Four attributes of customer loyalty
This is the first of four 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.
As I see it there are four basic capabilities or attributes to building better customer loyalty that I learned about in an article from two McKinsey researchers David C. Edelman and Marc Singer in a 2015 Article in Harvard Business Review, Competing on Customer Journeys. Edelman and Singer say (and I agree) that they are,
- Automation
- Proactive personalization
- Contextual interaction, and
- Journey Mapping
What strikes me immediately is that only two of these attributes are purely or largely technological (1 and 4) while the others are decidedly organized as human mediated processes . This strongly suggests that we can’t simply throw technology at the problem to make it go away. Moreover, the human mediated parts require a good deal of high-level thought to pull off. But this is getting too far ahead. The first item is automation and it deserves full examination.
Automation
Most thought leaders on customer loyalty will acknowledge the importance of automation but few get us to the point of understanding that even here, each business’ automation will be vastly different from any other’s. Why? Because circumstances such as products, business models, employees, and many other attributes form unique offers that have to be handled as one of a kind ideas.
The purpose of automation has always been to reduce labor input to derive greater throughput from business processes, maximizing the utility of the resources we invest. On the employer side, this is usually called productivity but automation can have the same impact on the customer side. Simply because a customer isn’t on the payroll doesn’t negate the importance of respecting a customer’s time and effort; thus, automation is a great way to take some friction out of a business process on behalf of a customer—and it works.
Often (but far from always) automation comes down to mobile apps so they’re a good place to start. In my book I look at two very different mobile apps, the Starbucks mobile app and the Hilton Honors (HHonors) app and, as I mentioned, they couldn’t be more different.
Starbucks
The Starbucks mobile app encompasses the company’s revamped loyalty program. It was so successful that it left executives with the happy problem of having to explain a huge revenue bump in an earnings call last year. With the app in place, year-over-year revenues for the company jumped by 17.8%, an unheard of amount. The new automation carved a good deal of friction out of the customer experience for its users by letting them order and pay with their mobile devices rather than waiting in lines. They showed their appreciation with more business.
Of course there was a strong dose of the other three attributes in these results. For instance, the app incorporated the customer journey to a high degree affording the ability to proactively personalize the Starbucks experience and we’ll explore these ideas more in a future post. For now, it’s exciting to see such powerful results from the app’s deployment.
Hilton
About the only thing that Starbucks and Hilton apps have in common is that they run on iOS and Android. But more importantly, each does a great job of anticipating customer needs, too. For Hilton this means that the app helps people reserve rooms and also lets them check in without standing in line at the front desk. Not only that but with the app customers can select a room on the property, order room service or a morning paper, and the app even enables the phone to function as a room key.
What’s powerful about both apps, and what’s often overlooked, is that they are additive. For example, turning a smartphone into a room key as Hilton has done is not as complex painting Cubism, but few businesses would go out of their way to build just that functionality. The Hilton app’s hidden benefit is that it acts as a platform on which the company can build all manner of solutions for customer outreach. When I wrote the book more than a million people per month were using the Hilton app to check in and that number is likely growing. The same is true for the Starbucks app, which is also functioning as a platform.
Customer engagement
We’ll revisit the idea of customer engagement again and again, and it’s worth pointing out that the best automation is designed to make it easy for customers to reach out to vendors. Customer initiated engagement is more valuable than almost anything for developing relationships that lead to customer bonding and loyalty. The secret to developing apps that support customer loyalty is to focus on being present in customers’ moments of truth—the times when they need you most. For Starbucks this meant ordering and payment, remembering favorites, and identifying new locations among other things. For Hilton, it meant reducing friction in the hotel stay.
If you’re looking for commonality between the apps that’s it—being in customer moments of truth. And if you look at your own business you’ll find unique moments that you can take advantage of in the same way.
Engaging at moments of truth
Lost somewhere in the pile that is a current research project, there’s an article on customer loyalty that says that over half of customers who recently exhibited loyal behavior towards a vendor said that they’d switch to another vendor in an instant. The question prompting this answer is whether these customers would switch for a better deal. It was a trick question trying to determine loyalty.
In some ways this is not surprising, who doesn’t want a better deal? But it also encompasses all that is not well in our approaches to customer loyalty today. We’ve developed a culture in which price is the primary motivator and one’s effort in the marketplace is all about getting the lowest price. But getting a low price and obtaining a great deal are not the same. For instance, the price of a car and the perception of getting a great deal hinges on the car’s brand.
We have also trained customers to expect a reward, discount, special deal, or whatever you want to call it, just for showing up. It makes the 8 year-old soccer league look positively draconian. In fact, we’ve so confused the idea of customer loyalty with rewards that both are practically useless. We reward customers, they collect points, miles, and stamps, and we consider those acts of collection to be evidence of loyalty. But if the article is to be believed (wish I could find it) we’re deluding ourselves, thinking that rewards and loyalty are the same, or perhaps that one breeds the other.
