simply go over what could happen in an interaction, we’ve modeled that moment and the quality of the modeling will help determine the success of the endeavor.
In the vendor-customer experience it’s best to plan things out concretely because people often act in unpredictable ways and it’s worthwhile to have some forethought about what to do next when things don’t go as expected in real time. If you look at customer sentiment sites and read descriptions of encounters that leave customers disappointed or even angry, you can’t help but notice that many of the stories involve things that went wrong that a vendor should have been able to predict—had there been a model to work from.
That’s what journey mapping is for and although we have been executing some forms of it for a long time, there’s now software that makes it all quick, easy, and accurate. There’s no longer an excuse for bad encounters where a vendor should have known. Moreover, in an era when we are letting machines take over some aspects of first customer encounters and triage for simple requests, it’s critical that we give our machines the ability to accurately carry out their tasks all the way to completion.
There’s nothing worse than a process that ends abruptly because no one thought the process would go that way. Journey maps help us discover all of the things that could go south and plan for how to prevent bad outcomes.
Journey maps have another, even greater, use. Once you have an accurate model of a customer journey you can develop metrics for key points in every process. Is a customer facing process taking too long? Where are the bottlenecks? Who are the customers most directly affected? How can we help the customer before he or she becomes frustrated and about to trash a vendor’s reputation? What is the effect of this frustration on customer retention?
You can quickly see that journey maps shouldn’t operate in a vacuum and that there are two key elements of the CRM suite that must be tightly interwoven. The first is, obviously, analytics. With modern metrics and analytics, a vendor can now easily manage by exception. If a small number of customers have trouble in a part of a process, analytics can help us determine which customers and pinpoint the processes so that no one reaches a dangerous frustration point. Ironically, sometimes even with the best intentions we develop metrics that we may think are important but that don’t enhance the journey.
The other interesting integration for journey maps is the application development and maintenance part of your platform. Ideally, a journey map should influence what code gets written; if your business process needs to branch, a good journey map should be able to drive that code generation. In this way, your customer-facing applications can always stay current with the processes that support your customers.
So that’s it, engaging customers and generating loyalty takes these four things: automation (but the right automation), proactive personalization, contextual interaction, and journey mapping. None of these is independent of the other three any more than peanut butter, jelly, and bread can lead separate lives on a plate. When we focus on engagement through this prism the result is customer loyalty, advocacy, and improved revenue. Customer loyalty is hard to get and it’s true, you can’t buy it, but if you know what you’re doing, you certainly can earn it.
In today’s hyper-competitive markets, customer loyalty takes on new importance for numerous reasons. Markets are competitive because in many there are multiple competent vendors with quality products. Also, the number of net new customers is falling to the rate of population growth; for example, if you have a smartphone you might be reluctant to buy another every two years. This means that for any vendor to show decent growth, strategies that take away a competitor’s customers become very important. Therefore, so do strategies for retaining them and that’s where loyalty comes in.
It also doesn’t help that so many products are sold as services today either. The rise of the subscription business model means lots of customers understand that they can find another vendor if the current one lets them down. According to a 2015 report from Accenture attrition imposes high costs on the global economy. In 2014, the last year for which we have data, customer attrition amounted to $6.2 trillion dollars.
To put that into perspective, there are only 3 economies with bigger GDP’s (gross domestic product) on the planet, the U.S.A, European Union, and China. So effectively the fourth largest GDP is wasted if you consider that churn represents a re-establishment of a status quo with no real advancement because a customer simply trades one vendor or brand for another in a churn.
The significance of churn is often lost on people simply because customers are won and lost individually and as long as a vendor has a net increase in revenue or units shipped or similar measures, we tend to de-emphasize or even ignore churn. But should we?
Right now, even the best companies selling subscriptions have churn rates of 10 percent or less. Some churn is unavoidable especially if a customer leaves a demographic—they age out, or outgrow a product or a service, for example. These things can’t be helped and you might call this acceptable churn. But if there’s acceptable churn then there has to be unacceptable churn too and the GDP numbers are mostly about the unacceptable variety.
Unacceptable churn is insidious—it happens when we’re not looking. One moment a customer is exhibiting loyal behavior using a product or service or perhaps even increasing exposure to it and accumulating points. But the next moment the same customer is gone.
