The Customer Loyalty Flywheel

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‘What should we do to make our customers more loyal to our brand?’: this is probably one of the oldest questions that companies ask themselves, right? But it’s also the wrong one. They should turn that question around and ask themselves, ‘What can we do to show our loyalty to the customer?’.

Customer loyalty should not start with the customer. It’s quite the opposite: companies prove their loyalty to the customer and only then does the customer follow. I believe that if companies have the right philosophy and communication and take the right actions – like Wild Alaskan Company’s ‘The Captains Cut’, where they offer every last customer (not just the “loyal” ones) extra, free pieces of fish – then a customer loyalty flywheel effect develops.

The expected results are clear: achieve greater customer loyalty and ensure that your customers also become your ambassadors. This is a double win: loyalty helps companies to retain its customers and the existing customers themselves become the main acquisition channel for new customers.

In order to achieve this double win of customer loyalty and ambassadorship, I believe that companies need to take these 6 important steps:

  1. Step 1: Convenience – make life easy for customers
  2. Step 2: Manage expectations with transparent communication
  3. Step 3: Solve problems and swallow your own pain
  4. Step 4: Segment size = 1
  5. Step 5: Nurture positive emotion
  6. Step 6: Build a community of enthusiastic customers

Step 1: Convenience – make life easy for customers

Starbucks has a very popular mobile app, where customers save a lot of time by preordering and prepaying. Time is your customers’ most scarce resource. If you succeed in helping them save it, you will have already made an inroad into gaining their loyalty. This results is an interesting paradox: the company that saves most of your time is also the company that will get most of your time. Perhaps the most successful example of this is Amazon. Amazon saves the customer so much time that it is the reference against which other companies are judged.

‘Convenience is the new loyalty,’ was a saying during my presentations for years. If you want to achieve customer loyalty, create convenience for your customers. Why are we more loyal to Uber than to a regular taxi? Convenience, of course!

Step 2: Manage expectations with transparent communication

According to a study in the Journal of Services Marketing, higher customer loyalty occurs when service is accompanied by clear and transparent communication.[1] But so many companies set themselves up to fail.

Suppose a customer calls a website designer to inquire about building a new website. The customer finds the conversation useful and asks for a free, no obligation quotation. The customer is not in a hurry but wants to know how long it might take to receive the quote. This is the point where the designer can prepare for their own success or failure.

In situation A the designer promises to have the quotation ready within three days even though they know that because of supplier issues, they will not meet the promised delivery date. When they send the offer one day to late, on the 4th day, the customer is – unsurprisingly – disappointed. In situation B, the designers ask the customer if it is acceptable if they send the proposal by the end of next week. In 75% of cases, this will be fine for them. The designers, however, already know they will be able to forward the quote earlier. Four days later – three days before the promised date – they send the quote to a customer who’s super enthusiastic about their reliability and speed.

Step 3: Solve problems and swallow your own pain

Are you willing to hurt yourself in the short term to gain trust in the long term? There are moments in a customer relationship when you show your loyalty by doing something for free, or by solving a problem even if it costs you something. The Ritz Carlton hotel has its wonderful ‘$2,000 Rule’ where each employee has the authority to compensate and surprise customers up to an amount of USD 2,000. The value of each customer over the lifetime of the customer relationship leaves enough of a margin to make compensation of customers affordable. Ritz Carlton uses this philosophy because they know how much a loyal customer is worth to them.

The interesting thing about the Ritz Carlton system is that compensation payments are budgeted for and included in its forecasted overheads. Because each customer does not receive a compensation payment there is always a positive effect on the bottom line. This feels good. Other companies reflect compensation payments as an unexpected loss and that does not feel good. Rather than giving worthless trinkets to customers, you may want to set up a compensation and surprise budget at your company.

Step 4: Segment size = 1

Every customer is different. Every person is different. Everyone has their own needs and expectations that are more or less important. In other words, it is valuable to think of each individual customer as an individual segment.

Many data-driven companies incorporate the ‘segment of 1′ philosophy into their strategic planning. Players like Netflix, Spotify, Amazon and Meta want to give us the most personalised range of content and products possible. There are billions of Facebook users, but each user has an individual timeline. No two in the world are identical. The ‘segment of 1’ philosophy is starting to appear in more and more sectors. Think, for instance, of all the virtual personal trainer apps. Based on your profile, you get a personalised workout schedule. Sephora, a cosmetics and beauty products retailer, offers personalised beauty advice to its customers. This philosophy is also increasingly becoming a tried-and-tested concept in B2B markets. Atlas Copco, a global compressor manufacturer, can learn much more about how end users interact with their products thanks to data. ‘Segment of 1’ data will enable them to offer proactive and personalised service that can significantly increase user satisfaction and loyalty.