They are separate and distinct though. Rewards, or discounts which is what they amount to, were once thought to be tools for optimizing something called the marginal consumer—someone who didn’t see value at your price point but might be induced to make a purchase at a lower price. Gathering trade from the marginal consumer is a way to increase revenue, even if you can’t get the full price and it’s particularly useful in a market that’s growing at the rate of population and no faster. It’s a way to goose revenues even if it erodes margins (and it is the direct ancestor of the punch line, “We’ll make it up on volume.”) What happens though if every customer becomes a marginal one? Specifically what does this mean for list prices? You already know.
Nevertheless, current reward programs are working, or they’re working well enough. Of course, they aren’t making customers loyal and they aren’t enabling vendors to charge a premium for their wares, so maybe they aren’t working. When I hear rewards I automatically think about the wanted posters in the post office. We want you but you probably don’t want us. Right?
Just when you think things couldn’t get worse for loyalty programs, another report (which I can find) from McKinsey, “The Power of Points: Strategies for Making Loyalty Programs Work,” by Liz Hilton Segel, Phil Auerbach and Ido Segev, delivers the devastating news that, “Companies with loyalty programs posted a 2.28 percent comp sales increase, while those without loyalty programs saw 4.26 percent gains.” Just because you’ve got a loyalty program doesn’t mean it’s working
To add insult to injury, there are many companies that still don’t use rewards or loyalty plans that are doing just fine. Apple comes to mind, they have a robust business and everybody pays list price. Starbucks, mentioned last time, has more than 10 million customers in its loyalty program who are actually loyal by various measures like buying more.
To be clear, loyal customers are those who would make repeat purchases even if there were no inducement. Over time loyal customers buy more, expand their exposure to your brand, and they become more profitable because they know and understand your drill.
So what’s the similarity between companies like Apple and Starbucks and the rest of the trade who are giving the store away and barely making it? Engagement plays a big role in loyalty. Presumably only masochists engage with vendors they don’t like so engagement seems like a good place to start, but what comes first? Engaged customers become loyal over time but you could say that every coupon clipper in the world is therefore engaged, so what’s the deal?
Simply put, when customers engage with a vendor on an area of mutual interest there’s the necessary spark for loyalty. Note the mutuality because it’s important. Coupon-clippers are engaged but the vendors really aren’t and it takes no special talent to offer a discount. But vendors have to be able to pick their spots for engagement; to engage in everything is profoundly wasteful. That’s why I advocate for identifying moments of truth. They are the things that customers care about and that vendors need to uncover so that they can engage in a mutually beneficial way.
To engage customers this way is a route to developing their loyalty and as more vendors discover this they effectively train customers in new practices. All of this makes older rewards programs seem quaint.
The next time you’re wondering how to generate loyalty in your customers or speculating about why they take the discount and run, don’t automatically assume that “customers have changed” or some other marketing cliché, and what you have is all you get. Customers always do what they’re supposed to do and if it’s not what vendors want them to do, then it’s likely because vendors haven’t figured out how to ask the right question.
To personalize or to be authentic
You might ask what the difference is between personalization and authenticity in CRM and the answer is subtle. For a long time I have felt—and said—that we over emphasize personalization when what customers really want is authenticity. But examples are hard to find, especially in our current culture where personalization is strongly emphasized and authenticity draws quizzical looks. Perhaps you are feeling that way right now.
Nonetheless, earlier this month in its August 10 and 17 double vacation issue The New Yorker served up a perfect example. For reasons that I don’t understand but am eternally grateful for, this magazine has, for many years, been an unofficial source of great material for the social CRM age. Malcolm Gladwell (author of many articles and books like Outliers and The Tipping Point) is an editor there as is James Surowiecki, author of The Wisdom of Crowds.
The article that impressed me comes almost literally out of left field. In “Learning to Speak Lingerie” Peter Hessler takes us on a trip to visit with Chinese lingerie entrepreneurs establishing a beachhead for their wares in upper Egypt. The Chinese are learning Arabic and have no familiarity with Islam or any other religion. They sell lingerie to women (accompanied by men and in one case a significant fraction of a woman’s whole family) who are dressed in traditional headscarves or more.
Despite the handicaps of language and culture, the Chinese are making inroads into the market and at one point in the article, I think you can see the handicaps working to advantage so that Chinese men are more effective at selling lingerie to Egyptian women than Egyptian men are.
Consider this: Through a translator, an Egyptian woman speaking to the reporter said, “I can’t describe how they [Chinese merchants] do it. But they can look at the item [of lingerie] and give it to the woman [i.e. a customer] and that’s it.”
