Customer Loyalty

Most companies are fantastically deluded about their dedication to customer service. According to one recent survey, 96 per cent of directors said their company was customer-focussed and a whopping 80 per cent said they provided superior service. However, ask the customers and they paint a very different picture indeed. They rated just 8 per cent of firms they knew as offering superior service.
So, it will hardly come as a surprise that the study by the Harvard Business Review also found that companies lose half of their customers every five years. Two-thirds of the consumers who walk away cited inadequate customer care as their primary reason for leaving.
Another, perhaps more chilling, survey by phone group Orange found that 10 per cent of small and medium firms in the UK were planning to actively target their competitors' customers as part of their post-credit crunch, recession survival plan.
There is clearly no room for complacency when it comes to loyalty, particularly when consumer spending is falling so rapidly. In the current downturn, there are more and more businesses competing for a share of a smaller cash pot and competition is only going to become fiercer. Hanging on to established customers is the name of the game.
The problem that many companies face is a misunderstanding of just what good customer service is all about. Plus, right now, they are understandably unwilling to spend money on any initiatives that can not immediately be quantified. Cynical business leaders may shrug and say that when it comes to customer service, profit is what is important. As Groucho Marx so aptly put it; "The secret of success is honesty and fair dealing. Fake that and you've got it made."
Indeed, on purely face value, what is best for customer loyalty may not always be beneficial for the bottom line. Take, for example, a mobile phone company. The odds are that a high percentage of its profits come from customers who are on inappropriate tariffs. Encouraging people to switch to protect their purse could be detrimental to the company. Or, alternatively, a firm that uses 0870 or 0871 phone numbers for customer services, profits from the lengthy time it takes customers to work their way through the automated answering system, never mind the frustration of callers.
But, says Fred Reichheld, a senior consultant at business strategy firm Bain, there are ‘good' and ‘bad' profits.
"Good profits are self-sustaining because customers not only come back again for repeat purchases, they become advocates for the company - a virtual marketing department," he said. "Apple customers are a good example.
"Bad profits are the reverse. Instead of creating value for customers, bad behaviour appropriates value from them. It's a mistake though, to think that ripped-off customers are passive. They find ways of getting even that exert a huge toll on offenders. In a mirror image they become an anti-marketing department: an invisible army of detractors, each of whose negative comments typically cancels out several recommendations. Detractors complain more, make more calls on customer service and are a hidden drag on growth. They cost more and spend less. Angry customers depress employees, compounding the effect. And to neutralise their influence requires ever greater effort by the companies."
Firms looking to brush up their customer relations skills have to take into account the growing phenomenon of consumer power too. As a result of increased consumer protection laws, government initiatives and a diet of consumer advice programmes, the modern consumer has become highly promiscuous when it comes to choosing their products and more willing to complain or switch firms when things do not go as planned. This practice of product switching, known as churn, bedevils many modern companies. Even banks, which once enjoyed complete inertia when it came to keeping hold of customers with many people staying with the same one they started with as a student, have seen customers switch with an alarming frequency, seeking better rates, or more security elsewhere.
Ed Mayo, chief executive of Consumer Focus said; "We are witnessing a dramatic rise in consumer power. Customers are increasingly turning their backs on companies whose services do not come up to scratch and changing suppliers to get what they need.
"Companies who ignore their customers' needs will wave goodbye to their customers. You have to earn customer loyalty, rather than assume it."
Mistakes do happen and it is the company that deals with them swiftly and effectively that keeps its customers. Financially it makes sense. It has been calculated that it is six or seven times more expensive to gain a new customer than retain an existing one, and that if customer loyalty is increased by just five per cent, profits can increase by 25 per cent.
The answer is to encourage more feedback from existing customers and to build service around that information, rather than trying to sweep complaints and issues under the carpet.
Having an effective complaints handling system is therefore vital and can be an important tool in the fight to stop customers switching from one product to another.
Control of churn is now seen as the key difference between the successful operators and the rest. Many companies are now waking up to the fact that they must devote time and energy devising schemes to keep customers from defecting to rival brands.
It may seem that as today's consumers get more demanding, loyalty is becoming an increasingly elusive quality. The solution is, however, remarkably simple. It is about giving customers the value they need from a product with the minimum of fuss and effort. The key is to keep pace with the personal growth of the consumer, provide the level of service they have come to expect, listen to their complaints and fully resolve them. If a company has a culture that provides that sort of service they won't need costly ‘customer service' initiatives at all.