Companies Are Not Worthy of Loyalty
By John Hennessy
According to the 2004 Customer Experience Management Global Survey conducted by Strativity Group, despite companies being more committed to customer strategy than they were three
years ago, the company/customer relationship is deteriorating. Only a minority of executives (40.6 percent) agree that their company deserves their customers’ loyalty, down considerably
from the 55.5 percent recorded in 2003.
Another area of decline is the state of employee experiences. Only 31 percent of the respondents affirmed that they have the tools and authority to actually serve their customers.
This is a drop from 37 percent last year.
The study summary states that this decline indicates a lack of understanding on the part of organizations as to the critical nature of employee interactions with customers. In
fact, it continues, this lack of understanding of the employee/customer interaction has significant impact on the company’s branding, customer loyalty and, ultimately, repeat
business and profitability.
Almost half of the companies continue to take any customer that is willing to pay and in lieu of using more sophisticated criteria, such as mutual match of interests, potential
relationship longevity, profitability and potential growth. This lack of selectivity has a severe impact on the resources required to service the customers and, therefore, the
profitability of companies.
Moderator’s Comment: Why are companies, despite proclaiming customer centricity, heading in the opposite direction?
There’s opportunity here. That’s clear. The company who starts acting on their customer strategy will win. And it looks to be a pretty easy prize to take.
There doesn’t seem to be much competition. In fact, it’s hard to detect that there’s even an event. –
John Hennessy – Moderator
I think Warren is on the money with his comment on “constant perceived emergency.” It particularly applies to large public companies but really any company where the focus is on the short-term numbers. Public companies just have the added pressure of Wall Street being after them all the time. Maybe what we need is for the analysts and accountants to back off just enough for company strategists to breathe and worry about longer term results. Probably ain’t going to happen anytime soon.
The initial blame goes to all the M&A activity out there and everyone looking for a quick dollar. When you do an M&A, the first thing to go is people! If you don’t have people, it is a lot harder to provide service. And if you can’t provide good service, why would people be loyal? The other important part is you are sending out a lot of unhappy ex-employees out on the street. Do you think they are going to tell all their friends to be loyal to the organization that just let them go? I don’t think so. As we move from media based marketing to consumer based marketing, we know that 2/3 of products are bought based on word of mouth. If that holds, then all the people “let go” are going to become a bigger force towards where loyalty goes. My last thought or feeling on the topic is this – I just don’t think many organizations have a “real” strategy that focuses on the consumer. There is just too much about low cost and not enough about consumer value.
It costs money to offer quality customer service. The fact that it also makes money appears to offer gratification that is too delayed for most companies.
Once everyone has decided that there is no cause for loyalty, perhaps some will reconsider the investment.
I think it’s understandable that companies, in the heat of tough competitive battles out there with Wal-Mart, other vendors, etc, decide that there are other immediate priorities that must be taken care of before they can focus time and money on customers. It’s a state of constant perceived emergency, to make quarterly numbers or to react to a competitor’s new tactics. Customer relations/loyalty are on the “I’ll get to it as soon as I put this fire out” list, but there are too many fires and too few people. The pendulum will swing back, but not for a while yet.
Customer loyalty is first and foremost a matter of service. Remember the hey-day of ‘quality assurance’ and how gurus were claiming “quality is free?” I’m wondering if “service” is free too. Why does it cost money to serve customers with focus, communication skills, product knowledge, just being polite and nice and so on?
Yes, hiring the right people is a cost, as is training. Will retailers actually consider cutting back on those fundamentals? Are they that stupid? Beyond that investment, isn’t service pretty well a moment by moment opportunity for profitability? Even the notion that retailers are so shortsighted that they’ll not even bother trying to win over their customers is absolutely depressing and is probably going to ruin my whole week.
With no service and no loyalty, all we have left is price and, in that game, we all die.
We shop in a world where almost every retailer has some sort of card as the front piece to a “loyalty” program. Consumers quickly learn that this is part of the game but never quite believe that they are really treated that special, or that the company “really” values their business…at least not any more than the person with the next cart. The key is to scratch people where they really itch and make them feel special.
To Ian’s point, I think that this is most effectively accomplished with great service and special purchase opportunities that convince shoppers to consolidate as much of their purchasing as possible with this vendor. However, the last place they seemingly want to spend is on their employees, who can make or break any program. Sadly, too many retailers seem more content to design great systems rather than to spend the money on the people that can make them really work.
Cost cutting is the main reason here! It is easy to reduce headcount and cut back on training because the immediate results are shown on the bottom line. The customers who leave, do so over time and, without emphasis on keeping customers, the deterioration of service is like a slow growing cancer to any business.
It is amazing in this age of technology that more businesses do not do the research to understand the top tier of customers and at least do what it takes to serve them. A great example is the airline industry where top level status in a program is no guarantee of better service. Retailers also have this data and, if they focused on these customers and singled them out for better communication and service, they could enhance their bottom line over the long haul.
I can’t believe I disagree with Warren on something. Maybe it’s just a matter of nuance…
But the issue is not “customer service,” per se. The issue retailers must address to engender loyalty is to understand and addressing consumer’s unique needs. I’m NOT talking about so-called “one to one marketing.” That’s a bridge too far for all but very high value purchases and perhaps internet engine driven relationships. I am talking about finding and addressing the “driver needs” of an economically viable group of people for a given category.
For example: Certain customer groups generally have similar needs when introduced to technology. There is the “it scares me and I don’t like it” group. On the other extreme is the “I love it and want to play with it” segment. In between are groups who just need someone to make the experience friendly. This may be by having someone who looks and talks like them to introduce them to the technology. It may be by having someone who understands what they want to simply do it for them.