That’s interesting but what comes next is key: “An Egyptian man would look at the item, and then look at the woman, and then he might make a joke or laugh about it.”
Wow! It feels creepy just reading that last sentence. Talk about personalization gone bad. The Chinese don’t have that problem in part because they’re still learning the language but also because they are focused on being authentic and in this case it means providing just enough service to help with selection and not trying to get into the mind space of the customer. Hessler documents this when he continues to quote the Egyptian woman, “When you buy something, you feel the thoughts of the person selling it. And with the Chinese their brains don’t go thinking about women’s bodies.”
This struck me as highly rational and to the point of good CRM. We make a big effort to personalize customer encounters and truth be told some of our efforts are really good and deserving of praise. But as in the example above, one person’s personalization can easily lead to another person’s feeling an insult with a resultant no sale.
That’s why my position is to favor authenticity whenever possible. It’s never perfectly clear when a customer will feel the love or something else so the question must be, why take the chance?
My suggestion to would-be personalizers is to first understand the moment of truth that your customer is actually in—it might not be what you think. Then work within the moment of truth to ensure that you are providing the authentic moment that customers want. You can’t do this unless you turn your data gathering and analytics toward metrics that tell you concretely how you’re doing. A man selling lingerie might be in particular danger of not understanding the customer’s moment of truth and personalizing it with an off-base comment (or offer) will only exacerbate an awkward moment.
Most products and services don’t serve intimate and private needs but they still come with moments of truth and customers still look for authenticity within them. I still believe that personalization is a decision on the part of the customer not the vendor. It often happens well past the halfway point of an encounter when the customer decides that, yes this fits my need in this moment of truth. That decision is often subliminal, but it certainly happens.
It’s the CUSTOMER Experience
Bill Clinton won the presidency with the mantra, “It’s the economy, stupid,” and I think CRM could borrow heavily from that pithy bit of logic. When in doubt, if you can check your preconceptions at the door and actually perceive the information in front of you, there’s no telling what you can figure out.
Such is the case with the tired phrase customer experience. Much like Mark Twain’s weather prognostication (“Everyone complains about the weather but no one does anything about it”) CX, as it is being rebranded, is something we either can’t or won’t do anything about, notwithstanding all protests to the contrary. Throughout this spring I have attended multiple conferences where CX was trotted out only to be defined in a vendor’s favorite terms; which rarely has included such basics as asking for opinions from customers.
There is no shortage of handwringing and worry (and proof of Mr. Twain’s wisdom) about CX than the data floating around. A new Forrester report claims that only 1 percent of businesses they surveyed are providing excellent customer experiences. Oracle tells us that more than 90 percent of their customers think CX is primo in importance but only about a quarter of them are hitting the ball out of the park.
What’s going on here? If it’s so important why aren’t we doing better? I’d suggest it’s because we’ve misdiagnosed the problem. It’s my belief that the challenge is between our ears.
I spent part of the last week at a conference where yet another vendor paid homage to the concept of CX. They brought in consultants and analysts from big firms to tell the audience of the importance that needs to be placed on CX and then proceeded to tell multiple stories about what executives at various companies did to improve CX. Amazingly though, no one saw fit to mention the vital role of customers in all this.
Customer (an adjective modifying Experience) was bandied about plenty but it never turned into a noun as in let’s ask the customers what they think. It went over most people’s heads and could have missed me except that I just spent the last 18 months studying the issue. To net it out, if you want to know what makes a customer experience you have to ask the customer. If you don’t ask, you are committing the age-old error of letting opinion substitute for fact.
Now, to be fair, the substitution is a natural one. Until the last few years we didn’t have the ability either to collect enough customer data or to analyze it effectively. Opinion was the only thing we had. Expert and experienced opinion from senior executives drove most CX decisions and it worked up to a point. In the 19th century retailer John Wannamaker uttered the famous quip that half of his marketing budget was wasted but he didn’t know which half. He had little recourse since he lacked a fast and efficient way to capture data and analyze it for telltale customer signals. Old habits die hard and despite our harvest of big data and robust analytics we still rely on HIPPOs—the Highest Paid Person’s Opinions—when we should be analyzing community data.
The disconnect is becoming significant. With modern methods and using community approaches to collect data, a business can have a laboratory in which it tests ideas with customers to discover what makes optimum customer experiences for a particular business’s customers. One big finding from my research is that we are engineering CX backwards. Customers experience moments of truth, specific times when they want vendor interaction. If you want to engineer CX start with understanding the customer not with the opinions of “experts”.
