While building a customer base, businesses sometimes move too quickly and focus on quantity rather than quality. Just as organizations experience turnover in their employee ranks, turnover occurs in the customer base as well. The extent to which both occur has a significant influence on your bottom line.
There is a lot of emphasis these days on creating satisfied customers. But is having satisfied customers enough? In our research we found several sources that conducted surveys addressing the impact of customer satisfaction on loyalty to a particular vendor. Depending on the survey source, between 60 and 85 percent of customers who chose a new vendor indicated they were satisfied or very satisfied with their former vendor.
What these results say is that having satisfied customers is not always enough. Certainly the first step in a vendor - customer relationship is working hard to keep customers satisfied. If your customers aren't satisfied with the level of service you deliver, you can rest assured that there will be a high level of turnover within your customer base.
An important transformation needs to take place in the way businesses view their relationships with customers. The transformation involves moving customers from being satisfied to being loyal. It's important to keep in mind the fact that a satisfied customer isn't necessarily a loyal customer. Moving a customer from satsfied to loyal requires hard work, constant attention to the customer and diligence in delivering outstanding service consistently.
Any given customer can be satisfied with multiple suppliers of the same product or service. Does the level of satisfaction factor in? Possibly, but not likely. The more likely scenario that gets played out is that as long as a threshold level of satisfaction is achieved the customer will tend to buy from supplier(s) offering the best price. Clearly, price will always be a factor to some extent in terms of which supplier gets the business. But what happens when a supplier is able to differentiate itself in terms of building some degree of customer loyalty? Chances are good that price becomes less of an issue as loyalty increases.
Satisfaction allows you to be in the game, so to speak. Loyalty translates into repeat pruchases. When a company is able to achieve some degree of customer loyalty among its customer base, the rate of customer leakage drops and the share of a given customer's business increases. Bear in mind that not every customer will feel the same sense of loyalty even with the same level of effort applied. But, this point notwithstanding, customer loyalty can clearly correlate with increased sales and increase profits.
So how do you build customer loyalty? First, we need to briefly address loyalty as it relates to the product or service itself. Let's look at what we'll refer to as a commodity product. A commodity product (or service) is one that looks and functions identically or nearly identically to the competitions' product or service. In this case, there is little to differentiate on other than price or level of service. In the case of differentiated products or services, the various suppliers can point to subtle or not so subtle differences in the product or service in making their case for buying one over another. If a differentiated product or service clearly has a functional or benefit advantage over those of its competitors, short-term loyalty can be achieved based on that advantage alone. But in most cases competition simply upgrades their own product or service to deliver the same functionality or benefit as the superior product/service so over the long-haul the level of product/service-specific loyalty diminishes.
We address the issue of commodity versus differentiated products and services only to point out that in many ways and in most cases, there is really very little sustained product differentiation. The implication then is that we have to build loyalty in other ways. Here are some things to keep in mind when attempting to build customer loyalty:
- Let customers know that you are interested in them as a long-term customer. This implies that your people are very much geared to being problem solvers for the customers. They must understand that their jobs exist to solve customers' problems and to assist the customer on demand.
- Think in terms of developing relationships with the customer. This doesn't mean a vendor customer relationship. This means attempting to cultivate as many personal relationships as possible within the customer's organization. While this is often disputed, we firmly subscribe to the notion that people buy from people they like. And they buy from people they can trust. Perhaps the key differentiating variable in the business world today is people. The quality of people you put in front of your customers will clearly help separate you from your competition. Your sales force must have very high expectations established for them in terms of relationship development.
- Make every attempt to differentiate your product or service from the competition. Try to stay out in front in making your product or service more functional or beneficial to the customer. The essential ingredient here is value. Does the customer perceive that your product or service is worth more to them than your competitors' products or services?
- Serve the customer at extremely high levels. This means that your processes must be efficient, your people who have any interaction with customers must be highly trained in customer service skills and you must establish a culture with high expectations for serving the customers at very high levels. Nothing short of outstanding customer service can be expected with no exceptions granted.
- Think long-term. Your business needs to establish a stable customer base. Companies that have a short-term mentality rarely, if ever, build much customer loyalty. Don't go for the quick sale just to generate revenue. Build a strong relationship with the customer and sales will follow.
- Allow customers to provide you feedback easily and whenever they feel they need to do it. Encourage your customers to contact you with ideas, problems, concerns or with a pat on the back that can be passed on to employees for a job well done.
- Create an environment of high accountability, high performance, high morale and high productivity. Happy and productive employees will do a lot to build customer loyalty.
In summary, customer loyalty can be accomplished. But it does take hard work and constant management attention. Your sales force is an integral part of building customer loyalty. They need to fully understand their roles in building strong, long-term relationships with the customer.
