Building Customer Loyalty

Years of Gallup Organization polls say consumers believe service quality in the U.S. has fallen and will continue to fall. Brand loyalty has been declining for years. The biggest gripes of customers are failure to do work correctly, slowness, high cost and employees who are unqualified, indifferent or even rude.

Some typical examples of poor service:

1. Government agencies that emphasize paperwork rather than personal service. And many federal offices have almost incomprehensible voice mail systems.

2. Hospitals whose first concern seems to be patients' finances rather than healing.

3. Car dealers who are only open for sales and service when their customer have 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 on customer service - defined by the organization. But the emphasis should be on customer satisfaction - defined by the customer. To build customer loyalty, you must focus on customer satisfaction.

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

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

Hotel people said coffee should be of highest quality and well brewed, served in polished urns with attractive china on a well-arranged table. What did their customers want? None of the above. They wanted fast service - no long lines. And they wanted phones and restrooms nearby. Not a single item hotel people considered important for good service was valued by their customers!

Is customer service worth the trouble

A loyal customer spends about $150,000 over a lifetime with a car dealer. Does it make sense to argue over a $100 part? American Express research says a loyal customer spends about $180,000 over 10 years - employees make extraordinary efforts to keep them happy. Service is so good that U.S. citizens in trouble overseas are far more likely to call American Express than the U.S. Embassy.

Poor service causes 42% of customers to switch banks. Only 14% of car owners switch dealers because of the cars - 68% switch because of “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.

- Nordstrom’s chain of fashion specialty stores saw sales skyrocket 700% in 10 years while profits soared nearly as fast.

- Embassy Suites beats competition almost every way and is growing 10 times faster than the hotel industry. It has been rated first by Consumer Reports readers against both mid-priced and high-priced chains.

- Scandinavian Airlines saw its bottom line change from an $8 million loss to $72 million in profits 18 months later, following a $30 million investment to change its business approach and focus on service for the business traveler.

How do dissatisfied customers behave?

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

- 54-70% of complainers remain loyal to organizations when complaints are well handled; 95% will do business again if 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 seeking new customers.

Creating a service organization

Building customer loyalty means creating a customer-centered management and staff. Service leaders typically do the following:

2. Research. Excellent customer service professionals know that you begin with open-ended questions, focus groups and other non-directive methods to find out 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, then turn them into a customer questionnaire. This approach gives you data for developing a service strategy that supports the 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 concentrate on storeowners, 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 shaped by research. Frequent focus groups and two-hour follow-up interviews are used to develop 4-page customer satisfaction surveys which 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 most quality improvement and worker empowerment programs fail because top managers continue their autocratic methods.

4. Educate the organization. An absolute truth for creating customer satisfaction is that you first must achieve employee satisfaction. To develop a customer-service culture, 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 one week, according to communication research. Education is a continuous process, which includes on–going formal training and on-the-job reinforcement. Managers and supervisors must be trained to be mentors and coaches so they help employees rather than give orders.

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

The right kind of training is essential

Contrast that with training done by America's service leaders. A survey by Citicorp 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:

a) Vertical cross training where employees learn jobs above and below their own level. Delta and Singapore Airlines require flight attendants to learn to handle reservations and trace lost luggage before they can fly.

b) Horizontal cross training, in which employees learn most of the other jobs at their level. Hotels and food chains pay hourly workers extra to learn most of the hourly jobs.

Why cross training? It allows job switching and creates better understanding of how organizations operate, helps employees more easily solve customer problems and increases employee self esteem. Everyone has done the work of sales clerk at Nordstrom; at McDonalds everyone has flipped burgers; everyone can inspect a room for cleanliness at Embassy Suites; Avis vice presidents work at the front desk serving customers; and every officer has fielded customer complaints at Xerox.

Is it worth all this effort? Research suggests customers remain loyal to good service organizations even when things go wrong. Customers tend to be sympathetic when they feel a front-line employee cares about them, understands their needs and does his/her best to fix things.