CustomerSat VP Monica David speaks out on
Measuring & Acting on Customer Loyalty
Q: What is the difference between satisfaction and
loyalty?
MD: Satisfaction is an attitude of tremendous
importance because it predicts and drives key customer behaviors,
among them repeat purchases and word-of-mouth advocacy.
The word “loyalty” is used in different ways.
It may refer to actual customer behavior, both historical
and present; or to customer attitudes about future purchases
(intentions); or to a composite of behavior and intentions.
Still others use the term to refer to intensity of feeling
or commitment towards brand, organization, or service provider.
To avoid misunderstandings that can arise from these different
usages, we rarely, if ever, ask customers in surveys to rate
their loyalty, as we do their satisfaction. Instead, we ask
them their likelihood of re-purchasing or expanding purchases
(intentions), their willingness to recommend, or some combination
thereof.
Q. Why is it important to track customer loyalty today?
MD: It is more critical than ever for companies
to focus on loyalty as well as satisfaction. Loyalty means
continued business, which typically drives much revenue. Replacing
lost customers is usually expensive. Keeping customers loyal,
relying on them to refer your business to their friends and
colleagues is smart, effective business. Loyalty measures
help you manage the process.
Q: What are the best measures of customer loyalty?
MD: Three behavioral measures of loyalty
– these are historical – are:
- How recently customer has made a purchase
- How frequently customer has made purchases
over a specified time interval
- Customer’s lifetime (or other
specified time interval) volume of purchases
Three attitudinal measures of loyalty – these measure
intentions – are:
- Likelihood of continuing to do business
or of re-purchasing
- Likelihood of expanding business or
purchases
- Willingness to recommend or serve
as a reference.
Exact wordings vary among B2B, B2C, and other industry segments.
In surveys, behavioral measures are captured as customer-descriptive
(uploaded) variables; attitudinal measures appear as survey
questions. We often use all three of the attitudinal measures
in relationship surveys, and one or more of the measures in
transactional surveys.
Q: Are there advantages of combining behavioral and
attitudinal measures?
MD: Absolutely. Attitudinal measures indicate
whether a customer is at-risk; behavioral measures indicate
how much may be at risk. Let’s say Customer A has made
ten $100K purchases over the last three years, with the most
recent purchase last week, and indicates a low likelihood
of continuing as a customer. Customer B has made no purchases
in the last three years and indicates the same low likelihood
of continuing as a customer. Customer A clearly represents
a much greater revenue risk than Customer B.
Q: Do loyalty measures indicate when and why customers
may be at-risk, and can the measures be used to reduce “churn?”
MD: Definitely. Attitudinal loyalty measures
not only reveal reasons for disloyalty but also let companies
identify and save at-risk customers and reduce “churn”,
critical to any company's bottom line.
Strategically, you can correlate key performance metrics,
such as specific aspects of product and service quality, with
attitudinal loyalty measures, such as likelihood of continuing
to do business, and create a highly actionable quadrant chart.
For each metric, the chart shows correlation with loyalty
(y coordinate), and mean score or other measure of performance
for that metric (x coordinate). Metrics that are highly correlated
with loyalty are probable drivers of loyalty. Loyalty drivers
for which your organization’s performance is low are
probable contributors to disloyalty and are key areas demanding
management attention and investment.
Tactically, you can use Action Management – alerts
and cases driven by survey responses – to drive fast
resolution of concerns that can lead to lost customers and
“churn.” To save valued customers who indicate
they are not likely to continue doing business with you, several
steps are needed. First, real-time alerts are needed to engage
the right individuals in your organization immediately. Second,
those individuals should review the customer’s entire
survey response for insights, including both rating scores
and verbatim comments. CustomerSat drill-down features make
it easy to do this. Third, if appropriate, a case should be
opened with a specified manager, case team, severity, and
deadline to reach closure with the customer. Systematic case
management ensures that concerns are addressed promptly; CustomerSat
Action Management opens and manages cases automatically. Even
if a formal case is not warranted, a follow-up call or other
actions, depending upon customer value, may be appropriate.
Incidentally, satisfaction measures play a key role in predicting
which customers may be at risk. Satisfaction is a leading
indicator; likelihood to continue doing business is often
a lagging indicator. Corporate procurement policies and consumer
habits may cause dissatisfied customers to keep making purchases
long after they would prefer to stop doing so. So don’t
wait to act until purchase intentions decline—by then
it may be too late. Monitor satisfaction trends as well.
The final step is to link the actual outcomes to customers’
stated intentions. For those customers indicating they would
expand the business relationship with your company, what percentage
did so? For those saying they would discontinue doing business,
how many left? If an aggressive action program is instituted
to stem customer churn, you should see churn decrease over
time.
In brief, asking the questions is the only the first step.
Using customer feedback to drive informed tactical and strategic
actions is where real results are achieved.
Q. Should a loyalty program consider a customer's
profitability?
MD: Yes. Loyalty and profitability are generally,
but not necessarily, aligned. A significant percentage of
long-standing customers may be unprofitable or marginally
profitable, and, conversely, a significant percentage of short-term
customers may be highly profitable. Different customer relationship
strategies are optimal for the four combinations: loyal and
profitable, loyal and unprofitable, not loyal and profitable,
and not loyal and unprofitable.
We’ll discuss these different loyalty and profitability
strategies in the webinar on December 10 at 1 pm PDT –
please join us then!
Register for the Measuring & Acting on Customer Loyalty
webinar.
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