A Bad Economy Doesn’t Have to Mean Bad Growth for Your Business
By Jim Rohrer, President of Customer Care Partners
When the economy slows down, your business doesn’t have to. Businesses can still succeed and grow even now, in one of the most challenging economies we’ve had since the 1970’s. The secret involves improving client loyalty, the only element proven to cause growth.
Ask a business owner, “how is business?” The conversation typically turns to the economy. If the economy is bad, then business is bad. The perception is that there is not much we can do about it. However, in every business cycle, there are those businesses that have had their success roots during a slow economy. So is it not unusual for a business to survive and prosper during a difficult period?
When business is slow, that is when we become more ingenious and maybe we even work a little harder. This may be a time for such a strategy. We all know your existing customer is the best source of future growth. The idea is to get your customer to buy more, return more often, or bring you more customers by their word of mouth advertising. “If I could somehow boost up the relationship slightly so each customer I have would be just a bit more loyal, revenue would follow.” “I need to be more top of mind to customers who thought about my product line and thought of me before my competition.” You can do this by improving customer loyalty.
Loyalty and Satisfaction: Different Standard…. Different Results
Loyalty is a subject that continues to draw interest. And, there has been much important research studied on this subject. Results support the idea that loyalty is a strong motivator. People who are loyal to an idea or to a company are loyal on a visceral, gut level. Consider the power that loyalty unleashes to a particular political party. People are loyal to their alma mater or to the state of their origin. Loyalty is not a casual feeling; it is an intrinsic, emotional belief in each of us which leads to action.
Now contrast loyalty with satisfaction. I am disturbed by the amount of money companies spend doing satisfaction surveys. They entice individuals to take long, boring surveys asking question after question to determine your satisfaction level and the limits of that satisfaction. I am disturbed by this phenomenon because the research undeniably indicates that satisfaction is not a motivator. Satisfaction is the price of admission to the game. Satisfied customers don’t necessarily return. Of course, dissatisfied customers never return. However, satisfied customers are satisfied only until someone else makes them more satisfied. Satisfied customers are not particularly loyal. There is no pattern of repeat business, there is no pattern of recommending the company to another person because you are satisfied with the product or service the company offers.
It is short-sighted for the airline industry and the automotive industry that seems to make decisions based on this incomplete series of questions around satisfaction. The car companies make the dealers jump through hoops including limiting the inventory of popular models based on this customer service index (CSI) number, which means absolutely nothing in terms of predicting customer purchase behavior. Of course it is important that customers are satisfied, but these companies are asking the wrong questions and focusing on the wrong numbers. Satisfaction doesn’t link to the P&L because it doesn’t link to the hearts and minds of the customers.
Loyalty…The Gold Standard
Research proves that for each 10% increase in loyalty, revenue increases 5%. Most of us would work hard for a 5% revenue increase. Loyalty is built over time and it is built with emotion. That positive emotion comes from:
- A series of positive customer transactions
- Building a relationship with your customer with ongoing communication
- Doing one thing that no one else does, setting you apart from competitors
Can You Measure Loyalty? Of Course You Can!
How do you determine loyalty? What kind of a question would you ask or what type of indicator defines someone’s loyalty? For over 10 years, Fred Reichheld has studied this very topic concluding that one simple question will determine a customer’s loyalty that further determines your company’s future with that customer. That question is, “On a scale of 1 to 10, how likely would it be that you would recommend our company to a friend.” It’s that simple. The follow up question is, “If you gave us a score of less than 9, what would we have had to have done or what would need to change to earn us a 9 or 10?” This simple process has great application to any organization, but particularly to businesses. It is simple, yet so fundamental to determine how loyal your customers are. Truly, it is the best kept secret to business success.
The one element that makes this process work so well is the 80/20 rule. In other words, a very small percentage of the improvements described by customers make up a very high percent of customer input. So when you ask customers what could have been done or what needs to be done to earn a 9 or 10, the answer is a very small list. Usually it is one or two suggestions that have the leverage to drive tremendous improvement in the overall loyalty score. This is good news since a small list is less overwhelming than a large list of improvements. We all know that most organizations are not able to take on more than one or two initiatives at the same time. When this occurs, nothing gets done at all.
