3 loyalty “fixes” we hate

When management teams are looking at the loyalty of their customers, oftentimes it can seem overwhelming.  They know that they need to grow and improve their loyal customer base because, as we’ve seen, loyal customers drive an average of 65% of a company’s profits and enterprise value.

However, in an effort to strengthen relationships with customers, we see companies suffering from the effects of cutting corners.  Many times, companies react based on feelings or feedback from customer service without taking the time to understand what the landscape truly looks like.  Rather than taking the time to analyze customer loyalty and the triggers driving it, then working on strengthening it, teams try to find ways to “fix” it quickly.  Trying to “fix” customer loyalty can often result in costly consequences.

The top 3 worst “fixes” that we’ve seen are:

1.  Trying to be everything to everyone. This fix tends to happen over a long period of time, and especially to organizations without a clear understanding of which types of customers are “good fits” for their business model.

Companies sometimes invest in modifying products and services to appeal to each individual customer in their market.  They think they’re catching on to the personalization trend and/or showing how much each customer is valued.  But it always leads to their business model being stretched too thin.  With no emphasis, they excel at nothing.

The amount of staff required to provide extra services, the space to keep excess inventory, and the confusion in your catalog as more SKUs are added all become a loss when only a few customers appreciate all of the extra “stuff.”  Meanwhile, your other customers see a decline in the few products or services they initially valued.

2.  Bending over backwards for a vocal minority. This is a common practice, and entirely understandable.  You’re trying to grow, and in order to do that, you know that you need to make your customers happy.  Listening to feedback and trying to understand customer pain points is critical in this process.  But some executives go overboard.

I recently read an article by a CMO of an online fashion retailer with a negative public image.   Upon accepting the position, he looked to the research department to truly understand what the state of the customer base was.  Just how bad were shopper perceptions?

As it turns out, their customers were fairly loyal, with only 2%considered detractors according to their NPS data.  His first act, upon receiving this information, was to implement a series of service changes to address the complaints of this self-described “vocal minority.”

Seriously?

There are always going to be customers that are unhappy, no matter what you do.  A reactive approach without data to understand the core of this unhappiness is costly and often ill-advised.

One of our favorite related client stories you might have seen floating around our website is of a grocery retailer.  They were doing well in their market and customers seemed happy, but regular complaints about grocery carts cluttering the parking lot were becoming a problem.

In our research process, we made sure to ask about the grocery cart situation.  It turns out, it wasn’t a driver of customer behavior.  Customers weren’t willing to pay a small price increase to hire more staff to take care of the carts.  They also weren’t interested in shopping at a competitor even if the grocery carts stayed in the parking lot.

Doing the research and understanding if an issue is a significant barrier to increase profits gave this retailer a chance to focus on what truly mattered to their customers.

3.  Lowering prices. This is the #1 biggest loyalty faux-pas that we hate to see.  It often results as a direct result of a reactive environment (like in #2) and is incredibly difficult to bounce back from.  We have never heard a client say that they want to be the lowest-priced option.

And yet, when enough customers complain about pricing or ask for discounts, companies often cave, thinking that it will help customer loyalty and make them more likely to purchase from them.  It seems to work!  Customers respond well to discounts, which is why loyalty and rewards programs that offer free products and coupons tend to bring customers through the door.

But when customers begin thinking of you as a transaction to be made to get their free item, the less likely they are to be truly loyal to your brand.  These discounts undermine the value that you offer, and give them less of a reason to understand your company’s unique benefits to them.  The minute you raise prices, these customers will be right back where they started – not purchasing from you.

There are many more ways that companies can hurt themselves by attempting to strengthen the relationships that they have with their customers.  Some of these paths require a long recovery.  We find that the best avenues to improve your loyalty profile are through clarifying your communications, improving performance on key metrics, or re-evaluating your business model.  Think of it as messaging, execution, and design.

Whichever path you choose to improve your customer relationships, it is vital to conduct research to understand the areas that matter most to your customers.  Only then will you have the knowledge you need to move forward successfully.