It’s never been easier for customers to leave – It’s never been more important to keep them

It’s time to get real about loyalty.

Is yours an emotional organisation? The answer is yes, whether you like it or not. What do you measure and manage in your business? Sales, costs, production, supplies, value-add. There is, of course, no other way to know how you are doing. But how about measuring love? Respect? Empathy? Those are tough things to get a handle on, but if you are interested in keeping customers, they are more important than the other stuff, much of the time.

Human Sigma

You may have read the Gallup report on Human Sigma in which Fleming, Coffman and Harter actually tracked the purchases, profitability and loyalty of emotionally satisfied customers versus those who say they deal with you for more pragmatic reasons. The conclusion seemed obvious at first – customers who are emotionally satisfied with your brand spend more and stay with you longer than those who are just rationally satisfied. But then came the real surprise: customers who are only rationally satisfied spend little more and stick around no longer than customers who don’t even like you. In short: unless you generate emotional satisfaction in your customers, most of them will behave just like dissatisfied customers and you will lose a fantastic opportunity to transform spend, loyalty and advocacy.

How Vodafone looks at loyalty

So can you get emotional when you are a big brand with millions of customers? Vodafone thinks so, and they’ve been generous enough to share some of their insights with us.

Customer churn, the business-breaker

According to Dr Stefan Schwarz, Vodafone’s expert on loyalty and customer relationships, churn is a corporation-killer. Let’s imagine you are a multi-national phone company with 170 million customers. Will they churn? Do teenagers send text messages? Now that most advanced markets are at saturation (some places have more SIMs than people), the fight for other people’s customers is intense and disloyalty is of course, inevitable. It’s also highly dangerous. At a 25% annual churn rate, that 170 million customer base is down to 9 million in 10 years and you are out of business. Cut the churn to 20% and your remaining customer base is almost twice as big. Cut it to 10% and you retain six times as many customers, a difference of 50 million people - the size of Vodafone’s UK operation. So why do people leave? Yes, of course, they are tempted away by the opposition, but it’s seldom in response to an offer they genuinely can’t refuse. Incentives to switch aren’t all that exciting. According to Dr Schwarz, most people leave for emotional reasons. They don’t feel sufficiently valued. They don’t see much difference between your attitude to them and the opposition’s. They don’t feel as if you know them well enough. In short, you haven’t managed to build an emotional bond between your customers and your brand so they are open to offers.

The Pepsi emotion test

Watch the commercials and you will know that Pepsi usually wins blind taste tests against Coke. However, when the test isn’t blind and you show the logos, Coke wins because the brand has an emotional bond with more people. People connect with Coke. Vodafone are the first to admit that this hasn’t yet been achieved (by anyone) in the mobile phone business. In fact it’s a mountain still to be climbed by most companies in most industries

Building an emotional bond

So how do you generate emotional loyalty? Well, you have to start pragmatic, climbing a ladder of logical argument before reaching an emotional level. • First, the customer has to know you are there • Next, you must be relevant to her needs • Then, you must have some kind of rational advantage over the competition • And finally, you reach the level where a customer thinks ‘This is my product. This is the one I want to use’. At this level (let’s call it ‘bonded to the brand’) churn reduces significantly. As you would expect, Vodafone is working hard to design programmes that achieve this kind of loyalty and Dr Schwarz has defined six principles on which all customer relationships work is based.

How Vodafone designs-in loyalty

A positive start Every new customer relationship must have a good start. If you mess up or give poor service, you will have a hard time recovering and may never achieve any kind of loyalty. Work hard to make the first few weeks and encounters feel particularly good.

Dialogue When communicating with your customers, don’t just tell or sell them things. Ask questions, invite input, ask for opinions, use two-way communication. Even a standard one-way communication (like a bill) can be turned into a dialogue if you think hard enough about it.

Relevant communication Don’t spam. Some say frequency is the difference between spam and good communication. Dr Schwarz says it’s relevance. You can almost be as frequent as you like if you’re relevant to the customer’s needs or interests. Think back a few weeks – if you didn’t manage to find a spot in front of the TV, would you have welcomed text messages giving World Cup scores at pretty frequent intervals?

Recognition and special treatment We all want to feel special and it’s possible, even when we are one of 170 million. One way Vodafone does it is to deal with emergencies well. If someone loses a phone for example, they have developed a response that’s generous and unexpected. If a customer has difficulties using a new phone, they make sure call centre agents are extra helpful and build empathy with the caller. And then there are birthday cards! It sounds old-hat, but the fact is customers who get birthday cards churn less. An interesting Vodafone development is ‘random acts of kindness’ – unexpected thank you gifts, surprise free minutes vouchers. These are very powerful loyalty builders.

Trust A given. Promises must be kept, behaviour must be honourable and terms must be fair. Without trust, everything else on the list is useless.

Shared values In human relationships, shared values are key. Having lots in common makes a longer, stronger friendship or marriage, as does fun and spontaneity. So how do you achieve this for 170 million people, all of whom are different? Well, you can use what you know of your customers (age, sex, usage patterns, location and possibly soccer team supported) and make sure they speak to similar people when calling. You could also arm call centre agents with notes about their interests so that what could have been just a call becomes a real conversation.

Everything above is common sense. Very little of it is common practice. And it’s no excuse to say “But we’re Business to Business, it’s not the same for us”. The fact is, emotional loyalty is the only kind of loyalty and it’s down to all of us to seek it and create it. Sure, you may have your customers tied up in contracts or loaded with points and frequent flyer miles, but that’s not real loyalty. Unless some of your customers would admit to an emotional bond with your brand, and all of them have a great experience every time they interact with you, you are at risk from the first halfway decent competitive offer that comes along.

This article appeared in a recent issue (Issue 22) of Strategy 4 Business, Fujitsu Services’ quarterly customer magazine. For further insights from the UK and Europe, please visit www.fujitsu.co.uk/strategy4business