How to Build Customer Loyalty in a Recession

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Most executives say that customer experience is very important to their business, but very few really understand how it affects their bottom lines. With the current recession on everyone’s mind, you may be tempted to abandon your customer experience efforts because you are not sure your company will be rewarded with stronger customer loyalty.

To better understand the link between customer experience and customer loyalty, my colleague at Forrester, Bruce Temkin, used feedback from nearly 5,000 consumers and examined the correlation between how they rated a firm’s customer experience and two measures of loyalty: 1) their willingness to buy another product from the firm, and 2) their reluctance to switch business away from the firm. His analysis covered 112 firms across nine industries. Here’s what he found:

• A firm’s Customer Experience Index correlates to customer loyalty. Although a company’s Customer Experience Index (CxPi) has more of a connection with consumers’ repurchase plans than it does to their reluctance to switch providers, there’s at least a medium degree of correlation in both of these loyalty measures across all of the industries.



• Repurchase intentions can swing 15%. When it comes to the consumers’ intentions for purchasing additional products from a provider, those in the top quartile of the CxPi were 6% higher than industry averages, while firms in the bottom were 8.9% below the average.

• Switching intentions can swing 18%. When it comes to the consumers’ reluctance to shift business to a competitor, those in the top quartile of the CxPi were 6.8% higher than the industry averages, while firms in the bottom were 11.2% below the average.

If you are faced with new budget constraints, make sure you company stays in a position to capitalize on the business up-turn that lies somewhere ahead.

• Continue to champion the value of a differentiated customer experience. Keeping focused on the needs of the customer is difficult during a downturn because executive discussions typically focus on much more on financials and much less on customers. Forrester’s data demonstrates the positive correlation between customer experience and customer loyalty. Make sure that the executive team understands the tradeoffs that it is making. Dig in your heels about budget cuts that will significantly affect the experiences of key customers.



• Prioritize key moments of truth. With less money to spend on wide-ranging customer experience efforts, it’s even more important to pick the right areas to focus on. That’s why customer experience execs should identify a handful of moments of truth (MoTs) to work on. This tightening of focus will also help in determining the funding cutbacks that you can live with.

• Protect your most valuable customers first. All projects and customers are not equally valuable. Try to put the majority of cuts in areas that have the least impact on your most important customers. You may want to increase spending in some areas and make up for it by entirely cutting off other areas. It is crucial to deliver the best experiences for your most important customers, even if it means lower priority segments may have to suffer.

3 COMMENTS

  1. * “Could this become the worst recession we have seen in the post World War I period? I think the answer is YES”, Martin Feldstein, a Harvard University Economist and the outgoing President of the National Bureau of Economic Research told recently attendees at the Futures Industry Association conference.

    * Speaking at CFO Rising in Orlando, former IBM and Chrysler Corp. Finance Chief Jerry York predicted that the recession would be long, deep and ugly; the result of an economic “perfect storm” with few positive signs on the horizon. He feels that what we are seeing is only the tip of the iceberg and worser things are yet to come.

    * To make matters worse, recent job loss & retrenchment figures have been staggering, both reported & un-reported.

    So, the BIG question in front of you isn’t whether recession has set in, it is “Is My Business Recession Proof”?

    Would you like to wait and react when things can get tougher than this or would you like to act now?

    A check list to check if your business is Recession proof !!
    1. As on date, do you just about have “Cash in hand” to cover up for less than 2 months of your organisational overheads?

    2. Is your average accounts receivables double or more than your monthly cash outflow?

    3. Do you have at least 1 month’s equivalent of cash outflow or more stuck in stocks / inventory / semi-finished goods with you?

    4. Do you have less than 50% of your turnover coming from repeat orders?

    5. Is your business, directly or indirectly, tied to clients who are into exports or supporting industries?

    6. Has your interest servicing cost, in the last few months, either stayed at the same level or increased?

    7. For the same quarter ending last year, were your sales either the same or more than the current year?

    8. Is your net profit for this year (as of date) same or just about marginally higher than last year?

    9. For the same quarter ending last year, were your overheads more than the current year?

    10. Is your personal finance, as a business owner, slightly out of shape (cash in hand, liquid assets position)?

    Formore, visit http://seechangeworld.in/Recession_Proof.html

  2. I’m not quite sure what I think about the point on “protecting” the “most valuable customers” first.

    In my previous employment in mobile phone support I developed this attitude as I handled business and government accounts. To me, a company paying $20,000 or more a month for wireless service deserved more attention and greater leeway than a $120 a month account with a small business. Lately I’ve been re-evaluating this position. Though it may be unlikely that a particular “mom & pop” dry cleaner will ever grow into a major business, it’s possible. If that happens, the way they are treated in the early days can determine the entire future of the business relationship. Even if the business doesn’t grow, there are thousands of small accounts that add up when counted together.

    Unfortunately, the limited resources most customer service departments deal with in staffing and financing force most to focus on “most valuable customers.” With the current and impending problems in the world economy, there won’t be much choice other than to prioritize.

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