The reason is simple: each customer experience is not something completely new that a vendor has to brace for. Imagine you’re a doctor and a patient presents with a sore throat. The you might treat the patient as an individual and with empathy, but you certainly won’t treat the sore throat as if it is a condition new to medical science. There are decision trees and best practices for dealing with any malady and the doctor makes a diagnosis and prognosis based on them and supporting data gathering in the form of lab work.
Notice how the personalization is separate from the diagnosis and treatment. The specific malady, a sore throat, is the moment of truth and it is treated differently from a broken leg though the attentiveness is still similar. That’s what we need today in the front office. Companies that take a moments of truth approach find that rather than preparing for almost anything in sales, service, and marketing, they can limit their horizons to the things their customers care about and that they wish to be great at.
There will always be things that customers want from us that are outside of our capabilities and we need to say, in so many words and business models that this isn’t what I do. Regardless of what the customer experience gurus tell you about customer’s attitudes toward a good steak dinner you don’t prepare to somehow handle a customer request for steak if you run a burger joint.
So my advice for anyone who is confused about all the CX talk today is simple. Treat the experience as an outgrowth of an authentic engagement, a moment of truth. Use analytics and community to ferret out those moments of truth that you need to be great at (some are not obvious even for HIPPO’s), then build metrics around your moments of truth to track your progress. But above all, get rid of the belief that you can know what you need to know without asking customers what they think. If nothing else it will save a lot of resources spent chasing unicorns.
Where Self-Service Ends
Self-service is generally considered a good thing, especially in CRM where there has been significant investment in empowering people to take on more responsibility for provisioning service or making purchases. But it’s not all great and there is some interesting blowback that is causing vendors to reconsider how their offerings work.
In sales, self-service has resulted in truncated sales cycles and fewer invitations to the dance—you know this problem. Customers do their own research and engage a company and its representatives later when they are looking for pricing for their final decisions. Once vendors could control the information flow and customers would need to engage just to get a basic fact, that’s not true today.
We all know this happened as an inevitable consequence of the Internet and now vendors are struggling to find ways to engage customers earlier in their processes so that they aren’t locked out of deals before they can even find out about them. Also, nobody wants to be engaged at the last minute when all they can do is price, propose, and pray. We’re definitely dealing with unforeseen consequences.
Interestingly, and perhaps ironically, self-service has an equal and opposite effect in customer service. Customers are very happy not to wait in phone queues to ask simple questions and as a result, social media, FAQs, knowledge bases, and communities are supplying solutions for many of the issues that once consumed service reps’ time—another benefit of the Internet. This also means fewer touches, fewer chances to make impressions of try for the additional sale.
This doesn’t mean service is dead. In fact, with the easy questions handled by other means, more or less, the volume of issues might go down but their complexity has risen. As a result, engaging with contact center folk might take longer because even these veterans no longer have answers on the tips of their tongues and they have to do research. I don’t think this is as simple as a training issue. To be a service rep today means juggling more information, harder issues, and more customers.
This argues for a paradigm shift in sales and service, which is being driven by analytics and journey mapping. Previous approaches to sales as well as marketing have been reactive—the customer asks and the vendor responds. That makes a lot of sense because it is the nature of a conversation. But I’d suggest that conversations are not what customers seek. What they want is a relationship based on authentic engagement that is there when you want it but then vanishes.
Certainly, as customers, we seek and expect professionalism in all dimensions from the speed of dealing with us, to the correctness of whatever is provided as a solution to our needs. Too often though, we get wound around the axel of personalization because we erroneously believe we need to develop a personal relationship with customers but I think that’s a misunderstanding of the R in CRM. There are lots of ways to relate and most of them don’t become personal.
Let me suggest that the real goal should be the authenticity that’s born of professionalism and steeped in the understanding that as customers we’re busy and we want to get our issues dealt with so that we can move on to the next thing on our daily bucket lists.
That’s where analytics, especially machine learning, and journey mapping come in and while we’re at it this is the nub of what I am calling Customer Science. Machine learning can analyze your customer data and tell you where the clusters are, where the largest proportion of issues are and what the successful activities will be. With a product, you might discover through machine learning that many people get stuck at the same place or that they have a specific difficulty at the same place in a business process.
Armed with this knowledge, you can become proactive by building journey maps of your processes and thus prepare for the inevitable. Should you also use this knowledge to fix or improve a broken product or process? Absolutely. But that’s another department. In service and sales you have to deal with today’s reality today. So building out your repertoire of solutions for known moments of truth is a great way to build authenticity. It ensures your precision and professionalism and gets your customers back to their lives with minimal fuss.
So what’s better authenticity or personalization? Why must we think we need to choose? A warm greeting is always welcome and demonstrating empathy for a customer issue is not only good business, it is humane. It just shouldn’t be the only trick in our kits because no amount of being nice substitutes for a solution.
