A ‘Fresh’ Look at Customer Retention and Loyalty (Part II)

Let’s recap Part I of this conversation. The key points as I understand them are:

  • You cannot have customer loyalty without cultivating employee loyalty and investor loyalty. Why? Because they are fundamentally and inherently interconnected.  So debates about which comes first (customers, employees, investors) shows that folks lack a fundamental grasp of that which we are dealing with.
  • Customer retention-loyalty has implications that extend to every corner of the business. It is necessarily a strategic matter. As such the ownership-responsbility-accountability  belongs with CEO.  It cannot be handed off to the Marketing function (or any other function) nor given over to a Chief Customer Officer.
  • Retention is not just another metric. It is the defining metric for the whole business. Retention is used to integrate all aspects of the business into a coherent whole.

OK, now we are in a position to move forward and conclude this conversation. Allow me to set the scene by sharing this assertion with you (bolding mine):

“Stemming the customer exodus is not simply a matter of marketing; it demands a reconsideration of core strategy and operating principles.

I say that it demands a reconsideration of core strategy and operating principles in the context of a new theory of doing business.

What Theory of Business Enables Customer Retention and Loyalty?

Practice is always based on some theory of how the world works. The dominant theory that fuels just about every large business is one of profit maximisation and shareholder enrichment.  With this focus customers and employee are seen purely as means and almost never as ends in themselves.  Which is to say that they are viewed and treated as tools rather than human beings.  Human beings do not tend to be loyal to folks who treat them as tools.

If you are serious about generating sustainable improvements in customer retention and loyalty then you will need to jettison this theory and embrace a new theory of business. Why?  Lets listen – bolding mine:

The new theory sees the fundamental mission of a business not as profit, but as value creation. It sees profit as a vital consequence of value creation – a means rather than an end, a result as opposed to a purpose…

Profits alone are an unreliable measure because it is possible to raise reported short-term earnings by liquidating human capital. Pay cuts and price increases can boost earning, but they have a negative effect on employee and customer loyalty….  

…there are two kinds of profit. Call the first kind virtuous: it’s the result of creating value, sharing it, and building the assets of the business…. the other kind of profit is destructive. Destructive profit does not come from value creation and value sharing; it comes from exploiting assets, from selling off a business’s true balance sheet. This is the kind of profit that justifies terms like profiteering…..

When profit is a company’s goal and purpose, virtuous and destructive profits serve equally well. But once you see profits as a means to, and a consequence of, the sustained creation of value, then only virtuous profit will do.”

What Kind of Stand Do Those Who Excel in Customer Retention and Loyalty Take Toward People?

Which means that a customer retention and loyalty centred approach to doing business requires a particular way of seeing-treating people, and managing the business. Let’s listen – bolding mine:

“…see people as assets rather than expenses, and they expect these assets to pay returns over a period of many years. Loyalty leaders choose human assets carefully, then find ways to extend their productive lifetimes and increase their value. Indeed, loyalty leaders engineer all their business systems to make their human inventories permanent. They view asset defections as unacceptable value-destroying failures, and they work constantly to eradicate them. 

Why treat people (customers, employees, investors) in this manner? Because loyalty to count as loyalty has to be given willingly. Listen:

“You cannot control a human inventory, which of course has a mind of its own, so you must earn its loyalty. People will invest their time and money loyally if they believe that their contributions to your company will yield super returns over time. The secret is … to select these human beings carefully, then teach them to contribute and receive value from your business…”

Is Loyalty a One-Way Street?

The assumption (and practice) as I see it is that the game of loyalty is all about loyalty from customers to the company. Which is to say loyalty is a one-way street. Is this the right way to cultivate and demonstrate loyalty?  Let’s listen – bolding mine:

“The need to keep losses under control led many companies to cover the claims required by their contracts…. then refuse to renew customer policies to avoid future losses. State Farm took a radically different view. It had no intention of canceling customers it had expended so much energy and expense to acquire and maintain, most of them for many years….. Most important, disloyalty to customers would be philosophically unacceptable. Loyalty is a two-way street. Moreover, loyalty must be seen to be a two-way street. How could State Farm possibly expect its customers and agents to remain loyal if the company did not demonstrate loyalty when the chips were down.”

