How to sustain customer loyalty as the cost of living crisis deepens

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“75% of brands could disappear … and most consumers wouldn’t care …”

What’s going wrong with the UK services sector? As I ended last week as Mr Angry, having had bad experiences with my bank, utility provider, and delivery company, I reflected on what had gone so wrong. Have I just been unlucky or is there something more systemic going on? Covid, Brexit, the cost of living crisis … something these providers should be managing better if they want to retain my customer loyalty. Or was it just a perfect storm that would have tested even the most efficient, well run business? All the signs point to the former.

The experience I endured reminded me of a stark finding by Havas Media Group in its 2021 Meaningful Brands Report: 75% of brands could disappear … and most consumers wouldn’t care. This is exactly how I felt last week about my bank, utility provider and delivery company. I would happily say goodbye to all three of them. As Havas noted in its report – people are tired of empty or broken promises. Most consumers have little faith brands will deliver on what they say they will do. Trust is at a low ebb.

Customer loyalty is already weak in those sectors on the frontline of the cost of living emergency

Those brands intent on sitting out the cost of living emergency or simply cutting costs could be falling deeper into a loyalty crisis that has already been years in the making. The number of complaints are breaking records according to last month’s UKCSI from the Institute of Customer Service. Almost one in five customers experienced a problem with an organisation.

The list of the top 50 performers is dominated by the retail (non-food), retail (food) and leisure sectors. There was a poor showing by the sectors that let me down. Very few banks or insurance companies made the list. Utilities and business services companies (which includes delivery companies) were virtually non-existent.

But utilities, banking, insurance even are on the frontline of the cost of living emergency gripping the country. This does not bode well for loyalty, which will be tested to the maximum (now, and in the coming months) as consumers make tough economic choices and judge organisations on how well they respond.

Businesses that are focused on delivering meaningful experiences – rooted in caring for people, community and planet – will have an edge. We live in a cynical age but all is not lost. There is a sizeable group of consumers (64%) that want to do business with brands that stand apart from those driven purely by profit. We’ve arrived at the first step you can take to improve the loyalty of your customers as they grapple with the cost of living.

1. Live your brand – on purpose

Consumers are making difficult choices about how they spend their money – and the businesses they choose to stick with. Why should they continue to spend it with you? Stay with you? The answer is because you offer meaningful difference and are true to your brand.

There are opportunities to build meaningful connections to reduce the stress that millions of consumers are experiencing. Consumers will see through any empty promises, tokenism or virtue signalling. As with Covid, how you respond now will influence the stickiness of customer relationships for years to come.

What do we mean by meaningful experiences?

Meaningful experiences are rooted in functional (to some extent), societal and emotional benefits. People are looking for tangible, meaningful solutions that solve their problems, help them budget and saves them money as the cost of energy, food, fuel and housing continues to spiral.

They are making a calculated assessment about the functional benefits of the products they buy and services they use. Experiences that deliver functionally tend to be consistent and intentional. However, meeting these functional needs on their own won’t necessarily improve loyalty. To do this you need to focus on the emotional drivers.

Be clear what your brand stands for

Being clear on what your brand stands for, and the difference you want to make in the world, is one route to build the layers of emotional connections that create hard-to-break bonds. Consumers are actively seeking out brands that are authentic and driven by purpose.

Brands that make a stand on issues that people care about will earn their loyalty through a shared sense of purpose, values and beliefs. This matters in times of crisis as people re-evaluate what’s important to them and their behaviour changes to adapt. Localness is just one way to create a powerful differentiator – now, and for the future. As ICS reports, it’s what customers want.

Focus on localness

Consumers are looking for social signals that your brand cares about the local community. Out of necessity during Covid we shopped locally and tried new stores. We got to know our local storekeepers and suppliers. We noticed those businesses that went the extra mile to support the local community or started a new service.

ICS found that 45% of customers that had switched brands gave local relevance / commitment as the reason for choosing an alternative. This localness is rooted in having a local presence / employing local people, engaging with the community and personal connections.

This feeling of having a personal connection matters in the loyalty stakes. Customers who feel a personal connection to an organisation have a high average level of satisfaction – 85.7 out of 100. In competitive industries this is pivotal. Only around 25% of ‘satisfied’ customers remain loyal in these sectors. Loyalty only tends to increase when customers are more than satisfied. Ask a first direct customer why they stay with the bank and answers will include the fact they are highly satisfied with their experience.

2. Be there – act now to support customers

“77% of consumers expect brands to show support to people during a crisis”

One of the reasons why retailers are so present in the UKCSI top 50 is they respond to the challenges facing their customers in almost real time. Loyalty is hard won and easily lost in the sector. It’s easy to find somewhere else to shop.

This fleet footedness has never really troubled most banks and insurance providers. And the reason is because most customers are reluctant to switch. Providers then simply conflate high retention rates as loyalty indicators. But, the warning signs are writ large for banks and insurers that continue to do this.

Financial services firms could be sleepwalking into a loyalty crisis of their own making

Financial customers are increasingly prepared to switch to a provider that better meets their individual needs. Orthodox thinking during tough economic times is consumers will cut back on non-essentials like eating out, fashion, streaming subscriptions etc. They will also delay big purchases.

