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Why are loyal customers harder to find today?

Today's customers are more demanding and it's easier for then to get your competitors' information with a single click. Read Don Peppers advice for winning loyal customers.

Can companies these days rely on the notion of customer loyalty? It seems to me that loyal customers and the notion of customer loyalty are disappearing. What are your thoughts?
Well, that's an excellent observation, because we do think customer loyalty is getting harder to achieve. For one thing, customers are more demanding, and they want more choices. But also, it's easier for a customer to get your competitors' information with a single click. And, while in general we would say that customer service has improved immensely in the last few years as a result of customer demand, customer standards have risen even faster, which means they tend to be less and less satisfied with companies' behavior.

I'll give you an example. How many times have you called your cable company or your bank or credit card company or telephone company and you get the interactive voice response (IVR) and it says please enter your twelve-digit account code or your 10-digit phone number for us to better process your call. So you put that in, and after more voicemail, you eventually get through to a live rep, and what is the first thing they'll ask you? What is your account number, (the number you just gave them)? I've even made calls where I had to enter my account number more than once and the human rep still didn't have it! Of course, because of our thinking and writing about these issues, both Martha Rogers and I, personally, are extremely intolerant customers. We're extremely demanding of companies, and I just hate it when a company does that kind of needlessly stupid thing. And yet, the ability to phone the company and interact with them at all is something that is only really recently possible. Most companies didn't have call centers like this 25 or 30 years ago, and if they were they were very cumbersome, you had to stay on hold a long time and they were very expensive for the company to manage. So our standards as customers have increased, and customer loyalty has probably gone down as a result.

I think we need to think of loyalty in two ways, though. Loyalty is both an attitudinal quality and it is a behavior. As an attitudinal quality, you're loyal to a company because you like them, because you're satisfied with them, because they solved your problem the right way. Maybe you eventually develop an emotional attachment to them. I think for sure you're loyal to a company when you trust them to act in your interest. But you might also be loyal to a company because they've customized more things for you gradually and eventually it has just become too inconvenient for you to leave. You'd have to repeat to some competitor what you've already taught them. (If you do banking online, and have all your vendors loaded onto your retail bank Web site, think how difficult it would be to pick up and move to another online banking service, even if you had a problem with your current bank!)

Loyalty is also a behavioral trait, however. A customer is either loyal or he's not loyal, based on whether he's purchased with you or not. And you can measure that type of loyalty in your transactional records – you don't need to survey the customer's attitudes or feelings about you. It's something you can quantify: the amount of repurchase you get from a customer from the opportunities the customer has to do business with you again—is the customer "loyal" or not?

Now our objective as businesspeople is to create loyal behavior. But one of the best ways to do that is to create the right attitude in the mind of the customer, in order to create the right intent. This doesn't necessarily guarantee that behavior will follow the intent, but most often, it does.

I do think that customer loyalty as a proposition is getting a great deal of attention these days. And it's getting attention because more and more companies have awoken to the fact that customers are not simply a collection of independent, unconnected transactions that go on through time, but that the customer remembers you, whether you remember him or not. And as we like to tell our clients, how you treat car parts on a factory floor has nothing to do with their cost to you tomorrow. But how you treat customers in the retail store or on your website today has everything to do with the customer's value to you tomorrow. The customers have memories. Unfortunately, too many companies don't have memories of customers. And customers are increasingly tired of that kind of behavior on the part of companies. Customers are holding companies to a higher and higher standard. Customers are communicating with each other and sharing reviews and points of view on dealing with different companies.

Think of it this way: every time a customer goes on to a particularly good website and has a great experience his expectations of your website go up. Every time he goes into a great store and gets really good service, his expectations in the next store, a totally unrelated store, go up. And if companies work hard to improve their level of customer service, customer expectations are rising probably even faster.

Which leads us to one point of advice: don't unnecessarily build up your own customers' expectations. A lot of times customer loyalty initiatives are in the hands of marketing and salespeople, who, I think everybody would agree, tend to be more optimistic than others, and are sometimes prone to over-promising. So if you have some big customer service initiative that you're going to be installing and the customer marketing and sales people are in charge of it, don't let them go out and trumpet the news on the website, saying "wow, we're going to increase our customer service, you're really going to love it" – because this just makes it easier to disappoint a customer, no matter how much the service was actually improved.

Or as Warren Buffett once said of shareholder relationships, we think that the secret to good customer relationships is the same as the secret to a good marriage: low expectations.


Hear more in Creating Customer Value, a SearchCRM.com monthly podcast series with Peppers and Rogers.
This was last published in June 2007

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