The Customer Loyalty Myth
Aug 19, 2008 4:00 AM PT
Do loyal customers translate into steady sales or profits? Intuitively, the answer should be yes -- and indeed, customer loyalty is a significant metric by which companies rate their performance. However, there a few problems with the concept of customer loyalty and a corporate strategy to develop it, according to Esteban Kolsky, practice leader with eVergance.
For one thing, customer loyalty is difficult to measure. Two, even if it were easy, it doesn't necessarily add to a company's bottom line. "You can still have great customer satisfaction and loyalty and still have a 45 percent churn in your customer base," he told CRM Buyer.
Kolsky is a recent convert to the thinking that customer loyalty is the wrong goal for companies. It was only after working with several clients that he decided loyalty does not automatically translate into a higher likelihood of repeat purchases.
Not that he is recommending companies milk customers as much as possible in a transaction. Rather, in a recent blog post, he suggests companies focus on building the infrastructure -- the technologies and processes -- necessary to deliver a good customer experience.
If this reversal in thinking is still hard to grasp, consider Kolsky's cinematic reference from his post:
"In the movie 'Nothing in Common' Jackie Gleason plays an older salesperson who prides himself in having the best relationships with his clients. They all admire him, respect him, and have great loyalty towards him. Early in the movie, a brash young new VP of sales calls him into his office to discuss his performance. He is truly impressed by the relationship he has with his clients, but when he looks at the performance he is dismayed. Abysmal sales numbers have been trickling in for the last few years. Turns out all his clients are now buying from the competition because they have better shipping policies and cheaper prices. So much for loyalty, and for Jackie's job."
Valuing Social Media
Web 2.0 social media strategies is another concept that seems intuitively "right" but warrants a second look in terms of value proposition.
Jeremiah Owyang, a senior analyst at Forrester, cites several challenges to the industry, starting with its current lack of profits and ending with the difficulty of measuring return on investment on both the personal and corporate level. "While many have developed their own ability to measure on a one-off way, there's no industry way to quickly -- and easily agree pan-industry," he wrote.
In a rebuttal to Owyang's post Romain Pechard notes that while social media is still in its first years, some companies (FreshNetworks or CommuniSpace) and platforms (SalesForce Ideas, Dell IdeaStorm, Starbucks My Ideas) have proven the deep impact and ROI companies can get from social media. These companies, he said, are focused on one aspect of social media: crowdsourcing for insights, feedbacks and idea sharing.
However, to get an idea of the real value add that social media can deliver, he said, one must look toward the porn and gaming industries. "They are the real social media thought leaders, and we have a lot to learn from what they've done."
In those industries, he said, "we can find more interesting examples, related to CRM, PR, word of mouth, and advertising. The best-in-breed example is World of Warcraft, not just because it's one of the world class game, but because it has spread beyond the gaming world frontiers. Blizzard, owner of that game, has created for long a community to evangelize gamers, a community platform to engage with players and invite people to jump into the game (yes they're doing online recruitment), a CRM program to make people play more and longer, they just jumped into real world advertising with the latest campaign with famous actors like William Shatner."
We have entered an era where companies have to compete not just with other business field competitors, but with other activities, such as the concept of one-click away, he concluded. "The companies that are to jump the generational gap would be the best placed to welcome new market shares."
Matt Johnson also looks at the generation gap and how it impact sales, marketing and service operations.
"If your SVP of sales is a Boomer and has worked hard to figure out how to manage and reward a team of X'ers over the years, what happens when all the new recruits are Gen Y? Have we built a set of policies to manage and motivate one group that might not work with another group? I think there is a good chance that this can become an issue.
"What happens if you have a Boomer SVP of marketing, but your customer base is heavily weighted with the younger generations -- can there be a mismatch of preference? One might have learned the value of direct mail marketing, while the other wants to see a podcast on the 4 inch screen of an i-Phone. The call center team today is made up of a different group of folks than who was jockeying the phones in the 90's. Do they have different aspirations and expectations? That is what I have been led to believe. Are you managing the call center with what you learned about the function a decade ago and with a whole different generation of workers?"
To find out the best information about your customers, ask the front-line workers, according to John Caddell, founder and principal of Caddell Insight Group.
The problem is, few companies ask their employees what they think -- and some even actively discourage such collaboration.
"A bank that is renowned as a great place to work told me that an idea to have tellers share via internal blogs customer interactions they found interesting was a non-starter: "We just put into place a policy to limit the access our employees have to the internet."
In addition to courtesy and helpfulness, Caddell said, front-line employees also know more than anyone else about what customers want, what they like and don't like, and how they feel about the company. "Back in the day, the only way an executive could access this insight would be to visit stores and talk to employees and customers him/herself. This still happens. But with cheap, ubiquitous data-sharing technology like blogs, RSS, wikis, social sites, etc., there's nothing standing in the way of systematically gathering and immersing oneself in detailed, rich information about customer interactions -- even if you're the CEO."