Why Is It The So Many Have Accomplished So Little When It Comes to Customer Retention and Loyalty?

I’ve in the customer retention and loyalty game for 15+ years. I’ve been in the arena not just a mere spectator. I have witnessed many talk fine words, I have seen many undertake all kinds of projects and programmes to increase retention/loyalty. Yet, I have seen none succeed in any meaningful-sustainable way.  Further, when I read about which companies are doing a great job in this domain it is always the same names or new entrants with new business models.

What gets in the way of existing large, publicly quoted, companies excelling at cultivating customer loyalty?  Almost every company approaches retention and loyalty tactically. So you have a bunch of business practices that drive customers to leave. Instead of changing these practices executive put in place retention teams. Let’s be clear, most organisations have merely added on retention teams and other gimmicks to their existing way of doing business. Is this enough? Let’s listen:

Building a highly loyal customer base cannot be done as an add-on. It must be integral to a company’s basis business strategy. Loyalty leaders …. are successful because they have designed their entire business system around customer loyalty…

 

Summing Up and Closing Out This Conversation

 

I have shared a particular perspective with you and I have invited you to listen to the speaking of a particular author.  How does this strike you?  Revolutionary? New? Fresh? Stale? Impractical? Nonsense?

Now is the time for me to come clean.  The perspective that I have shared with you is the perspective that I have held since my earliest days in the Customer arena. And the speaker you have been listening to is none other than Frederick F. Reichheld.  When did he speak the words that I have shared with you?  The words were put on paper and issued as a book (The Loyalty Effect) back in 1996.

Look around at what is going on and you are likely to find that customer retention and loyalty has been approached tactically. The usually result is add-on’s to the existing way of doing business. The add-on’s can take many shapes: new website, Facebook / LinkedIn presence, customer retention team, an online customer community, new CRM system…. The results?  Are they not meagre?  Which companies by taking this approach have vaulted into loyalty leaders?  I cannot think of a single one.

Why is it that those who have jumped on the Customer bandwagon have jumped on it tactically, and not strategically?  20 years ago, Frederick Reichhheld said this:

The real trouble is that many, perhaps most, executives today have adopted a paradigm which at its heart is inconsistent with loyalty-based management. Press them, and few will insist that the primary mission of their companies is to create superior value for customers and employees so investors can prosper…”

This strikes me as being the heart of the matter. Within the context of the current paradigm it is simply not possible to cultivate meaningful loyalty. So all that is left is tactics, add-on’s, poverty of increases in loyalty, more tactics….

I wish you well and thank you for your listening. Until the next time….

 

A ‘Fresh’ Look At Customer Retention and Loyalty (Part I)

It isn’t just Donald Trump that mixes tidbits of fact with much fiction to appeal to those eager to believe. This is also the case when it comes to the business world. Especially so when we get to customer-centricity, customer experience, customer loyalty….. Whilst some folks can tell that Trump is talking nonsense, in the Customer arena it is that much harder to separate fact from fiction, and useful advice from nonsense.  So, today, let’s take a fresh look at customer retention and loyalty.

What Is The Central Assertion of Customer Loyalty?

No, I am not talking about the often mentioned statistic that goes along the lines of “A 5% increase in the customer retention rate can increase business profits by 25% to 125%.” That is just greed that has driven many to go for customer loyalty without a deeper appreciation of what is involved in generating this kind of financial outcome.

I am inviting you to do something that is rather extraordinary in these times: look beyond the surface, go deeper, and think.  What lies behind this statistic?  Consider that the central assertion is something along this line:

“…doing business with people you trust and understand is more predictable and efficient, and thus more profitable than doing business with uninvested strangers.”

Where Do Employees Fit Into The Picture?

As I understand it, Wittgenstein pointed out that a lot of nonsense is spoken due to language itself. One of the major defects is our habit of speaking-thinking in terms of either/or.  Another defect is simplistic cause-effect thinking which looks for only one major cause for any effect. Which might explain why there is so much opinion offered on where employees fit into the Customer Loyalty picture. Some say employees come first. Some say customers come first, employees second. Others ‘say’ employees aren’t all that important just one factor amongst many. Where do you stand?

