How do you ensure customer service loyalty?

Hi Toby

Nice question, and customer loyalty's a key priority for many small businesses. However, it's not the magic answer. Here's an article from off my Blog (www.blog.everythingdesign.co.nz) which you might want to read before you invest in any loyalty programs:

I’ve just seen a tweet about the benefits of CRM and customer loyalty, quoting some wonderful looking performance percentages as evidence of likely sales growth, and even providing their source. Unfortunately, the so-called source was just another retelling of the same customer loyalty percentages, with no actual evidence of their validty other than a mere reference to an unnamed and untraceable “study”.

I bet a lot of companies think customer loyalty’s a potential key to long-term profitability… well, I’m a cynic at heart and I have my doubts. I hope authors Keiningham and Vavra won’t mind, but I’ve summarised below an article they published in Ipsos Ideas way back in July 2005. It’s still very well worth a read though folks, particularly BEFORE you invest in a CRM or loyalty scheme …

In 1990 the Harvard Business Review published an article by management consultant Reichheld and Sasser (a Harvard professor). They stated it was possible to boost profits by 25% to 85% by reducing customer defection rates by only 5%. And Lo, the customer loyalty industry was born – more than 40,000 books promoting customer loyalty as a universal cure have been published since! And yes it’s 40,000 books, not 4,000.

So, what’s the truth behind the drive for customer loyalty? Well authors Keiningham and Vavra from the highly respected Ipsos research consultancy have outlined six of what they call the most commonly trusted loyalty myths (from a list of 53 published in their book Loyalty Myths). I’ve summarised their six primary myths below:

1. Retaining 5% more of a company’s customers will increase profits by 25% to 85%

The myth they say is flawed in a number of respects. To achieve such a high increase in profitability a company’s pre loyalty campaign profit percentage would need to be extremely low. In most businesses, increasing the customer retention rate is a costly proposition and is one that is likely to experience diminishing returns. There will be a point where it will no loner be cost-effective to dissuade customers from defecting.

Wrong customers might be retained and the wrong ones allowed to defect
In addition, repeated research has demonstrated that the distribution of profits by customer are substantially skewed, the most profitable 20% of customers typically contribute 150% to 300% of aggregate profits. The least profitable 20% of customers account for 50% to 200% reduction in aggregate profits, while 60% of customers simply break even.

It’s therefore vital that a company knows where each customer fits in this respect, otherwise the wrong customers might be retained and the wrong ones allowed to defect.

2. Most company databases are inadequate for loyalty building

Typically market information is not held in a central information warehouse. More often than not the detailed personal identities and key contact information sits in the minds, drawers and on the PDAs of the sales team. The net result says Keiningham and Vavra is that databases are usually a challenge rather than a facilitating factor in loyalty initiatives.

3. Loyal customers help grow a business through positive word of mouth

I love this little piece of conventional wisdom, it’s a pet hate of mine! Most firms operate in categories with little perceived risk, minimal status conferral and scant ego involvement associated with their products or services. Word of mouth for these firms is simply not a factor.

The authors also note the degree of emotionality is also a factor. Customers tend to speak about products or services in one of two extreme conditions: extreme dissatisfaction or extreme satisfaction. There’s a reasonable amount of research that shows customers are far less likely to talk about positive than negative experiences. Word of mouth isn’t the free advertising this myth implies.

4. Loyalty programmes will solve customer attrition problems

This myth is based on the assumption that the product or service offer is not sub par. A loyalty programme cannot compensate for an intrinsically bad product. It also assumes the programme will deliver values that competing programmes do not, yet in practice far too many loyalty programmes do not offer uniquely appealing rewards. Therefore, rather than enhancing competitive advantage, they’re simply an added cost.

5. Higher customer loyalty leads to higher market shares

It may seem counterintuitive, but the firms with the most loyal customers rarely have the largest market shares. Typically these firms generally represent smaller, exclusive groups – think Harley Davidson owners, Edith Piaf fans etc. It is logical that as the size of a customer base increases the associated loyalty declines to the norm.

6. Satisfied employees create loyal customers

A commonly-held belief – unfortunately, numerous studies have failed to prove a consistent relationship between the two, In some instances, the correlation is negative, in others positive or unable to be determined. Yes, employees need to be valued, well trained, well-equipped and feel appreciated, say Keiningham and Vavra, but satisfaction is not the critical element in the creation of customer loyalty.

If you’re considering making a significant investment in CRM or customer loyalty schemes, I’d certainly encourage you to look carefully at any claimed performance ratios or outcomes. And it would seem to me that you would be well-advised to talk to the guys at Ipsos (and visit their website) as part of your decision-making journey.

I hope that's been an interesting read Toby - if not the answer you were hoping for!! Have a look at the other marketing articles on the blog, they're all free and are based on independent research.

Good luck with your marketing.

You might also be interested in this article on how to grow a brand:

http://blog.everythingdesign.co.nz/double-jeopardy/

Good morning,

My name is Chris Brown and I have been a professional salesman since 1978.

I like the question, 'How do you ensure customer service loyalty'?

So how should or would one go about ensuring customer service loyalty, and are we right to expect the customer to be loyal to us.

For me this is all about the way we conduct ourselves with our customers, of course no company would treat their customers disrespectfully, but many do treat their customers poorly and expect the world and total loyalty in return.

When was the last time you contacted your customer just to have a friendly conversation, to find out how they and their business is doing, a call without trying to sell them something, showing interest in them will keep you at the forefront of their mind, but even this does not guarantee loyalty.

The internet has changed the way a lot of people buy product and most (i cannot quote figures)will research on the internet and do price comparisons before engaging in any discussions about buying a new product.

Service loyalty should be easier to gain and keep, because this is about the way a company performs and if the service provider performs to and exceeds the standard expected then the customer will be pleased, when a customer is happy and is receiving perceived value for money then loyalty starts to build, do not sit back on your laurels and expect this to just happen, companies need to work hard to ensure this is maintained.

Have a good workforce that continually works as the silent salesman for your company, make sure that your service engineers always complete the job to the best of your companies ability and that the customer is totally satisfied, use service feedback forms and get the customer to sign saying that the job has been completed to their complete satisfaction.

If you need to get your service people to attend an account management training course and make sure that it is designed for your organisations needs, not just from a sales perspective.

I hope this has helped.

Regards

Chris
http://www.uk-iosp.com

Customer loyalty is simple! GREAT unique customer service skills! Word of mouth from clients about this in your company will do wonders in helping you find more clients. Ask for referrals from those happy with you! Ask for testimonials and put them on your website or in your blog!

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