The start of a new year is a natural reflection point for leaders who open to new paths to grow their businesses. Seeking out deeper insights into your customers always makes logical and, indeed, good business sense. As you do so, it’s important to have a comprehensive view on the extent to which you can rely on your data and performance metrics. Read More…
Our recent newsletter on “British Airways; how cost cutting increases costs” did something very unusual; it went viral.
At the time of writing, it has been read by over 301,000 people and attracted more than 1850 comments, 99.9% of which supported the newsletter’s themes. Thank you to all the readers who commented. The experience has been fascinating, and in several cases deeply moving, as people shared their hopes and frustrations. It shows how a company is run can have a deep and emotional impact on customers and employees alike.
About 10 clear themes emerged from the comments with one overarching theme: the article covered issues that applied to many airlines, companies and industries, and not just to British Airways.
To acknowledge those who took time to read and comment, we will follow up on repeating themes that emerged from the commentary. Looking broadly, and not just BA as a specific example, we may find learnings for us all to take away.
Let’s look at two major themes that were laced throughout the comments (we will save the rest for later editions):
- The connection between the customer experience and loyalty
- Reasons loyal customers defect
The customer experience equation
We know instinctively that there is a link between customer experience and customer loyalty. However, too often the focus is on engaging loyalty through the leverage of widgets, bells, whistles and ‘incentives’. It pays, though, to consider where loyalty arises within the customer’s psyche.
Buying any product or service entails a mixture of rational thinking and emotions. The questions we implicitly ask ourselves are: “Does this product or service fit my needs and meet my expectations?” and “Will I get value for the money I spend?”
Remember that ultimately, ‘value’ is always defined by the customer and not by the supplier. As Peter Drücker elegantly put it: “Quality in the service or product is not what you put into it, it is what the customer gets out of it.”
Value can be expressed as an equation as seen here.
The first purchase is mainly determined by product and price, but research shows that repeat purchase decisions are largely based on perceptions of service quality.
Value in the eyes of the customer depends on their assessment of the quality of products and the quality of sales and service. The combined judgment of those two factors is internally offset against the price and the effort (personal cost) involved in buying or using the product or service.
This equation plays out in daily life; if the price or the hassle increases, the customer thinks the overall value has decreased. See our video on this concept HERE.
Vast amounts of information on products and services is freely available today. Consequently, new products rapidly lose differentiation to copycats and become commodities. Six months after the launch of your super, new whizzy product, a competitor has launched one with similar features and you are left to compete on quality of sales and service, or price.
Using price to compete is a riskier strategy than competing on service. Many of those who commented on the BA article pointed out that price competition is a race to the bottom, only successful for those with deep pockets and other genuine differentiators.
Either way, price competitors’ customers always must make trade-offs to realise a low price. At IKEA, the trade-off is the lack of customer service and pre-built items. Lidl and Aldi offer a narrow product range and basic shop shelf experience. Low cost airlines fly to remote airports.
Whilst all goes well with the basic experience as it is sold, the trade-off may remain acceptable. However, it doesn’t take much to tip the balance; whilst the initial glow of a bargain may secure a first purchase, any consequential ‘hassle factor’ may suddenly shine the light on reasons why they should NOT purchase again.
As a vendor, how do you compete on sales and service? By providing an outstanding customer experience, which, once created, is much harder than price or product features for your competitors to copy.
The goal of all suppliers in all industries today should be to make buying and using products and services easy for their customers. Many of us are information-rich, and time poor. We want suppliers to eliminate hassle and to make our lives easier. If you manage a business, make a differentiated, customer-valuable experience consistently part of your offering and your customers will stay loyal.
In every interaction with customers you try to be different and better. This applies even when selling online. Jeff Bezos states that Amazon’s business goal is not to make huge profits but to provide the best customer experience in the world. Profits are a by-product of doing that. His shareholders are delighted; they get better results from a customer driven strategy than they would from a financially driven one.
The good news is that, even if you do have to compete on price, you don’t have to make your customer relationship improvements complicated. Understand what the key expectations of your customer really are, and focus on meeting and exceeding them. It often ends up being far simpler than you might imagine.
Why do loyal customers defect?
Keeping the Value Equation in mind, it is not surprising that research by the Forum Corporation has shown that when customers switch suppliers, about 70% of the time the defection was due to poor service quality.
In the case of BA, it was clear from the comments to our article that many people had already voted with their feet. Many comments were from customers still emotionally wedded to the original BA brand behaviours of customer service, so much so that they took the time to send in complaints and/or contribute feedback through forums.
Loyal customers have entered into a deeper relationship with their vendor, one that can be very forgiving on one hand and at the same time vitriolic upon exit if they sense that their loyalty has been misplaced with an unspoken emotional contract (full of values-based expectations) violated.
Broadly speaking, customers who complain tend to fall into two, not mutually exclusive, groups:
- Those who need something fixed and may request reparation or compensation
- Those who want the supplier to change behaviour.
The first kind can often be turned into your greatest advocates if handled correctly. Ironically, some past studies have suggested that up to 70% of complaints handled well can result in greater loyalty than if the complainant had never had an issue in the first place. Turning complainants into advocates entails truly listening, meeting their requests even if suspect, and offering sincere apologies.
The second kind are already your most valuable customers – the ones who are prepared to carve time out of their precious day to give you feedback because they want you to get better. If they didn’t care about your journey, they would simply leave and find someone else to service their needs. Listening to them, and acting on what they say really matters. Engaging them rather than ‘managing them’ creates a further bond that will not only help you focus on fixing things that are most important to the people who feed your revenue line, it engages them in your journey and emotionally attaches them to your success.
Of course, this doesn’t make the process of hearing complaints any more pleasant. Both groups almost always vent their frustrations in their complaint, and in some cases, they may not even be a customer that you would prefer to target going forward.
However, ignore them at your peril! Remember that complainers do more than vent; they tell their friends and neighbours about their terrible experience. And, behind every complainer lies an army of people suffering the same hassles and frustrations who don’t complain to the vendor but will willingly take their business elsewhere.
Are you willing to take that risk?
Next time…we will cover the concept of listening and acting on customer feedback.
By Rowan Jackson, Bill Fonvielle and Cathy Fennell