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What Really Drives Customer Loyalty? It’s Not Just About the Experience! 

Bob Thompson | May 25, 2012 5,400 views 7 Comments

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“Everything should be made as simple as possible, but not simpler.”
—Albert Einstein

Customer loyalty is at the heart of a truly customer-centric business strategy. Over the years I’ve found fairly consistently that the customer experience—all interactions with a brand, including people and systems—is equally important (in driving loyalty) to the quality of the core product/service purchased. Obviously there are differences between industries; you might expect that the customer experience is more critical to Disney than, say, a light bulb manufacturer!

But customer experience hype is losing touch with reality. Now it seems that the customer experience is the only thing that matters. Products are all commodities, so trying to innovate is a waste of time because a competitor will just copy you. You can’t compete on price, either, unless you’re Wal-Mart.

Improve the customer experience, CEM proponents argue, and your customers will be loyal, a competitive edge is assured, and the profits will roll in!



Really? This doesn’t jibe with my personal experience as a consumer, where both product and experience are important. For example, when I bought a new BBQ grill I chose a Weber grill because of its innovative design (product). However, I purchased it from Home Depot because it had the best multi-channel purchase process (experience).

Recently I vented about my AT&T DSL customer service experience. Although the interactions (experience) with AT&T people were mostly well handled, the core problem is simply that the DSL line (product) was unreliable and no one could figure out why.

Let’s take a reality check. Here are a few examples of what drives loyalty in different industries, with help from loyalty experts who were kind enough to share some of their research.

Information Technology

Walker Information has studied loyalty drivers in the IT industry for many years. As you can see from the chart, in 2011 43% of customers were assessed as “Truly Loyal”—likely to increase their spending and recommend the company (the IT vendor) to others.

But what drives loyalty? According to a report supplied by Senior VP Pat Gibbons, “product quality is at the top of the list,” and “account management is becoming increasingly important to customers, perhaps signaling customers’ desire to reap even more from their IT investment during lean economic times.” The firm’s research also found that in 2011 professional servicing/consulting and technical support continued to be apparent driver, but that the purchase process decreased in importance. In a change from the previous 2008 study, the “pre-sales process” failed to make the list in 2011.

At Cisco, they review loyalty drivers annually to make sure perceptions are current and make adjustments. Karen Mangia, who heads up Cisco’s Listening Services Center of Excellence, says recent research (conducted with the help of Walker Information) revealed that “ease of doing business” had become a more important issue. So the company is exploring how to get all relevant business units to make changes that will improve customer/partner loyalty. This sort of “listening DNA” is what I’ve found in customer-centric leaders.

Key point: loyalty research is not a “do once and use forever” initiative! Your market and customers are constantly changing, so regular updates to loyalty research are advised.

Automobiles

I’ve bought quite a few cars over the years, starting with a used ’66 VW Bug when I went to college. Thinking back over all those car purchases, I bought the cars because of the, um, cars. Not the dealer experience. Not the service experience.

But that’s just me. For some it’s all about the car. But for others the dealer experience matters a lot, too. Chris Travell, VP of the Automotive Research Group at Maritz Research says that car makers continue to innovate but find it hard to get an edge with their products. Result: at any price point you can find several cars will similar features. But there are still large differences in the customer experience, so car manufacturers are focusing more attention there.

Travell says that American cars have become more competitive in recent years, and have historically done a pretty good job delivering a good experience at the dealer, including greeting customers, sales hand-offs, product knowledge and delivery. Customers with the highest level of customer satisfaction are five times more likely to repurchase.

Key point: Car makers must keep their “foot on the gas” (pun intended) to build high-quality and stylish cars that incorporate the latest technologies. And then also invest in the dealer experience as an opportunity for differentiation.

Retail Banking

Are you delighted when a hotel has clean rooms? With a rental car company if the vehicle runs? With a bank if the ATM works? Not really, because these are basic expectations. But if these “table stakes” are not provided, you’ll be dissatisfied and may take your business elsewhere.

That’s why Howard Lax, VP of Consulting at GfK Customer Loyalty, advises clients to analyze the “negative” drivers of dissatisfaction separately from the “positive” drivers of loyalty. The idea is minimize the impact of dissatisfiers which can drive attrition, and focus on loyalty “enhancers” as a way to differentiate.

