How do you really know what customers want, what it will take to generate optimum advocacy behavior and wallet share, so you can create the most effective frequency marketing, service and relationship programs? Most companies, we have found, tend to be tactical and transactional in orientation, and do relatively little strategic investigation to determine this. They often commit their resources – time, money, people, facilities, and technology – to superficial customer knowledge or insight. Fewer still apply a disciplined process to develop this understanding.
A really wasteful example comes immediately to mind. In the United States, the average auto dealership spends several hundred dollars to obtain each new car, light truck, or sport utility vehicle customer. Most of this expenditure is invested in local newspaper advertising. In the last century, American department store magnate John Wanamaker was quoted as saying that half the money he spends for advertising is wasted, but he didn’t know which half. That’s even more true for auto dealerships. In our research, we have found that very few customers used the newspaper to select, or even identify, the dealership. This is like sending coal to Newcastle, totally unnecessary and misdirected.
A process that we have created to generate and apply insights is one that we have adapted from the world of Total Quality Management. It is called the Customer Loyalty Compass, and it consists of four disciplined and interconnected steps: Prepare, Assemble, Comprehend, and Employ. To make it easier to remember, you might want to call it what we do: the P.A.C.E. Process. In this post, we’ll cover the front half of the P.A.C.E. Process
In the first step, Prepare, we seek to understand the company’s readiness for applying customer information and insight. This is a planning step. What do you already know about current, former, and competitors’ customers, from information databases, prior research, sales reports, customer service analyses, and complaint data? How well is the company culture prepared to create and support customer loyalty? What will staff say are the key influences driving value for customers? What is staff’s role in customer loyalty?
We have discussed the tendency of many companies to be acquisition-driven and satisfaction-oriented regarding customers, to create frequency marketing programs and espouse experience management without creating requisite value for either customers or staff. Often, customer loyalty has been embraced as a concept by champions in an organization. Typically, this is by senior management or a functional manager in an operations, marketing, or customer service role. They have the will and spirit to create customer value; however, they may be met with structural impediments and/or cultural resistance to change elsewhere in the company. Learning about these potholes on the road to customer loyalty, or where the road has material gaps, early in the Prepare step, can make application of process change and culture modification much easier.
Internal data, used by many companies to understand customer behavior, is just the tip of the iceberg. It may provide an incomplete picture of customer needs and expectations, and it may even be misleading if it only reflects the staff’s opinion of what customers require. These built-in biases can limit your ability to build loyalty. For example, if you create new services or make operational process changes based on complaints lodged with your customer service staff, the new services or process changes may be extremely misguided. Why? Because many customers, as we well know, never complain. They just go away, so you never learn the real changes that have to be made. That’s one reason why, in the Assemble step, you must go directly to your current, former, and competitors’ customers to find out about their needs and what creates value for them.
This step often requires some form of qualitative research: in-depth interviews, focus groups, or mini-groups. We will want to find out, among other things, what factors customers use to assess the value they get from suppliers, what the supplier does well and poorly, how the supplier compares to competitors, what new, innovative needs or services the supplier might provide, how their performance has changed over the past year or so, what complaints or concerns are evidenced, whether the supplier is perceived as commodity-oriented or customer-oriented.
This last point is particularly important: does the supplier perform only the basics, or is there genuine interest in creating real customer value and trust? The product of this research is two-fold: the anecdotal insights we gain from customers, and the essential input for crafting a set of performance attributes for quantitative measurement.
The qualitative research may also begin in reverse order, with the internal development of loyalty program ideas before going to customers for further refinement. I have facilitated and participated in all-day cross-functional program concept workshops. Their objectives are to craft loyalty program concepts which strategically, and positively, differentiate the client’s products and services and optimize customer loyalty. In addition to facilitators, workshop members may include client marketing, customer support, and technical staff, and outside marketing, advertising, technical, copywriting marketing research, and customer loyalty program experts. The output of their work is usually solid loyalty ideas which are then exposed to customers (and prospects) as fully-formed concepts, which can then be distilled into actionable programs and initiatives, which is the second half of the P.A.C.E. Process.
