Customer retention is an issue of paramount importance to companies around the world today. In fact, the single biggest concern for CEOs is retaining their existing customer base, according to a Conference Board survey.
So let's assess a few of the things that companies have been doing to build that elusive bond with their customers:
- Advertising. Marketers regard advertising as the most effective method to connect with customers. But often, advertising can be counterproductive, as ads can build up expectations that companies don't always meet.
- Revamping/Upgrading products and processes. Companies often focus on "operational excellence," emphasizing functional "controllables" that are easy to manage, such as decreasing a customer's waiting time, outfitting staff in clean uniforms, or determining the necessary amount of ice in soft drinks. But operational excellence only satisfies basic customer needs or meets a customer's minimum service requirements.
- Data mining. Customer relationship management (CRM) software painstakingly records "intelligence" about customers. Marketers are frequently dazzled by the technology, yet CRM rarely predicts whether customers will return. The real problem is that more customer information doesn't mean better information, nor does it ensure that organizations are focused on their customers.
- Price cutting. This may attract customers, but it won't guarantee that they'll return unless competitors fail to match the lower prices.
- Measuring customer satisfaction. Most companies use some method to track customer satisfaction, but tracking alone doesn't promise customer retention. And as all too many organizations have learned, customer satisfaction doesn't guarantee long-term customer relationships. Satisfied customers do, in fact, defect.
- Loyalty programs. Cynical customers may regard loyalty programs as "prisoner programs." At best, they're bribes. At worst, they're completely irrelevant and cannot even create forced loyalty.
Add "flavor-of-the-month" initiatives of various kinds to the list above, and it's clear that organizations are investing a lot of effort and money in attempting to retain customers. There's no lack of trying.
But are these efforts heading in the right direction? The fact that companies continue to lose customers in droves suggests that they may be taking the wrong approach.
Where's the problem?
Today, product parity has become the norm. Almost all organizations have access to the same manufacturing technology as well as similar advertising and media. In an intensely competitive marketplace, outspending competitors on advertising or offering distinctive products or services aren't options for most companies. Therefore, it's increasingly difficult to maintain the sort of brand differentiation that is key to strong customer relationships. The usual marketing tools -- the "Four Ps" of product, place, price, and promotion -- no longer differentiate companies.
So why, exactly, do companies fail to retain their customers? On some level, it's no surprise that customers defect. It's easy to see why people would feel free to choose among undifferentiated products and services -- there's no compelling reason to be committed to just one. Nevertheless, companies fail to keep customers for three primary reasons:
1. Companies target reason, not emotion. Conventional wisdom once suggested that our decisions were driven by rational memory and dictated by our conscious awareness. Today, we know that's dead wrong. Neuroscience has shown us that there are multiple memory systems in our brain, and our emotional mind works differently from -- and often much more powerfully than -- our rational mind. It is the emotional mind, or the emotional recollection of how we felt at a particular occasion, that drives our future behavior. As Dr. Joseph LeDoux, a world-renowned neuroscientist at New York University, said in a GMJ interview: "Emotions are not designed to be controlled. They are designed to control. . . . In truth, most of what we do, we do unconsciously and then rationalize the decision consciously after the fact." (See "Management Wisdom From a Neuroscientist" in See Also.)
Unfortunately, most companies try to appeal to the rational mind alone -- instead of appealing to reason and emotion together -- even though emotion powerfully influences human behavior. So while honing in on conscious awareness and reasoning ability may well spark product trial, it usually fails to produce the emotions required for customer engagement.
Gallup Organization research with more than 10 million customers reinforces the fact that in the absence of a meaningful emotional relationship with a brand or an organization, customers are naturally predisposed to switch their allegiance. The good news for businesses, though, is that customers are also naturally predisposed to becoming emotionally attached -- but it's up to the company to create those emotional connections.
Most organizations fail to recognize or measure the emotional connections with their customers. But customer behavior consistently links to emotional needs. For example, a couple celebrating an anniversary will most likely limit their options to the restaurants that carry an emotional connection to their relationship -- "It's where we had our first date" -- or that deliver an atmosphere they crave. An airline passenger might choose to buy a ticket in person rather than electronically because he knows a travel agent personally; he trusts the agent to answer his questions and ease his worry about getting on the right plane at the right time. Such bonds establish an enduring customer relationship.
2. Companies measure the wrong things. Given marketers' obsession with the rational mind, it's not surprising that most companies focus on rational measures, such as customer satisfaction.
Dissatisfied customers, if given a choice, are unlikely to select the same option again, possibly because of their strong negative feelings about the product, service, or brand. But satisfied customers are unreliable, too. They may say one thing but behave very differently. They may declare in an interview or on a survey that they are willing to come back to your company, but then they'll defect. Satisfaction is important, but it's not the same as an emotional bond.
From an operational perspective, many organizations have failed to establish proven linkages between their customer satisfaction metrics and the business outcomes that are the company's real goals. Some organizations pledge to "always exceed customer expectations" without considering that they can exceed expectations only once -- then the newfound level of service and performance becomes the new level of expectation.
3. Companies emphasize the wrong point of action. Customer retention programs often fail to involve front-line employees who are key to creating emotional attachment and customer engagement. Gallup research, however, has revealed that the "Fifth P" -- people -- is as effective as any of the traditional Four Ps, if not more so, in differentiating an organization from its competitors. This point is illustrated by the findings from a large scale, research-and-development study that Gallup carried out across several industries. (See "The Power of the Fifth P" in See Also.)
- Telecom: Consider two long-distance phone companies included in the study. Current or former customers of AT&T and MCI who felt that their carrier's customer service representatives were not helpful were 6.6 and 5.7 times more likely to say that they wouldn't consider this provider in the future. When the quality of technical service was evaluated, in contrast, AT&T and MCI customers who experienced poor service reliability and service quality in the past were only 1.9 and 2.4 times more likely to say that they wouldn't consider the carrier in the future.
- Fast-food chains: The taste of the food isn't the main reason that customers return to fast-food chains, according to Gallup research. The quality of the interactions customers have with the people who take their orders and serve them is far more important. In general, diners who feel that the staff stands out are roughly five times more likely to return. Outstanding advertising can account for only about half of the engagement-building potential of memorably positive personal experiences.
So how do companies retain customers?
Companies begin to move toward a solution when they focus on what's really important: Emotional engagement drives the most profitable customer relationships. And while emotional promises hold real merit, in most cases, long-established marketing tools can't deliver reliably on emotional promises. Engagement derives from the emotional attachment created by outstanding products and brands -- and from the powerful interactions that customers experience with engaged employees.
Great organizations constantly ask this question: "What must we do to emotionally engage each one of our employees and our customers?" They understand that even with today's incredibly advanced technology, the best way to achieve customer engagement is through positive human interaction -- a powerful trigger of emotion.
Ponder the following questions with regard to your own organization:
- Are you measuring customer satisfaction or customer engagement?
- Do you recognize the power of emotions in building customer engagement?
- What activities or processes do you use to create emotional attachment with your customers?
- Are your front-line employees and managers actively involved in the process of managing customer attachment?
- When recruiting and developing employees, do you consider their ability to create bonds with customers?
The answers to these questions will determine how far your company has come in the journey to building a comprehensive customer engagement strategy -- and how far it still has to go. And the answers might well determine whether your business succeeds or fails.