People are cutting back on how they spend their money. However, they are also assessing who looks after their money and the help and support on offer to them. Banks (read insurance companies too – we get to utilities later) could be sleepwalking into a loyalty crisis of their own making if they don’t act now.

The number of banking current account switchers is now at pre Covid levels, according to ICS. There are steps you can take to make sure you’re keeping the customers you’ve already got.  Make sure customers have access to the help they need as the cost of living emergency deepens.

These steps are ground zero for keeping customers

“63% of banking customers say they have heard nothing from their bank in the past three months about how to deal with the inflation crisis”

  • End radio silence – customers are worried when their bank goes quiet just when they urgently need financial support. Nearly two-thirds (63%) of banking customers say they have heard nothing from their bank in the past three months about how to deal with the inflation crisis, according to Personetics
  • Automate services to reduce hassle – there are always low value transactions and services that can be automated but be prepared. Arm’s length digitisation creates its own demand. If my online banking key, for example, has been cancelled without an automated reminder to inform me – I will have to call a real person to fix this when I try to use it
  • Reduce wait times – Covid isn’t an excuse any more. Customers notice. They notice when they are being told that their call is important, only to be kept on hold for ages.

ICS found that service-related non-financial benefits are the main reason for bank customers switching. And being consistent on basics like these is non-negotiable. Improvements mean satisfaction levels will probably go up. But as we mentioned earlier, it’s only higher levels of satisfaction that boost loyalty. Moving the dial means finding better ways to meet their customers’ individual requirements.

Have better conversations

Understand individual circumstances. Fewer than one in 10 customers say they have heard from their bank and received messages specific to their individual circumstances, according to Personetics. Customers are seeking tailored money management support and advice. For example, are there cheaper financial products I should consider?

For customers suffering mentally, physically and / or financially, the impact of a company failing to respond to personal needs is stark. This impersonal approach will not only make life very difficult for vulnerable customers. The approach also contradicts FCA guidelines on how banks should support those who are struggling.

Provide empathetic support

It is crucial that bank employees are trained to identify customers who are experiencing financial difficulties so that they can respond with empathy, provide assurance, and offer solutions that are right for the individual. Obviously just telling people they need to be empathetic doesn’t mean they will be able to be nuanced and subtle. Knowing / doing gaps are all too common. Staff often need additional CX training.

Improve brand value

CX leaders were agile throughout Covid to meet the fast-changing needs of their customers. This crisis is no different. Banks will need to be just as proactive in finding new ways to create value. Research on behalf of CASS found that 18% of customers said the cost of living crisis was pushing them to seek additional products such as overdraft facilities and better banking services to enable them to track their spending.

The banks that attract new customers, and increase the loyalty of those they’ve already got, will be those that are agile in rolling out new product features to meet these needs. They should also be able to answer questions like this: does my bank remind me about subscriptions I may have forgotten to cancel? Inactivity on products, features, tools, and policy and process flexibility means customers could easily defect.

To wrap up our banking examples, as ICS reports, customers have increased expectations that banks do four things:

  • Be proactve on engagement
  • Provide practical help and advice
  • Signpost support from 3rd parties
  • Encourage those are worried about their financial situation to make contact

Repeat the above for utility firms

All of these points apply to utilities. Switching provider and changing tariffs is risky right now. Customers struggling to pay their bills will need proactive advice and support. If there is one sector that must act immediately it is the energy providers at the centre of this storm and water companies (where there is no alternative provider). Customer satisfaction in the sector only improved 0.6% in July 2022 compared with the same period last time, according to ICS. This won’t hold as bills continue to increase and millions of people struggle to pay for their supply.

3. End the loyalty penalty

Long-term customers receive a penalty for being loyal. This is nothing new. New customers receive tantalising offers and existing customers pay more for goods and services. In fact, one in seven mobile, broadband and mortgage customers are still paying a loyalty penalty, according to Citizens Advice. Estimates from the advice service show that ending the loyalty penalty endured by customers will put more than double the £400 cost of living support from the Government back in people’s pockets.

To sum up

Double-digit inflation, soaring interest rates and spiralling living costs means consumers will be looking for brands like yours to step up in ways that align with their own sense of purpose, support them as individuals and help mitigate the impact of the biggest financial shock for a generation.

For financial organisations, customers will be seeking solutions help them better manage their money, and any debt. Critically they will be seeking proactive, empathetic support. Additional employee training could be needed to identify, and support, those customers who are experiencing financial difficulties.

For all sectors, responding to the customer’s personal situation and needs increases satisfaction. Customers in the ICS report who felt an organisation did this gave an average UKCSI score of 83.7 out of 100. This was much higher than when an organisation failed to do so. The score was just 53.9. Remember, high levels of satisfaction convert into increased loyalty. For those customers who felt an organisation was failing them on personalisation, these are the key areas they said needed improving:

  • Staff (be more friendly, helpful)
  • Staff knowledge
  • Contacting the right person
  • Faster responses / resolution

CX training is a vital investment here. One final step. End the loyalty penalty (if this applies to your business). Brands will need to be as proactive, agile and responsive as they were during Covid. Don’t just rely on improving the basics and adequate NPS scores to see you through. Only highly satisfied customers will remain truly loyal. Low prices will be a big factor as the cost of living crisis escalates. But there is more you can do. Your customer loyalty depends on it.

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