Beyond Loyalty

For those organizations wishing to increase margins by driving down sales costs whilst driving up revenues, advocacy is the answer. This requires you to know who your most profitable customers are and to consistently deliver a customer experience so as to create a high degree of trust in your brand. Only then will these loyal and highly profitable customers be prepared to recommend your organization to others. In his HBR article ‘The one number you need to grow’ Frederick Reichheld argues that the only measure of performance that really matters is the ‘Net-Promoter Index’. This is the result of subtracting those customers who are dissatisfied from those who are highly satisfied. Our term for this is the ‘Advocacy Index’ and our CEM+™ survey measures this to determine the extent to which your firm will grow organically through attracting and retaining profitable customers through positive word-of-mouth.

Sometimes, an organisation can create such advocacy that it is accepted on trust by the market at large. At a conference in Paris a couple of years ago delegates were asked to raise their hands if they considered themselves to be advocates of Virgin Atlantic. Around 50 hands went up out of the 300-plus people in the room. Those with their hands up were asked to put them down if they had flown with the airline. This left about ten hands up. "So, you are people who are advocates of Virgin Atlantic… but have never flown with them?" the presenter said to clarify. The hands stayed up.

How can an organization create advocacy without customers having a first hand experience? When Richard Branson first launched Virgin Atlantic it was at a time when most airlines were still state-run and had a reputation for being operationally driven and rather boring. What Branson did was to create a proposition, which matched the safety and procedural efficiency of competitors, but also offered a new and exciting customer experience. He put the fun back into flying. His Upper Class was soon a big hit; essentially a First Class product at a Business Class fare. The on-board bar, interactive entertainment system, in-flight massage, CD quality music channels and friendly and attractive cabin crew all created a customer experience which was new, different and exciting. The proposition was so compelling that Virgin quickly started to win market share from the competition.

There is an important distinction to be made between customer service and customer experience. If you speak to people in Australia who fly Virgin Blue for example, you will find many people who are advocates but also a few who just do not like the experience. This is a natural consequence of making a strategic choice. When you stand for something specific and are targeting a specific group of customers then this will mean that your offer is not going to appeal to everyone. Many firms however, try to satisfy everyone and end up delighting no one. This notion of targeting certain customer segments and then being single minded in differentiating your offer to meet their needs is well known in consumer markets. We think this will begin to be true in professional services too. Increasingly, what you do is expected. It is a commodity product no matter how highly priced. The real difference is in how you deliver it and the experience that the client has of your firm. Trusted advisors understand that the real key to success is not what they know but how they use this to benefit the client.

Focusing on your most profitable customers

One large firm we know has several thousand clients and yet the top 10 represent a significant proportion of the profit; the top 100 clients account for 70% of the profit and at the tail end, there are several hundred who are loss making. Yet there is very little differentiation in how these clients are served. All too often, we respond to client requests or new business opportunities on the basis of how much time people have available from their other commitments rather than the strategic importance of the client and our relationship with them. In fact some times, new prospects get more of our attention and better deals than the clients we have worked with for years. This is certainly true in financial services and telecommunications where new customers are routinely offered more attention, deeper discounts and better deals than long established customers. In loyalty terms this is madness.

In his book The Loyalty Effect, Frederick Reichheld identifies that loyal customers are more profitable because the costs of sales are amortised over a longer period, they increase their purchases and percentage of spend with you, cost less to administer, refer others and are willing to pay a premium.

By focusing on delighting highly profitable customers, companies keep them loyal and eventually turn them into advocates who attract others who value the same things and thus in turn become advocates themselves.

Courtesy – The Perfect Customer Experience , Shaun Smith