Fighting Churn and Building Loyalty [Part 4]
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| The Oath of Horatii by Jaques-Louis Davis. Louvre, France |
In this part of the series "Fighting Churn and Building Loyalty", I will be talking about the loyalty concept. It will be a bit longer than the other previous parts, because I personally feel that the area of customer loyalty is one of great importance and also of great complexity.
The most important question to ask when working in the business world: " is my customer base healthy?"
A healthy customer base is a very broad definition. Depending on the industry, and the different market benchmarks that can be made, each company could have a slightly different view on the health of its customer base.
However, the most sought after KPI to measure the health of any customer base is 'Repeat Business'. This KPI indicates the percentage of your revenue that was generated by repeated customers. One would define a repeated customer as a customer that did more than one transaction over a fixed period of time, usually a year.
In an e-commerce company, a monthly repeat customer is a customer that bought at least twice during the past 30 days ( one transaction every month at least).
For an insurance company, a repeat customer is a customer that renewed their insurance policy after its expiration ( one transaction every year).
In the hospitality industry, a repeat customer is a customer that stayed at one of a chain's hotels at least twice during the past 24 months ( one stay every 12 months).
These definitions may vary according to the specific nature of the market and the product. For instance, for a social network site, a repeat customer is defined based on this customers activity during 24 hour period ( one login every day).
Let's get back to the customer base health. Why does it matter?
Generally, every company offers products and services that customers might be interested in more than once in their lifetime.
If this potential interest exists, it makes sense to talk about the concept of selling to the same customer more than once.
As we have seen in the previous posts about churn, not having a good service or product will drive your customers and potential customers ( prospects) away. Measuring this phenomena using the churn rate is a standard practice.
Depending on the industry, the country and market situation, churn rates might be interpreted differently.
Let's look at the churn rate:
Churn Rate is always calculated based on a reference period. We can calculate the monthly or yearly churn rate, with respective periods of 30 days or 12 months ( these are the most common periods used to compare churn rates, however in some industries these periods might change to suit the specific nature of the market and the product sale cycle).
Churn is an indicator of the impact of various marketing, pricing and customer care strategies deployed in the company on the health of the major source of income: Customers.
How can a company fight back?
Some economists and industry experts say that the most important aspect in this type of relationship is to always build a good product or service. However, this approach is not always enough to keep customers coming back to buy again or buy more.
Loyalty is a very deep subject and research into it has been very developed across various disciplines ( from economic point of view, to marketing and sales...)
According to Wikipedia, loyalty (or brand loyalty) is a positive attitude and dedication of a customer towards a brand or a company. (see the in-depth definition here) .
This loyalty translates into a special relationship, maintained by the customer towards the company and its products. This means that the customer has a special preference to buy and use that particular company's offerings.
And with the evolution of the Customer Relationship Management paradigm, this relationship can evolve to consider the customer that promotes the company and its products as an ambassador, or a promoter.
Ways for companies to build customer loyalty
There are multiple ways a company can build and develop its customers loyalty. It all comes to having a product that people want. And most importantly is inside culture of this company.
Being customer oriented is a way of life. Companies that focus of customer feedback and expectations, find it easier to build a deeper loyalty relationships than companies the main focus of which is profit margins.
Below are few macro steps that can be adapted to various industries and use cases:
Knowing the customer (needs & expectations)
This subject is of huge importance for many reasons. Most companies have this obsession in regards to performance, sales, profit and costs.
This is changing nowadays, however it is known that the most important KPIs an executive board looks to are metrics related to sales and profits.
This approach is not the best approach, especially if the company is operating in the B2C space, and I will explain why that is.
Currently, most 'profitable' business ideas and markets are saturated. Look at the scooter sharing companies that boomed in a very short period of time, with different offers, different pricing strategies and various marketing approaches. Also, the Pizza business : there are hundreds of pizza brands, each with fans and haters. The whole market is already distributed between the existing companies. It would be so hard for a new pizza place to gain market share without bringing a new idea and concept to the table.
However, if a new pizza place creates an innovative pizza, with special toppings and multiple choices for the ways the pizza is shaped and cooked, this idea with gain a lot of attention from people. This is the only way to penetrate an existing and established market.
The trick here is proposing a new product that fits the customers need and expectations, or created new needs and fills the "imaginary" gap.
By knowing, analyzing and focusing on the customer's needs and expectations, and also by working on fixing existing well-known pains, it would be very possible to grow a business and keep people from going to the competition.
Reward loyalty
However, companies now do the exact opposite thing they should do, companies are driving customers away!
Loyalty is a give and take relationship. Customers give companies their attention, time and most importantly, their money. And companies are required to provide in return a decent product or service, in maximum quality and minimum cost.
If in this chain of relationships, the company fails to deliver in a particulate area, like customer care, of sales, or after-sale services, it will cost the company many customers, and if the situation continues with no enhancements, it may force the company to close its doors due to very low revenue .
In the other hand, when a company delivers, with a good product quality, a relatively low price compared to the market average cost and if a customer complains, it works out a fast satisfactory solution, this will keep customers happy, satisfied and wanting more.
And by saying customers wanting more, I wanted to conclude to the fact that "a good selling product, will be sold more and more until it stops being as good, or a better other product comes to replace it".
So when a company does a good job and provides all the mentioned above, it will make them more products sold and more money overall.
In order to reward customer's loyalty and keep them coping back to receive better rewards, each company depending on the market characteristics should reward customers coming back to buy more.
There are multiple ways a company can reward its customers : by giving them a discount on the next purchase, by giving them points for each product bought to cumulate more points and gain a free item or a coupon, also by splitting customers into loyalty tiers, where when you are in a higher tier it means that this customer has spent a lot of money and therefore is eligible for better discounts, advantages and private sales or premium products.
I might work on a comprehensive analysis of loyalty program business models and see which model fits which industry better.
Encourage feedback and act on it
Receiving feedback is important, not all companies welcome negative feedback with open arms and are always so defensive.
And it is not easy for a company to make people give feedback, it is usually a point of when the customer is either very happy or very upset about the service. So I am currently impressed by companies like "Wish" online shop, that reward customers who give feedback on products by awarding them points that can be redeemed for a discount coupon later.
So encouraging and welcoming feedback is important. I believe in the culture that imposes on all level company employees to do some working time in the customer care center each month. It is important for all levels of the company to get in touch with existing customer low points and understand what made that customer come back to buy more and work on that point and enhance it.
Customer care departments should be the core center of customer related decisions and changes. From price changes, to packaging or branding updates, to the feel and look of the product to also technical details of how the product is built, with which materials and in which method.
Customer feedback is also encouraged by building a what is called a "co-creation" program, where very loyal and frequent customers participate in sessions and workshops, and also by answering special surveys and interviews, that aim to get their opinion on existing or possible future products that are being built and designed now. The co-creation program can also be the source of innovative new products that customers thought of.
The ultimate goal of a company is to make a solid feedback loop between its customers and its product builders and the decision makers.
Finally, customer loyalty depends on the dedication of a company to its customers, and how well it is committed to delivering a better product or service all the time.
