Latest research findings are refining ideas about the true meaning
of customer loyalty, writes Louella Miles.
If total quality management (TQM) was the hot issue of the first half of
the 90s, then customer retention and satisfaction has taken over in the
second. It’s a topic which manufacturers and suppliers are having to
take seriously, yet for each successful loyalty scheme there is another
which has bombed.
Is it a hit or miss affair, or are there systems which can be put in
place to minimise risk? Given the amount of research into the subject,
it should surely just be a matter of following guidelines, but then life
is never that simple.
Melanie Howard, formerly of The Henley Centre, and now a founding
partner of The Future Foundation, has just released the results of a
recent study looking at the whole area of how people might give
information to companies and what they want in return.
’I think the most startling finding is that, after all this talk of
one-to-one marketing, people do actually want it. And 90% of our sample
said that in return for giving information about themselves, what they
most wanted was to be treated as an individual,’ she says.
This ties in with recent research from Air Miles. ’In the future,
consumers will be looking for fewer mass market rewards,’ says Wanda
Goldwag, director of sales and relationship management at the company.
’Instead, our study shows that they will be looking for those that are
more targeted and more unusual, tied possibly to relevant dates in a
family’s calendar, such as birthdays or anniversaries.’
Yet if customers do appreciate this individual treatment, it is
surprising that the practice is so uneven across industries. But who is
to say exactly what individual treatment British consumers would prefer?
Howard looks forward to tackling this issue in the next study, but for
the moment has more pressing concerns. ’From the consumer’s point of
view, it seems that what matters about facilitating this information is
values in a business sense,’ she says.
’They want reassuring that companies are open and honest, which shows
how important it is, even with all this talk of corporate
responsibility, for companies to demonstrate their high moral
standing.’
Keeping customers sweet
Back to terminology. Some researchers look on the current fixation with
loyalty as a smoke screen. ’In general in the UK, the issue of customer
satisfaction and loyalty is being used by marketing departments as a
phrase to get customers in the door - a catch phrase,’ says Jeff Maszal,
European director of consultancy at TARP. ’Few companies are looking at
the term ’customer retention’ in terms of corporate profitability.’
They may, he feels, have gone some way down the path in asking the value
of their customers, and looking into the identity of those who will
continue to carry out transactions with them so they can segment their
databases.
Yet in many ways, this is pure short termism. ’What companies in the UK
are not doing is to ask: what are the problems facing these customers
which are causing them to go elsewhere?’ he says. ’They are not
addressing these problems.’
UK companies, he says, are ten years behind their counterparts in the US
on customer retention. But at least this gives them a choice. They can
either repeat the mistakes of their US brethren, or learn from them and,
in effect, leapfrog them.
A scatter-gun approach, what Maszal describes as ’hoping you hit the
right target’, is being adopted towards customer satisfaction. ’We take
a cruise missile approach instead. TARP looks at what is the potential
income that a company will lose in a year or a lifetime based on the
customer’s experience when they report problems.
’Depending on what programmes are put in place, we can then look at
return on investment, and finally, we can put in place market-at-risk
analysis.
We look at the picture in terms of retention - sales, billing, marketing
- to see which area has most to lose. It is about helping the customer
to focus resources in the most cost beneficial manner.’
He is confident that British marketers will learn from the US
experience, citing a client who returned from a fact finding mission
there and cancelled the heavyweight loyalty programme he had planned.
’He was willing to delay short-term profitability for a year in order to
get it right,’ he says.
Even so, an underlying problem with customer loyalty is the volume of
people who don’t articulate their complaints. In terms of sectors,
according to TARP, the worst offender is direct marketing, which it
estimates has 85% of respondents who never get it together to grumble,
even though they feel they have cause.
Industries such as financial services, travel and leisure, and the
utilities, follow not far behind. Given that a fair proportion of those
who have experienced problems with a company won’t buy from it again,
clients should make more of an effort to research their customers.
Asset management
One firm, which has looked at this in detail, is the Abram Hawkes
consultancy, which undertook a study in the business-to-business sector
with Market Shape. It found that 90% of the 262 organisations it
contacted across nine industry sectors said they recognised the value of
customer retention.
Some 45% of respondents in organisations with loyalty schemes considered
that customer retention activities yield a greater return than
investment in advertising. So how is it that only 55% have some sort of
customer charter, and only 44% use a care programme to nurture their
most valuable asset?
Abram Hawkes director Michael Brewer claims that part of the problem
could be the nature of the business-to-business sector. ’It is more
difficult in business-to-business in that you can’t apply what you read
in books about customer loyalty,’ he says. ’They don’t tell you how to
build share with big corporate clients. Companies learn mostly by doing
it.’
Like Maszal, he is worried by financial short termism, the lack of
customer orientation, and an absence of planning. He also sees an air of
complacency about much of UK business. The study, ’Customer retention in
the business-to-business sector’, has achieved a healthy distribution,
yet the motives for reading a copy give him cause for concern. ’Many are
taking it to make sure they are not missing out,’ he says.
’Such businesses may find that by the time they turn their attention to
retaining their customers, it is simply too late as they will already be
lost to their more customer-focused competitors,’ he says.
In this context, perhaps the most telling piece of research is one that
recently came out of Cardiff Business School. As part of an
international study, it sent out a 150-item questionnaire to some 150
companies, investigating what makes a truly effective sales organisation
in the UK. What emerged was a huge divide between best and worst, with
the leaders ahead on all the measures of effectiveness.
The reason for this is simple, say the authors, Nigel Piercy, professor
of marketing and strategy at Cardiff, and David Craven, professor of
marketing at Texas Christian University. It is because customer
satisfaction drives sales and profits, not vice versa.
It is not, as Brewer pointed out, a question of looking over your
shoulder the whole time to see how your competitor is doing, but of
investing in the infrastructure to keep customers happy, often trawling
other industries for ideas on ways and means. Those who don’t might not
be around for the Millennium.
KNOWING CUSTOMER LIFETIME VALUE
Sector %
Leisure 7
Banking 15
IT 21
Telecoms 27
Business services 30
Insurance 41
Media 43
Heavy capital equipment 50
Motor 50
Source:Abram Hawkes/Market Shape.
PROVIDING INDIVIDUAL TREATMENT
Sector %
Banks 36
High street 15
Supermarkets 13
Utilities 12
Insurance companies 10
Catalogue companies 9
Others 6
Source:DMA/Informix.
PROBLEMS LOSE CUSTOMERS - REPURCHASE INTENTIONS
Sector Encountered Not encountered
a problem,% a problem,%
Financial services 56 81
Vehicle repair service 57 84
Telecommunications 83 95
Travel & leisure 82 97
Petrochemical products 80 94
Utility 75 88
Direct marketing 55 74
Source: TARP industry-specific data.
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