Listen to this:

“…we could not progress beyond a superficial treatment of customer loyalty without delving into employee loyalty.….. there was a cause-and-effect relationship between the two; that it was impossible to maintain a loyal customer base without a base of loyal employees; and that the best employees work for companies that deliver the kind of superior value that builds customer loyalty…. our concern with employee loyalty entangled us in the thorny issue of investor loyalty, because it is hard to earn the loyalty of employees if the owners of the business are short-sighted and unreliable….. investor loyalty was dependent on customer and employee loyalty, and we understood that we are dealing not with tactical issues but with a strategic system.”

I also invite you to consider that just about every organisation that has jumped on the Customer bandwagon has done so tactically, not strategically.  And almost all the advice on Customer, that I came across, is tactical – which is to say it is centred on tactics even if these are given strategic clothing.  Which is to say that these folks have taken a superficial approach to loyalty.  Still wondering why most if not almost all large organisations have failed to make a meaningful dent in customer or employee loyalty?

Should Marketing Own Customer Retention and Drive Customer Loyalty?

Who should be responsible for cultivating customer loyalty? Who should be keeping a firm eye on customer retention?  Should it be the marketing function as many who serve the marketing function argue?  What is your stand on this?  Now listen to this:

Loyalty has implications that extend to every corner of every business system..… Tempting as it may be to delegate customer retention to marketing, what can marketing do to stem the outflow of employees and investors?  Retention is not simply one more operating statistic, it is the central gauge that integrates all the dimensions of a business..”

Ok, so the marketing function is not in a position to the do the job.  So, should you go out and hire yourself a Chief Customer Officer?  You know someone who sits in the staff function with little authority over the line functions of marketing, sales, service, logistics, finance…?  Will that do it?  Listen to this:

“..customer loyalty is too important to delegate. It has a crucial effect on every constituency and aspect of a business system….The responsibility for customer retention or defection belongs squarely on the CEO’s desk, where it can get the same kind of attention that is lavished on stock price and cash flow.”

Enough for today. Let’s continue the conversation another time and look into what it actually takes to cultivate loyalty and generate the kind of increase in customer retention that results in superior growth, profits, and cashflow.  In the meantime I thank you for your listening and I wish you great living.

 

 

 

 

CX and the Art of Getting & Keeping Customers

The Story: How I Ended Up Moving On From My Favourite Cafe

I walked in to my favourite cafe and greeted the fellow behind the counter by his first name. He was so happy to see me that he smiled a huge smile, welcomed me, and came around the counter to shake hands with me.  Delight – what a welcome!

Then I ordered my usual: fresh orange juice, hot chocolate, a croissant, and a pain au chocolate.  My ‘friend’ behind the counter pointed at his orange juice making machine: no oranges, no fresh orange juice – his supplier hadn’t delivered the oranges on that day.  I find myself disappointed – really disappointed.  That is when something important is unconcealed to me: of the breakfast what really matters is the fresh orange juice.

I eat my breakfast noticing all the time the absence of the fresh orange juice.  I pick up my bag, put on my overcoat, say goodbye and leave for work: the client’s offices.

It’s mid-morning and I’m thirsty. I head down to the ground floor where the cafes and restaurants are.  I notice a small place that I had not noticed before.  Why do I notice it? It seems to be like a fresh juice bar! I head over there and sure enough there are various freshly squeezed juices including orange, orange and banana, orange and mango…. A little later I find myself drinking the orange and banana juice. Delicious!

The next day I find myself at this juice bar for breakfast. I help myself to the fresh juice, a croissant, a pain au chocolat, and pay. Whilst paying I strike up a conversation with the lady serving me. Then I take a seat and enjoy my breakfast.

I do the same the next day, and the next day, and the next day.  I find that despite my intentions to go back to my favourite cafe I do not go back. Yes, I think fondly of the fellow who works there. I wonder how he is doing and I wish him the very best. I even think of popping in after work… Yet, I find that I never go back there for breakfast.  I stick with the fresh juice bar.  Why?

It is convenient – on the ground floor of the client’s offices. It always has the products I am looking for. By being a regular customer and willing to initiate conversation I have gotten to know Anne – and she has gotten to know me. The place is clean and there is always plenty of room to stand or sit down and have my breakfast in peace.