You might think that the concept of loyalty and the process to determine what factors are important to your customers to keep them loyal is pretty basic. The question is why aren’t most businesses employing the process? The truth is that most business owners think they already know. However, they leave out the important step of validating what is really important to the customer assuming what they feel is important is what is important to their customers.
Here is an example of success using this process: My client, a highly ethical business faced competitors whose normal business practices were rather unethical. My client knew about the questionable practices, but they didn’t know how important trust was in their industry. When they began to focus on their internal processes that accentuated how their ethical approach differentiated them from much of their competition, their sales grew and at very good margins.
This points out that knowing what is vitally important from the customers’ viewpoint, not the business owner’s viewpoint is what makes the difference. It is not logical to assume critical facts about customers. One of the best known practices in the medical profession is that each new doctor who comes in, orders his own tests, rather than to rely on somebody else’s tests. Testing is required, but most companies don’t invest in gathering this critical data. They assume they know and then are befuddled when their customers do not respond at the level desired. At a time businesses can’t afford to lose even one customer, customer feedback that clarifies the gap that can cost loyalty is of utmost importance.
Get More Good Profit by Getting Rid of Bad Profit
Studies have shown that customers respond to simple, fundamental factors. Take the airline industry. Rather than assessing an adjustable fuel charge to offset the rise and fall in jet fuel prices they are experiencing, they chose to charge for checked bags, cookies, pillows, and preferred seating. These types of practices beg the discussion of what I call “Good profits & bad profits.”
Bad profits are those profits derived from anything that detracts from customer loyalty. An example: When an airline charges you for a ticket change, the customer’s perception is that the airline is trying to make a profit from the customer’s problem of needing to make the change, not making a profit by providing a service. And they would be right. There is actually little cost associated with making the change. The charge seems a bit disingenuous.
It’s interesting that Southwest Airlines, clearly the growth and profit leader in the industry doesn’t charge that fee. I think they see that although the fee may be a profit opportunity, it is a bad profit because it is made at the expense of the customer without adding any value and it is made at the cost of lost loyalty. It seems clear that customers see no added value in the ancillary costs airlines impose, and these practices do nothing to distinguish the airline and build loyalty.
The point is: Before a business can begin to think seriously about loyalty, they have to purge their business of these bad profits. Certainly charge a reasonable price for your services, but do not “nickel and dime your customers to death. Get rid of these irritants, and bundle them into your basic pricing. The rule of thumb is, if something is not perceived to be adding value, don’t make it stand out as a separate line item on the price sheet. Charging separately for items that don’t add value detracts from loyalty. Loyalty occurs when it is perceived that our interests are mutual.
Pick Just One
At this point, a business has received customer input concerning their loyalty and reasons why they feel the way they do. Those loyalty-killing bad profit items have been flushed from the business offering. Now, it is time to take action on the input received.
From the customer feedback, it is important to pick one single factor that has the greatest leverage for loyalty improvement. Remember, an organization can typically only change one significant factor at a time. Think carefully as to which suggestion has the greatest opportunity to earn you a 9 or a 10 and increase customer loyalty. Logically, the suggestion most mentioned will be the most significant. And, once the change is identified, it is usually relatively simple to accomplish.
For Enterprise-Rent-a-Car, the key change requested by customers was for the car to be delivered to the renter’s location. Making that change catapulted them to number one in their industry.
Most importantly, have all the constituents on board by having them participate in the choice for change. Even front-line personnel, who will probably have to deliver the new service, should be part of the process so they feel like a change agent, not a “changee”. Everyone hates change in which they have had no role in the decision.
