Here’s a question for you, one that I hope you’ll consider thoughtfully and answer honestly.
Does your business complete transactions or create relationships?
I suspect you will want to answer the question with “we create relationships,” since relational companies foster trust, enhance customer engagement, drive loyalty, and secure referrals. But do your behaviors really align with being relationship-focused, and do your customers see you as building relationships with them?
For me, the single most important difference between transactional and relational brands is how companies act when things go wrong.
Specifically, relationship-focused companies see service recovery as an opportunity to fix a problem AND mend a relationship. By contrast, transactional companies place a low priority on service recovery because they are chasing the next customer and the next sale. Exceptional relationship-based brands understand lifetime customer value and the importance of “word of mouth” growth. Conversely, rigid transactional brands focus on the current value of a customer and spend aggressively to acquire new ones.
Here’s an example of the economic importance of tracking lifetime value and maintaining a relationship-based focus. Let’s assume you own or run a supermarket.
Research suggests that US families of four (with children between the ages of 6 and 11), on average, spend $1,062 per month (or $12,744 per year) on groceries. Depending upon the study, people remain in a residence, on average, somewhere between 4 and 13 years (with the length of stay increasing on a continuum from renters to first-time homeowners, to established homeowners).
Let’s use the shortest length of residence (4 years) as the multiplier for annual grocery spending. For a family in this scenario, the resulting (and very conservative estimate of) lifetime value is in excess of $50,000. This calculation obviously doesn’t consider any referral value that may come from the family recommending the supermarket to others, nor does it look at actual profit or remove marketing costs (like coupons or discounts). However, this quick estimate of lifetime value is a helpful guide to why you would want to heal a relationship with a customer if it gets strained when they return an unsatisfactory product.
To help you ensure that you can confidently say you are a “relationship-focused” company, here are a few actions to pursue:
- Take the time to estimate lifetime customer value – Do your best to assess the average spend per customer over the course of their relationship with your brand.
- Develop systems to track the money spent by specific customers – Evolve your initial calculations by segmenting customers into high, average, and low-spend categories. Over time develop ways to capture the actual spending of every customer (e.g., tracking purchases by enrolling them in loyalty programs).
- Make service recovery decisions based on segmented customer value or individual customer spending – Integrate information garnered from purchase tracking processes into your Customer Relationship Management (CRM) database and use that information to guide service recovery for each customer.
- Train on the distinction between relationships and transactions – Continually talk about and train on the importance of building relationships that extend beyond quality transactions. Offer both humanistic and financial explanations related to the value of customer relationships
- Assess the strength of your customer relationships – Ask your customers how well you understand them, care about them and care for them. Track metrics of relationship health like Net Promoter Scores, and the Customer Effort Scale. Also track key performance indicators (KPIs) like customer retention and revenue per customer.
Jay Conrad Levinson sums up relationship-focused strategy by noting:
In order to sell a product or a service, a company must establish a relationship with a consumer. It must build trust and rapport. It must understand the customer’s needs, and it must deliver a product that delivers the promised benefits.
How are you doing with your relationships?
To learn more about ways to enhance customer relationships, please contact me at josephmichelli.com/contact.