What Might This Unconceal About Winning & Keeping Customers?

1 – What happened happened yet I did not intend it to happen. Neither did the fellow working at my favourite cafe. Indeed, if you had told me that things would have worked out this way  I would have argued against it. I would have found many reasons to back up my position. Which makes me wonder how much you/i can trust what customers/prospects say in surveys.

2 – Great customer service was not enough to keep me as a customer.  I am clear that every time I turned up at my favourite cafe I received great customer service. In part this was because I had established a personal connection with the chap behind the counter who served me.

3 – Great personal relationship with the customer facing front line employee was not enough.  Yes, the fellow behind the counter was, to use Richard Shapiro’s language, a Welcomer.  Yes, the fellow behind the counter and I had cultivated a personal relationship with one another such that both of us were genuinely pleased to see one another.  Yes, it was great to be greeted by my first name, with a smile, and asked about what I had been up to since the last visit.  No, this level of relatedness did not turn out to be enough to keep me as a customer.

4 – As a customer I did not realise what really mattered in my ‘eating breakfast’ experience until what really mattered was not present.  In my case what really mattered was freshly squeezed orange juice – the experience (taste, pleasure) associated with drinking this particular product.

5 – The customer’s experience is holistic and it necessarily involves the ‘product’. Put differently, the customer’s experience is more than how you treat the customer when s/he is ‘dancing’ with your organisation.  It is more than having a Welcomer welcoming.  It necessarily involves the ‘product’ that the customer came in search of.

Further Reflections on The Customer’s Experience and Customer Loyalty

Based on my experience of being a customer, it occurs to me that the customer’s experience can be broken down down into the following components:

A.  Desired Outcome: Did I ‘get’ the outcome I was after?  The answer to this question is binary: yes or no.  There is no in between.  Think pregnancy – you are pregnant or you are not pregnant, you cannot be somewhat pregnant.

B.  Treatment: Was I treated the way I desire/expect to be treated whilst in the pursuit of my desired outcome?  The answer to this question is not binary when treatment is taken as a whole across my ‘customer journey’.  There may be elements of the journey where I was treated well. Other elements where I was not treated well.

C.  Effort-Time: How much effort-time did it take for me in working with you/your organisation to generate my desired outcome? I am clear that if you are the supplier that is the least effort-time consuming one to deal with then you have an advantage when it comes to winning my business and keeping me as a customer.

When I look at my transition from using my favourite cafe to using the on-site juice bar I notice that the juice bar won because:

  • It generated my desired outcome – every time without fail;
  • I was not treated as well as I was treated at my favourite cafe bar yet I was treated well enough. And I was able to cause improvements in my treatment by cultivating a more human / intimate relationship with Anne who usually staffed the juice bar; and
  • Doing business with the juice bar saved me time-effort because it was on my path-route to work. Whereas my favourite cafe was a 5-10 minute detour.  So it ended occurring up as convenient.

I thank you for your listening and wish you the very best in your living.  Until the next time….

Is The Way We Are Going About Customer Acquisition and Retention Dead Wrong?

In light of the Comcast call that went viral I invite you to listen to these wise words (bolding is my work).

There is no question that acquiring and retaining customers is vital to every company, but it’s the way companies are going about it that’s dead wrong…..

Charles Green, coauthor of the Trusted Advisor, points out that many companies have the client focus of a vulture – the pay close attention to what clients are up to, but only in order to figure out the right time to pounce and tear at their flesh….

Sales plans, computerised data sharing, and advertising strategies are not relationship-building vehicles. While an automated phone system may improve an organisation’s operational efficiencies, it rarely improves the customer experience. In fact, most have the opposite effect…..

The point is, though we can learn the language of our industry, sit up straight, dress appropriately, and speak knowledgeably about product, when the conversation doesn’t feel natural, doesn’t respond precisely to the customer’s questions, doesn’t engage the customer in an authentic way, there will ultimately be no sale. And no matter how many time we hear the same feedback ……., we struggle to behave differently because we don’t know how to get beyond our customer facing “script”. Besides, we aren’t particularly interested in, much less skilled at “seeing” and responding to, each customer as a one-of-a-kind human being….

