Building Customer Loyalty

Years of Gallup Organization polling say consumers believe the quality of service in the US has declined and will continue to decline. Brand loyalty has been declining for years. The biggest customer complaints are lack of correct work, slowness, high costs, and unqualified, indifferent, or even rude employees.

Some typical examples of poor service:

1. Government agencies that emphasize paperwork over personal service. And many federal offices have nearly incomprehensible voice mail systems.
2. Hospitals whose first concern seems to be the economy of the patients more than the cure.
3. Car dealerships that are only open for sales and service when their customer has to be at work.

The goal of organizations should be to provide value to the customer. But in most organizations, rules and policies are more important than customer needs.

Many managers take the wrong approach to building customer loyalty. They work in customer service – defined by the organization. But the emphasis must be on customer satisfaction, defined by the customer. To build customer loyalty, you need to focus on customer satisfaction.

The only way to know what your customers want is to ask them. Both qualitative and quantitative research are useful. Build a customer satisfaction model. Ask managers and employees what customers want, and then determine which employee behaviors will deliver. The next step is to ask customers to review the model and make changes.

Often the internal model is not what customers want. A history of the hotel industry illustrates this. A seminar group was asked to create a model of the service they wanted during the coffee break. Next, their trainer asked hotel management and service employees what was important in setting up coffee service.

The people at the hotel said that the coffee should be of the highest quality and well prepared, served in attractive porcelain polished urns on a well laid table. What did your customers want? None of the above. They wanted fast service, without long lines. And they wanted phones and restaurants nearby. The clients did not value a single element that the people of the hotel considered important for a good service!

Is customer service worth it? A loyal customer spends about $150,000 over their lifetime with a car dealer. Does it make sense to argue over a $100 share? American Express research says a loyal customer spends around $180,000 over 10 years – employees go to extraordinary lengths to keep them happy. The service is so good that US citizens with problems abroad are much more likely to call American Express than the US Embassy.

Bad service makes 42% of customers change banks. Only 14% of car owners switch dealers because of cars; 68% change due to “indifference” from sales and service employees.

Good service creates legends and profit leadership.

• Federal Express spawned an industry by providing a new customer service: reliable overnight delivery.
• Sales at Nordstrom’s fashion specialty store chain soared 700% in 10 years, while profits rose almost as quickly.
• Embassy Suites outperforms the competition in almost every way and is growing 10 times faster than the hotel industry. It has been rated first by Consumer Reports readers against mid- and high-priced chains.
• Scandinavian Airlines saw its bottom line change from an $8 million loss to $72 million in profit 18 months later, following a $30 million investment to change its commercial focus and focus on service for the business traveler.

How do dissatisfied customers behave? Managers still tend to think that their customers are satisfied because they receive few complaints. Classic research conducted during the Carter Administration revealed that 96% of dissatisfied customers do not complain. Smart managers use this research. They know that for every complaint, there are 25 other customers with the same problem. If the problem isn’t resolved, they know that people with problems will tell 10 or 20 people.

Smart managers encourage people to complain to the company and make it easy for them to do so because:

• Complainers are more likely than non-complainers to buy from the organization again, even if their issues are not resolved.
• 54-70% of complainants remain loyal to organizations when complaints are handled well; 95% will do business again if the problem is resolved quickly.
• Complainers whose problems are resolved tell five others about the good service they received.

The cost of getting a new customer is 3-5 times the cost of keeping an existing one. Yet most organizations spend 80-90% of their marketing budgets on finding new customers.

Create a service organization Fostering customer loyalty means creating customer-centric management and staff. Servant leaders typically do the following:

1. Research. Great customer service professionals know that you start with open-ended questions, focus groups, and other non-directive methods to discover what customers really value and want from the organization. Common research mistakes include asking the wrong questions. One failure mode is to ask staff to brainstorm a list of service attributes and then turn them into a customer questionnaire. This approach gives you data to develop a service strategy that supports your existing approach.
2. Develop a service strategy. Create a simple long-term strategy focused on customer needs based on your research. It is difficult to provide excellent service to more than one market segment. Liz Claiborne and Frito-Lay focus on store owners, not consumers; Scandinavian Airlines and Embassy Suites target business travelers. Shelby Williams Industries sells chairs only to hotels and restaurants. (It owns the largest share, 20%, of a tough commodity market.) Every aspect of American Express service is determined by research. Frequent focus groups and two-hour follow-up interviews are used to develop 4-page customer satisfaction surveys that are sent to 12,000 customers annually.
3. Encourage two-way communication. It is an essential foundation for building employee and customer satisfaction. Managers and executives must model the behavior they expect from others. They need to learn to ask questions and listen well. Recent research has shown that most quality improvement and worker empowerment programs fail because top managers continue their autocratic methods.
4. Educate the organization. An absolute truth to achieving customer satisfaction is that you must first achieve employee satisfaction. To develop a culture of customer service, front-line employees must be allowed and encouraged to make decisions. That’s where the service action is! Education is more than a training seminar. People forget 90% of what they hear in a week, according to communication research. Education is an ongoing process, including ongoing formal training and on-the-job reinforcement. Managers and supervisors must be trained to be mentors and coaches, helping employees rather than giving orders.

Typical service training at most corporations involves an expense of $1,000 per site. There is little on-the-job training, no follow-up training, and few programs to motivate employee behavior, such as bonuses. Only frontline employees are trained (sometimes only those in customer service departments). There is usually no training for managers and supervisors.

The right kind of training is essential Contrast that with training conducted by America’s servant leaders. A Citicorp survey of 17 companies known for excellent service showed that service training costs for front-line employees, managers and executives averaged 1-2% of sales. Typical training programs share two key concepts:

• Vertical cross training where employees learn jobs above and below their own level. Delta and Singapore Airlines require flight attendants to learn how to manage reservations and track lost luggage before they can fly.
• Horizontal cross-training, in which employees learn most other jobs at their level. Hotels and food chains pay hourly workers extra to learn most hourly jobs.

Why cross training? It enables job switching and creates a better understanding of how organizations operate, helps employees more easily solve customer problems, and increases employee self-esteem. Everyone has done the sales clerk job at Nordstrom; at McDonalds everyone has flipped hamburgers; everyone can inspect the cleanliness of a room at Embassy Suites; Vice Presidents work at the front desk serving customers; and all officials have filed customer complaints at Xerox.

Is it worth all this effort? Research suggests that customers remain loyal to good service organizations, even when things go wrong. Customers tend to be supportive when they feel like a frontline employee cares about them, understands their needs, and goes out of their way to make things right.