GfK’s banking industry research found that drivers can change from year to year. Notice in the chart below that “Reward Customers For Their Loyalty” (in yellow) became a new driver of dissatisfaction in 2011. Banking customers now expect to be rewarded; it’s not a good opportunity to delight customers or drive loyalty. In contrast, “Helps You Be Smart About Money” is a new loyalty driver, which suggest banks should invest more attention to make this a loyalty enhancer.


Source: GfK Customer Loyalty

Not surprisingly, customer experience is a critical issue in most any retail industry. In other research:

  • In a retail banking study, Bain found “promoters cited ‘service’ over six times more frequently than ‘rates and fees’ or ‘branches’ as their top reason for recommending.” Furthermore, “poor service delivery topped the list of factors named by detractors, with ‘rates and fees’ not far behind.”
  • In a cross-industry retail study, Fujitsu Australia found that “friendly and helpful staff” the most important factor in an exceptional retail experience, followed by “product availability.”

Key Point: Customer experience is a key battleground for retailers. But think about why consumers go to an Apple store or Costco or Macy’s. The selection of products carried and pricing matters too; don’t take them for granted.

Wireless Telecom

As a final example, let’s look at what drives loyalty in the wireless telecom industry, based on research by Bob Hayes, founder of Business over Broadway. According to his recent article, his methodology considers three types of loyalty:

  • Retention Loyalty: Degree to which customers will remain as customers or not leave to competitors. This type of loyalty impacts overall customer growth.
  • Advocacy Loyalty: Degree to which customers feel positively toward/will advocate your product/service/brand. This type of loyalty impacts new customer growth.
  • Purchasing Loyalty: Degree to which customers will increase their purchasing behavior. This type of loyalty impacts average revenue per customer.

In his study of the wireless industry, Hayes analyzed the impact of the “product” (wireless coverage and reliability) and “experience” (customer service) on each of the three types of loyalty. He found that across the the entire industry sample, both product and experience had a strong and nearly identical impact on Advocacy Loyalty, with lower and similar impact on the other two types of loyalty.

What’s interesting, though, is that these drivers can vary considerably from one wireless carrier to the next. One size does not fit all! As Hayes explains:

…improving the service experience is much more valuable for Safaricom than it is for T-Mobile. Improving the service experience will greatly impact all three types of customer loyalty for Safaricom and only one for T-Mobile. I suspect the reasons for variability across providers in what drives their customer loyalty could be due to company maturity, the experience delivery process, market pressures and customer type.

Key Point: General industry research can give you the big picture, but it may not explain what drives loyalty specifically with your customers.

Creating Raving Fans

Customer loyalty is complex, because people and business are also complex. As these examples illustrate, every industry has a different set of dynamics that can change rapidly. Consider how Apple has re-shaped expectations in mobile telecom, or how Amazon.com has set new standards for excellence in online retail.

Is Customer Experience important? Of course! But it’s not the only thing that matters. The point of good loyalty research is to understand what really drives customer loyalty in your target market. Then you can build a strategy to decide where to invest, which will depend on your capabilities and the actions of competitors in your market.

Michael Lowenstein, Executive VP at Market Probe, contends that business leaders should strive for advocacy, which includes customer favorability of brand; future brand consideration; positive and negative brand buzz; and distribution by brand of most recent purchases. Lowenstein’s banking industry research found that increasing the percentage of advocates drives new client growth, client retention and share of wallet. These are very Good Things in banking or any business!

While there is no one “best” method for finding loyalty drivers, in my research of top performing companies I find that leaders are obsessed with asking and answering these questions:

  • What do customers in our target markets really value?
  • Which issues make our customers unhappy and cause them to leave?
  • What pleases customers and causes them to recommend us to others?
  • How can we turn customers into true advocates for our business?

If you can answer these question and then pull the right loyalty levers, you’ll be on your way to building great customer relationships. Just like those that power business performance at companies like Amazon.com, Apple, Cisco, Intuit, Southwest Airlines, Starbucks and USAA. Good luck!

Further reading and loyalty resources:


Disclosure: This article was prepared through independent research. Selected companies are mentioned to illustrate specific capabilities and industry developments; no endorsement is implied. Please visit our sponsor page for information on companies that have supported the CustomerThink community in the past year.