Walk the Talk
Now you have decided on what you are going to change. The next step in that change is to set a goal. The goal must be aggressive. You don’t want to set a goal, that once made is not one you are proud of, but it must also be achievable. Wild goals, which the organization sees as not achievable demoralize everyone. You need to set a timeline for achieving that goal. Perhaps the goal will be met in pieces. The first piece will represent a significant move forward and then should result in a reassessment of the timeline for the next improvement. Next, make the goal public. Weight loss clinics have proven that success comes from public commitment to a goal. Once that commitment is made, there is a greater likelihood for follow through and success. The same is true in business. It is important that the goal is publicly stated and posted. Then results are tracked and progress or lack thereof honestly assessed. It may be that in the beginning, there is no significant progress. In this case, the no progress report to the organization should be made. The organization must understand that the goal remains, but the tactics may be subject to change in light of the lack of progress. Maybe plan B is in order. Honest feedback and action based on that feedback are what is important here.
The next step is communication from the top of the organization. The goal for change must remain in the foreground in every conversation. The goal must be restated again and again, stressing the importance of this goal being reached, and explaining that attaining the goal will make the organization more viable. The more viable the organization is, the more it can contribute to individual goals within the organization. Job security, promotions, investment in new tools…all become realities when the organization succeeds. Every employee is involved in something which has the potential to improve the success of the organization. The owner/principal of the company has to become the champion and everyday spokesperson for the improvement.
Killing Snakes
Next you will need to find and eliminate the discontinuities you will run across between the change you are seeking and the way things are. People will point out things that the organization does or a process within the organization which is in conflict with the goal.
Perhaps it is a compensation system or a long-honored process. Eliminating those discontinuities will demonstrate that the change trumps the status quo. For instance, it’s not necessary to change the compensation system to reward the improvement you are seeking. But it is important that the compensation system does not reward employees whose behavior erodes loyalty. You will encounter these conflicts. If you spend your time walking in the high grass, you will encounter some snakes; that’s where they live. You have to kill the snakes.
Building Bridges
The next task is to create the infrastructure to support the change you are seeking. Specifically:
- The Loyal 9-10’s: First, you will have loyal customers who increase their purchasing or who are recommending you to others. Do not overlook the power of recognizing and thanking them. Make no mistake, asking the question “would you recommend this company”, creates some of this behavior by your loyal customers. There are many ways to show appreciation without requiring some form of compensation. Recognition and thank-you connect at a gut level, and remember, loyalty is a gut level phenomenon.
- The Opportunity–Producing 1-8’s: Secondly, you will have those customers who are not yet loyal who provide a score of 1 through 8. The second piece of infrastructure is the re-surveying of those customers. Continuing to ask them on an ongoing basis the loyalty question and what it would take to earn a 9 or 10 is imperative. The new information must be baked into the organization’s knowledge base, and continuous changes made around these new data. This is an ongoing commitment to ever-increasing loyalty, not a sometimes thing.
- The X-customers: Lastly, you will also have some X-customers. Those are the customers who are leaving you for a competitor. To overcome this, build a structured customer recovery process based on proven methodology. Intervene and stop the customer loss with proven techniques which address the root causes in a timely manner. Your recovery process must uncover and quantify the root causes. Building these modest pieces of structure will support the change.
“You Gotta Believe”
The final and most vital ingredient for change is: The leader of the organization must honestly believe in the change being created. He/She must believe this change will fundamentally improve the relationship between your customers in such a way that they will buy more goods and services, and recommend the company to friends and associates. Believing in the magic of loyalty and its power will transform your business.
In closing, my hope is that I’ve inspired you to test these strategies in your own company immediately. Even if you have no formal training or experience in customer loyalty programs, you will see some improvement from implementing these steps on your own.
You can’t do anything about the economy, but you can do something about how you respond to it. Remember….more loyal customers buy more from you, recommend you to friends and give you a second chance if something goes wrong. You can have more loyal customers, but it takes a little extra effort.
Customer Care Partners is a BBB Accredited Business. Jim Rohrer is an expert on the subject of growing companies by increasing customer loyalty. For 30 years he has dramatically improved the bottom line of countless organizations with his ability to identify and change “one key thing” to bring about needed improvement in an organization’s performance.