Today, more than ever, consumers are seeking to be acknowledged as unique individuals with lives, needs, tastes, and desires that differ widely from those around them….

So, assuming your products or services are of good quality and competitively priced, one of the most powerful differentiators has to do with conversations you have with customers. The conversation is the relationship ….

No matter what your job is …… the key is your context, your beliefs about your responsibility to customers and the relationships you intend to enjoy or endure with them … if I’m in the checkout line at my grocery store (or any checkout counter anywhere in the world) it would be easy for you to think that you are doing your job if you ring up the sale and hand me my purchases, the correct change, and a receipt. That you get points for using my name …. That if you have a customer loyalty program, you get more points for asking me for my membership card so you can check to see if I can get a discount….

But, I’ll tell you what makes the real difference. That you look into my eyes and connect with me, even if only for a seconds. Human to human. A real smile suggests, “I see you”. This seems like such a small thing, perhaps foolish to some, yet it’s what we all want, deep down where it counts. To be seen.

I’m reminded of the African greeting sawu bona, which means “I see you.” The response is sikhona, which means “I am here.” The order is important. It’s as if until you see me, I don’t exist. Raking your eyes quickly over someone’s face is not seeing them. So if you want to see your customers, really look at them. What takes mere seconds can make people return again and again.

– Susan Scott, Fierce Leadership

If insanity is doing the same stuff over and over and expecting a different result then it occurs to me that many of us who are working on the Customer stuff can be labelled insane. Relationship is not merely the sum of a series of interactions. Relationships do not reside in CRM databases.  Communication is more than bombarding customers with sales messages across any number of channels. Personal is more than sending the customer emails and addressing her by using her name. Engagement is more than a customer opening up your email and clicking your offer.  Customer Experience is more than a new name for the Customer Services function.

I dedicate this to conversation to a fellow human being (and friend) who gets and lives that which Susan Scott is communicating:  Lonnie Mayne, President of InMoment.

“Ridiculous!”: Does Your Organisation Treat Customers This Way?

I have been helping one of my clients grapple with growth challenges. During the course of our conversations we got around to looking at the business from the standpoint of customers. As such, I asked for an analysis of the customer base by revenue and profit.The analysis shows that the top 10 customers accounted for the lion’s share of the company’s revenues and thus its health and viability.

On that basis I was expecting the management team to have in place a policy, plan, practices and people to take great care of these customers. I was expecting that there would be some kind of game plan: to keep in regular touch with these customers; to stay in tune with their changing needs; to  come up with new products and services to meet these needs; and to ensure that any issues were identified quickly and addressed.

What did I find? I found that these customers were signed up some years ago, these customers are getting the service they contracted for, they have made no complaints, and so there has been no communication with these customers other than the monthly invoice.

“Ridiculous!” That was the statement that the MD made when I asked him to reflect on the importance of these customers to the business and the way that his business has been treating these customers.

It occurs to me that so many people – at all levels of the organisation and across all functions – are so immersed in the doing that there is so little reflection upon what is being done, and not done, and the implications. Which makes me wonder, how much of what occurs, and does not occur, in an organisation would show up as “Ridiculous!” if viewed through the eyes of the customer?

So why is it that the management team of this client are oblivious to the importance of their existing customers? The simple answer is that they are fully immersed in:

1) the sexy stuff of ‘developing new products’;

2) the sexy stuff of getting new channel partners so as to acquire new customers faster and grow market share; and

3) dealing with all that it takes to make the organisation work – the people issues, the process issues, the information issues, the financial issues, and the systems issues.

Behind the obvious, is the not so obvious. Is it possible that there is no focus on existing customers because the MD is from a sales background and enjoys the thrill-chase of new customer acquisition? Is it possible that there is no focus on existing customers because the other directors take their lead from the MD?

Is the same kind of thing true in your organisation? How much of what you do, and do not do, would show up as “Ridiculous!” when looked at from a customer view, or a longer term perspective?

Back to my client. The good new is that the MD has taken steps to engage with at least one of his top 10 customers. And there is significant opportunity to create value for this customer by selling them new products and solutions that are more in tune with their current and future needs. Sounds like a win-win to me and as such it shows up for me as being the best kind of business.