Vendors have tried all manner of ways to retain customers and reward programs head the list. But customers accepting rewards for making purchases are often only exhibiting loyal-like behavior without any consideration of the real thing. One study by IBM, Travel loyalty – Discount discontents showed that upwards of two-thirds of travel customers would churn out of a vendor situation if they could find a better price. But that’s not real loyalty, which can be defined as a customer having a vested interest in seeing the vendor do well.
Truly loyal customers aren’t in the relationship for discounts or coupons; they like the products and services and they preferentially select one vendor over another. Vendors that have figured out how to encourage customers to be loyal have discovered that engagement is a key to success. Importantly there are 2 types of engagement, the kind initiated with vendors, which comes spontaneously from customers.
Figuring out how to earn spontaneous loyalty through engagement is the work of modern loyalty programs and it has less to do with accumulating points, miles, or discounts than you might think. It’s also the subject of my new book, You Can’t Buy Customer Loyalty, But You Can Earn It. I’ll be providing more loyalty insights here soon.
Tien Tzuo, CEO of Zuora, wrote a post for re/code that was so good it deserves broader circulation. While the focus is on customer relationships in subscription businesses, it’s also about loyalty and having just written a book about customer loyalty (available next month), it resonated with me.
My research is full of old style approaches to customer loyalty that, shall we say, aren’t really about loyalty so much as they are about customer coercion. You can coerce a customer into being loyal, what I refer to as performing loyal behaviors, but they don’t exhibit true loyalty. Customer loyalty should be about inspiring customers to defend your brands, to preferentially seek out your products, and to buy them even when they aren’t discounted, have a coupon attached, or involve the award of so-called loyalty points. My research found that customers who behave loyally because of such inducements are easily attracted by the next enticing offer so their loyalty is often more closely associated with the discount or reward than with the brand.
A great example that Tzuo explores, and that I had overlooked, is called the “negative option” an arrangement that keeps you exhibiting loyal behavior as long as you fail to cancel a service or promotion. The negative option is something of a relic but you can still see it operating in the market today. Tzuo uses Columbia House, the now bankrupt vendor of music and AOL as examples and they’re really good ones.
If you are too young to remember Columbia House, then good for you. The basic offer was some large number records, tapes or CD’s for a penny as long as you agreed to be a member and receive a monthly shipment until you’d bought an equal number of recordings at full price. After that point you could cancel the service but human inertia often prevented or delayed that event. As a result people appeared to be loyal but weren’t. They were trapped.
Even today according to Tzuo, AOL has 2.1 million subscribers to its $20 per month dial-up service. As he says, “These AOL customers surely aren’t shelling out for the ‘convenience’ of their painfully slow dial-up service.” He’s right, too, having a dial-up account today is likely more habit for most people, though it’s also possible a few still don’t have cable where they live.
The negative option lives on in the subscription industry in the form of automatic renewals from month to month as long as a credit card stays active. In these circumstances, customers who appear loyal to the negative option might not be using or otherwise engaging with the vendor despite what appears to be loyal behavior. Businesses in this situation have a ticking bomb on their balance sheets for while the revenue is good, it can disappear at any time and at some point, the negative option practice will generate a good deal of bad will toward the brand.
Companies like Totango, Gainsight, and even Zuora use their analytics and large customer datasets to understand customer behavior and to spot true loyalty as well as the warning signs of its opposite. Vendors are becoming more aware of the problem of the negative option and more generally, customer behaviors that appear loyal but which might represent inertia or laziness so that they can head off unpleasant surprises like a spontaneous social media campaign that damages a brand.
The rise of the subscription economy and its culture has placed a bright spotlight on issues of customer retention, engagement, and loyalty. The days when you could sell a product set for a lot of money and move on to the next prospect are ending and being replaced by various forms of subscription and the requirement for greater customer intimacy. But the negative option is from another time and ought to seem out of place today as we focus on retention, subscriptions, and customer intimacy regardless of the markets we serve.
What was most interesting to me from researching my book was that customers aren’t necessarily interested in amazing experiences that cause delight. Delight is another fad that’s come and gone or should at least be on the way out. Very often customers want and expect simple basic competency and effectiveness so that they can get on with everything else they have to do. This in itself is great insight because it shows that inspiring customer loyalty is within anyone’s grasp if we simply avoid creating a circus and focus on what matters most to customers.