Retailers who address this issue for their category/customer can in fact create a “consumer centric experience.”
Wal-Mart is often brought up as the poster child for low price always winning. However, they have not gotten to the top of the retail mountain through low price alone. They have also developed a clear understanding of the level of service their customers require. True, their service levels don’t match that of Nordstrom, but more importantly their customers don’t expect it to. If their stores became too dirty, disorganized and their staff too unfriendly, they would lose customers like everyone else. They understand very well that you don’t win by providing the best service; you win by matching your service level to what your customers expect.
Customer satisfaction is like most business metrics; each organization has an optimum level it needs to define and then constantly hit. Too many companies get discouraged and give up because of the cost and expense of trying to hit a customer satisfaction level that may not be necessary.
Warren hit the nail on the head. Right now, the pendulum has shifted and customer service is taking a hit. It’s tough for retailers to “invest” in improving customer service when they’re being blasted by aggressive price competition and having trouble making their numbers.
So, when will things start to change? I think we’re beginning to see things change right now. The Wal-Mart impact has made retail a tough business in which to make a buck and retailers are starting to see that focusing on their customers is the only way to preserve not only their customer base, but also their gross margins.
One of the most interesting points to me is that some 76% say customer service is more important than it was 3 years ago. Yet many of the numbers are down. Does it indicate more talk than walk? What does it mean?
Looking a bit further, it also indicates that over 65% of CEO’s are not meeting frequently with their customers. This sort of makes me wonder what they are engaged in. I can’t think of a better dialogue to be engaged in for all aspects of your business, let alone service – which of course they claim as a higher priority.
In the midst of all of this, I think there is even a greater factor working against retailers with regard to loyalty. That is, the marketplace continues to become more and more channel blurred and diluted with greater choices all the time. Considering a consumer’s attention span and time between purchases for things other than food, this could even be a more significant challenge than service alone appears to be.
Retailers at many levels continue to devalue their most important asset. Why? They have come to believe that they only need price. Or, they only need to entice a sale today through promotion. Returning again and again isn’t even fitting into the equation. Sadly, we know the result.
Customer expectations are changing regarding customer service, and retailers have difficulty hitting this moving target. When one considers that there are clerks and customers out there who’ve never personally experienced classic customer service, it’s easy to understand why delivery of customer service (by many clerks) and expectations of customer service (by many customers) are significantly different than the classic model. This change is inevitable, driven mostly by Internet shopping experiences.
The answer is to offer flexible customer service in which customers are provided with ways to access various levels of attention depending on their personal preferences or needs. Some shoppers enjoy being approached by a sales clerk when they enter a store. Others are “just looking.” During the course of their store visit, these preferences may completely reverse as their levels of interest rise or fall.
Most retailers aren’t set up to deal with today’s broadening spectrum of customer expectations and requirements regarding service. In essence it would require them to be “all things to all people,” which for some retailers is a pretty good excuse for doing nothing at all. But it can be done. Target’s scanning stations help self-service shoppers answer their most basic product questions. But, Target shoppers can also summon help from a store clerk if they wish. Forward-looking retailers should actively be seeking ways to deliver flexible, real-time, customer-defined service.
Tut, tut, they’ll take any customer willing to pay???!!! How very silly of them. I can hardly think of a better way to antagonise either current or prospective customers or throw away any possibility at all of building loyalty and relationships. A while back we talked about a study showing the mismatch between what companies and their customers believed and wanted. Now we’re talking about what companies and their employees believe customers want. Seems to me “companies” – which I take to mean overpaid hotshot execs with loads of options and little incentive to perform well because they will get their rewards regardless – haven’t got a clue what anyone wants. These are certainly not the people I would want to select me as their customer.
“There is no customer like the one you have now.” Clearly, companies who do not invest in recruiting customers and over-delivering benefits will end up spending twice as much to gain back that consumer.
Service output demands like: easy to get to retailer location, excellent reputation, comfortable shopping environment, knowledgeable help, excellent service, and a generous assortment will win in the long run – especially at the high end.
A retailer should never underestimate the the capability of the consumer to trade up, given the choice.
Companies and their executives have invested in different types of loyalty programs over the years. Let’s not forget, loyalty as well as marketing a brand and building a service oriented reputation and company occurs over time… Not instantly, or as fast as desired. It’s a day by day, and everyday effort to build loyalty!
Interestingly, loyalty,strong consumercentric efforts, and brand building may suggest a different attitude, or a new culture being established within companies. And this takes time!
Loyalty is a two way street. When a company demonstrates that it is loyal to *me*, it begins to earn my loyalty back. But it has to be earned. Loyalty is not free, in fact it can sometimes be very expensive.
The headline of “Companies Are Not Worthy of Loyalty” reads as though it is supposed to be shocking and attention-grabbing. I see it as true by default, but something that can be changed by companies that put forth even a moderate amount of effort.
Scanner’s comment about over 65% of CEO’s not meeting frequently with their customers really gets my attention. I have long felt that far too many CEO’s do not truly understand how they should be doing their jobs. They feel very comfortable in boardroom meetings surrounded by their “yes men and women” but are extremely uncomfortable in front of shareholders or customers. They feel their most important job is not better understanding or relating to their customers, but finding ways to raise the share price in the short-term. Far too many decisions are made with short-term profits and Wall Street’s reaction being the primary factor rather than the long-term health of the business. I have seen CEO’s that were actually scared to death at the thought of meeting their largest customer or having to answer questions at an annual shareholder’s meeting. Yet these same people were very comfortable sitting in their own environment and ordering massive manpower cuts and cost reductions to improve the short-term bottom line and thus increase their chances of surviving for another helping at the bonus trough.