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7 Responses to What Really Drives Customer Loyalty? It’s Not Just About the Experience!

  1. Michael Lowenstein May 25, 2012 at 10:24 pm (1270 comments) #

    Bob –

    Thanks for the thorough coverage of this important topic, for the citation of customer advocacy as a key performance metric, and for the recognition of Market Probe (www.marketprobe.com) as the organization which has developed the advocacy research framework. Under ‘issues’, beyond specific customer experience, which drive both positive and negative customer behavior, I’d encourage inclusion of:

    – Effect of company image and reputation, now as important an influence as brand equity

    http://www.customerthink.com/article/corporate_reputation_and_advocacy_linkage

    http://www.customerthink.com/blog/rethinking_the_behavioral_impact_of_corporate_reputation_and_image

    – Influence of employees and customer-focused culture, which can be both direct and indirect

    http://www.customerthink.com/article/inside_out_advocacy_creating_and_sustaining_customer_centricity_and_loyalty

    http://www.customerthink.com/article/linking_employee_behavior_to_customer_loyalty_advocacy

  2. Dustin.Q May 26, 2012 at 11:31 am (374 comments) #

    Balance is definitely the key to keeping customers and having them use their word of mouth advertising to bring you more customers. Your examples are perfect. It is more than just the experience.

     

    Experience with building a web page alone will not keep customers these days because while people need to be treated right the product and costs also have to fall in line.

  3. Nikhil Datar May 28, 2012 at 9:14 am (5 comments) #

    Bob – I agree with you 100% on the section about Creating Raving Fans. Also, I do gather from the article that your perspective about the word “Customer experience” does not include product and its features itself.

    The only thing I would like to add is that a Customer experiences a brand in 2 forms – PRODUCT (Feature relevance, uniqueness etc) and INTERACTION(Buying, using, recommending etc). So, it can be any one or both of them depending on the Industry competitiveness.

    It will be interesting to research if Apple customers who have all the 4 products ended up buying because of store or because of the product or if starbucks will increase wallet share and overall customer growth if it starts delivering coffee to homes through internet or mobile orders like a Pizza.

  4. Adrian Swinscoe May 28, 2012 at 10:50 am (36 comments) #

    Hi Bob,
    I really like the point ‘Customer loyalty is complex, because people and business are also complex.’ Your article and research shows us that loyalty solutions will differ between companies and within sectors.

    To think that loyalty can be copied or is simple is a mistake and a waste of time and resources. I hope everyone is listening.

    Adrian

  5. Bob Thompson May 28, 2012 at 10:53 am (875 comments) #

    Nikhil, you’re quite right. My definition of customer experience is about customer’s interactions with the company (people and systems), not the products or services the customer is buying.

    I know that some in the CEM industry define customer experience more broadly to include product interactions. That’s ok, provided that they are analyzed separately.

    When I bought my BBQ grill, I bought it for a number of reasons and one was the expectation it would be easy to use and would grill food well. I suppose you could put this into the “product experience” category. But I also bought it because of the brand reputation of Weber and quality (my previous grill had some problems in this regard). These are perceived attributes of the brand/product, not an experience with the brand or product.

    When I buy a tool for my toolbox, it’s not because of the experience, it’s because of the tool. When I hire someone to mow the grass or perform other services, the work they do (or will do) matters a lot, not just how I interact with the service providers. In some cases my interactions will be minimal and the service are not ones that I personally will witness (e.g. hire an accountant to take care of the books).

    Others may disagree with my big buckets of product/experience/price and that’s ok. The point of loyalty research is to get down to the key drivers of loyalty, not to put them into categories! Customers don’t care about how we in the industry define things, they only care about the value they are getting.

  6. Nikhil Datar May 28, 2012 at 11:24 am (5 comments) #

    Agreed Bob. The key is to be able to provide what customers value. I do find that most businesses are at a very nascent stage of actually understanding this. Would you think that marketing as a department must visit its fundamentals – understand the customer and design products and solutions that customers value?

  7. Bob Thompson May 28, 2012 at 11:31 am (875 comments) #

    Thanks, Adrian.

    We can all learn from others, but I think it’s a mistake to try to copy Apple, Zappos or other top brands. They didn’t become top brands by copying someone else!

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