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Building Customer Loyalty
To acquire and keep customers, you must fully understand what customers want and why they want it.
For the rest of the May 2001 issue of CRM magazine please click here
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Customer Satisfaction isn't quite the hot topic it was in the early '90s when it seemed every company was doing its best to win a Malcolm Baldridge National Quality Award: The buzz acronym du jour was TQM (total quality management). It soon became obvious, however, that simply satisfying customers was not enough to ensure success.
So, satisfaction gurus started talking about delighting customers. But these gurus never made it clear how to go from mere satisfaction to delight.

By mid-decade, brand equity was the hot button. But by the end of the millennium, it became clear that brand equity in and of itself wasn't enough. Products and services with high levels of brand equity could attract customers, but they didn't necessarily retain them.

Even though buzzwords have changed, one thing has remained consistent through the years: Customers plunk down their money for the things they value. Just as our values dictate how we interact with each other and make life-changing decisions, they also dictate how we make little everyday decisions--like which clothing store to shop in, which travel Web site to use and which cellular service to subscribe to. And as long as companies offer what customers value, customers remain loyal.

Delivering true customer value and, by extension, building customer loyalty involves a four-phase process:

Phase I: Measure Loyalty and Identify Drivers

To differentiate yourself from your competitors, you need to get inside your
customers' heads. You need to understand their values and use this understanding to design your products, services and communications, as well as provide the kind of customer service they want.

First and foremost, the solid foundation for getting to know your customers is a great marketing database designed for building effective CRM programs. Start the process of measuring loyalty and identifying drivers by finding the best customers in your database--the ones with the greatest LTV (lifetime value) who are responsible for the majority of your profits. Profile those customers behaviorally and demographically. Identify how they are different from your other customers; then find the customers who have stopped buying, the ones who used to be your best customers, and describe them.

Using these two customer segments and possible third and fourth segments--the customers of your competitors and your own internal customer care specialists--conduct focus groups.

You need qualitative research at this point. It is important that you put aside as many of your assumptions and beliefs about your customers and customer service employees as you can. By all means, don't be tempted to employ someone from your company to oversee the groups. You need a skilled professional moderator who can lead the discussion of your important issues but not put words in the participants' mouths or become defensive when your product or service is criticized. It is important in these groups to hear about your customers' "moments of truth," the touch points of interaction between them and your company's products, services and communications. You need to understand what customers truly value, what they are willing to pay for in these encounters, and what differentiates good service from bad service.

So, conduct a quantitative survey among a random sample of your database, making sure you over sample your best customers, if necessary, in order to get a statistically sound "read" on them. Make sure you also survey "lost" customers and find a sample of your competitors' customers if possible.

Now it's time to make what looks like a traditional customer satisfaction survey a powerful tool for CRM. First, add in questions that focus on customers' actual behavior and expectations, as well as customers' use of and attitudes toward competitors. Second, append critical behavioral data (the segment each customer belongs to, total amount spent in the past year and profitability score) from your marketing database to each record of customer survey data.

Phase 2: Identify Loyalty-Building Opportunities

The analyses of all the research and database information will enable you to "tell the story behind the numbers" in a richer, more meaningful fashion. You will be able to assess the degree of customer loyalty and what customers really value--where you should put your money so that it will put money on the bottom line.

statistical analysis will allow you to identify the key drivers of loyalty and satisfaction (things like quality, customer service, pricing and convenience). You will also acquire a rich understanding of your key competitive advantages, the dimensions in which your competitors are outperforming you and the aspects of service where your competitors are most vulnerable.

All these findings can be leveraged to identify opportunities for enhancing customer experiences at every touch point across your organization. At this point, you're well on your way to creating a true "customer differential" that will distinguish your products, services and communications from those of your competitors.

Phase 3: Develop and Implement Solutions

Translate those solutions into initiatives, offers, communications and programs (even beyond marketing, sales and customer service) that will enhance customers' value perceptions, build loyalty, and most importantly, be cost-justifiable. To ensure financial accountability, develop sound business cases with appropriate ROI (return on investment) and NPV (net present value) metrics.

Then it's back to the marketing database. You can use all the additional behavioral information from research and your database findings to build a robust predictive attrition model that will identify who among your best customers is likely to stop using or decreasing usage of your products or services. You can then begin testing programs designed to produce the value your thinking-about-leaving best customers are looking for.

Phase 4: Monitor, Evaluate and Refine

This all becomes an iterative process. Continue to collect information on the performance of your programs. Analyze the results. Understand which initiatives, offers, communications and programs work best with which customers. Continue to test, refine and measure.

At least once a year you should conduct focus groups among your best and your least best customers, as well as your internal service staff. There is no better way to monitor the qualitative emotions behind the answers to the questions in your quantitative studies. You should also set up continuous quantitative tracking of customer attitudes, satisfaction and behavior at appropriate intervals.

Even slight shifts in what customers value can signal profound attitude shifts that can redirect an entire industry. For example, hardly noticeable attitude shifts at the beginning of the '90s in the credit card industry made the most astute issuers take notice. Sensitivity to high interest rates began to increase precipitously--even among transactors (those who pay their credit card bills in full each month). The card issuers who identified this trend through customer research were able to conduct pricing tests that led to effective product redesigns.

Working through this four-phased process of building customer loyalty will allow you to successfully differentiate your products, services and communications from those of your competitors, based on what your customers truly value.

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To contact the editors, please email editor@destinationCRM.com
Every month, CRM magazine covers the customer relationship management industry and beyond. To subscribe, please visit http://www.destinationCRM.com/subscribe/.
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