Step 5: Nurture positive emotion

You can do your job well but still fail to create a positive emotion in the customer. Lasting positive emotions are needed to activate the customer loyalty flywheel. A favourite book on the topic of customer experience is Dan and Chip Heat’s book, The Power of Moments. They explain that every step in a customer relationship does not have to be an unforgettable and perfect moment. They use the example of a visit to Disneyworld.

If you were to dissect the entire day of a visit to Disney World and determine a satisfaction score for various parts of the day, the overall satisfaction score might be low. Imagine a typical day in Disney World. You get up and rush to the park very early to be at the gates to the Magic Kingdom when they open. But when you arrive, you find hundreds of people at the entrance. It seems some people have woken up even earlier than you have!

You finally enter and stroll down Main Street USA. There is a pleasant feeling in the air. You decide to take in some attractions and brave yet more long queues to enjoy rides that last only a few minutes. But then it is time for Splash Mountain, a highlight of the day. After which you buy an expensive lunch of irritatingly average quality food. Then you hit the queues again to experience more attractions. Finally comes the undisputed highlight of a day at Disney: an impressive fireworks display accompanied by beautiful soundtracks from many Disney classic films. If you were to grade your visit from 1-10 for each attraction or experience in terms of satisfaction, the average score might be 6.5/10.

However, the reality is that Disneyworld’s satisfaction scores are a lot higher. Most people rate their visits to Disney World as fantastic, awarding scores of 9/10 or higher. That’s because overall satisfaction reflects ‘the power of moments’. You do not need to have a top score for every interaction to elicit an overall positive emotion. A good ‘highlight’ and a good transition (end of interaction) are important.  Your emotional response to Splash Mountain (highlight) and the fireworks at the end of the day (highlight and transition) provided that positive emotion. In other words, to create positive emotion, customers do not have to score your company excellent on everything, but you must choose your moments well.

Step 6: Build a community of enthusiastic customers

Companies that manage to build a community of enthusiastic customers have the strongest possible customer loyalty. Supporters of football teams (who are in fact customers) have extremely high levels of loyalty to their team (the company/brand). Supporters even speak about their team in the ‘we’ form. ‘We’ are playing Champions League against Benfica this week. ‘We’ have recruited a new player. Certain fantasy figures or worlds also have very large fan communities. Think, for example, of Star Wars or Harry Potter fans. Years after the last Harry Potter book and film was released, anything linked to the young wizard is still a huge success. Both online and physically, these fans are up in arms almost daily to defend their favourite heroes. When a new product or event associated with their team or hero arrives, these fans are the biggest ambassadors to support its promotion.

When brands manage to build a community amongst their customers, there is a positive effect on loyalty. According to McKinsey, there is also a direct effect on financial results. Brands with a strong community can charge higher prices, have less need for promotions and have lower advertising costs.[2]

One of my favorite brand community examples, comes from market research company Human8 (formerly InSites Consulting) and the collaboration they foster between customers and their R&D department. Customers have the chance to participate in projects where new, innovative, market research techniques are developed. This way, the customer has participated in a financially beneficial research project, and they learn about the latest developments in the field from a front row seat. If the project is a success, the result may be a joint presentation at an industry event. The ultimate effect is that customers learn from customers. Working with a company that develops new knowledge independently of commercial projects is very valuable. Working with a company that connects clients facing the same challenges, enriches your career. Thus, working with them more becomes valuable and loyalty increases.

Sincere customer loyalty – from the company to the customer – is a fundamental prerequisite for being a shining diamond, what I call companies that have fantastic customer cultures (check my new book A Diamond in the Roughon the subject, in which I explain the customer loyalty flywheel and much more). They know that customer loyalty results from investing in the various elements of the customer loyalty flywheel. And they believe that nurturing good customer relations will eventually be reflected in its financial returns.

[1] https://www.researchgate.net/publication/228673481_Service_Personalization_and_Loyalty

[2] https://www.mckinsey.com/capabilities/growth-marketing-and-sales/our-insights/a-better-way-to-build-a-brand-the-community-flywheel

Republished with author's permission from original post.

Steven Van Belleghem
Steven Van Belleghem is inspirator at B-Conversational. He is an inspirator, a coach and gives strategic advice to help companies better understand the world of conversations, social media and digital marketing. In 2010, he published his first book The Conversation Manager, which became a management literature bestseller and was awarded with the Marketing Literature Prize. In 2012, The Conversation Company was published. Steven is also part time Marketing Professor at the Vlerick Management School. He is a former managing partner of the innovative research agency InSites Consulting.

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