3_Easy_Building Customer Loyalty

Building Customer Loyalty

• A company balances acquisition and retention efforts through the customer acquisition funnel.
• The customer acquisition funnel depicts the phases in the customer acquisition process.

Five Phases (5 A's)

• Awareness: Customers become aware of an offering through various channels like advertising, word of mouth, or past experiences, which is essential for consideration and purchase.
• Appeal: Customers focus on the most appealing and relevant offerings, filtering out many options quickly, so standing out is crucial.
• Ask: Customers seek more details and compare options through friends, reviews, or company contact; clear information and support aid in moving them from interest to action.
• Act: Customers decide to buy, including the purchase, usage, and follow-up interactions; a seamless experience fosters satisfaction and loyalty.
• Advocate: Satisfied customers repurchase and recommend, becoming promoters and driving new awareness and growth through word-of-mouth.

Conversion Rates

• Measuring the percentage of customers moving through each phase helps spot bottlenecks and decide on investments in acquisition (awareness, appeal) or retention (loyalty, advocacy).

Acquisition Costs

• Acquiring new customers is more expensive than satisfying and retaining existing ones.
• "Deal-Driven” Customers: Attracted mainly by discounts, these customers tend to be less loyal, so balancing promotional efforts with loyalty strategies is important.

Boost Profitability

• Retention Payoff: Reducing defection rate even by 5% can raise profits by 25% to 85% in some industries.
• Retained customers contribute through repeat purchases, referrals, premium pricing, and lower operating costs.

Causes of Defection

• Within the Company's Control: Poor service, shoddy products, high prices, and billing errors can be addressed through improved operations, quality, or pricing.
• Outside the Company's Control: Factors like relocation are uncontrollable, but focus on areas you can change.
• Evaluate Trade-Offs: Compare Lost Lifetime Value vs. Retention Costs and invest in retention if cheaper than losing potential profit.
• Reactivation Efforts: Former customers may be easier to win back; surveys and interviews can reveal why they left and how to reattract.

Managing Customer Satisfaction and Loyalty

• Satisfaction happens when a product’s perceived performance matches or exceeds expectations; dissatisfaction occurs if performance falls short.
• Satisfied customers are more likely to become loyal, stay longer, purchase more, and recommend the brand.

Expectations

• Sources: Past buying experiences, advice from others, company marketing, and competitors' communications.
• Avoiding Over/Under Promising: Overly high promises risk disappointment, while low promises limit attraction; the ideal strategy is to raise expectations and deliver.

Product and Service Quality

• Key Drivers: Quality is the totality of features and characteristics that satisfy customer needs.
• Performance: functionality, reliability, and excellence.
• Consistency is the degree to which each unit or experience delivers the same level of performance over time.

Profitability Link

• High quality leads to higher satisfaction, premium pricing potential, loyalty, and greater profits.
• Cutting corners yields short-term gains but risks long-term satisfaction and loyalty.
• Measuring customer satisfaction helps identify problem areas and unmet needs.

Measurement Tools of Customer Satisfaction

• Periodic Surveys: Measure overall satisfaction, repurchase likelihood, and willingness to recommend.
• Competitor Comparisons: Understand how satisfied customers are with rivals' offerings and highlight "share of wallet" opportunities.
• Mystery Shoppers: Directly experience the brand's or competitors' service from a customer viewpoint.
• American Customer Satisfaction Index (ACSI): National measure of consumer perceptions correlates with better financial performance.
• Retention yields greater long-term profits.
• Interact Closely with Customers: Stay attuned to preferences, value input, and increase trust through advisory boards, feedback communities, and face-to-face engagements.
• Develop Loyalty Programs: Use promotional incentives (points, miles, cash-back) to encourage repeat business, rewarding frequent or high-volume purchases.
• Creates psychological switching costs because members feel “invested."
• Increases cross-selling opportunities (more product lines or categories).
• It's especially powerful for first-movers in an industry (competitors eventually match, but the pioneer reaps initial gains).
• Build Brand Communities: Use groups of customers and employees whose activities revolve around the brand.
• Get a source of product improvement ideas, because enthusiastic users provide feedback.
• "Evangelists” within the community promote the brand at little or no additional marketing cost.
• In-person events or online forums create deeper emotional ties.

Retention Practicalities

• Costs of Defection: Lost future revenue, negative word of mouth, and higher acquisition costs.
• Use exit interviews or surveys with defectors to reveal hidden problems.
• Win-Back Strategies: Reactivate past customers because you already know their purchase history and preferences.
• High or Low Satisfaction Variations: Track overall satisfaction and specific drivers, as customers define “good” performance differently.
• Consider how loyalty varies across segments (discount-seekers vs. brand-loyal).
• Customer relationship management (CRM) carefully tracks data to maximize loyalty.
• CRM collects and organizes detailed data about each customer to improve service.

CRM Benefits

• Personalized Marketing: Online retailers suggest products, and call centers tailor support.
• Real-Time Service: Instant messaging and AI chatbots solve problems quickly if used wisely.
• Data Analytics: Identify patterns for improved segmentation and targeted promotions.
• Customer value management optimizes the value of the customer base through strategies to acquire and retain profitable customers.
• Customization involves adapting products and service experiences to fit individual preferences.
• Personalization increases loyalty because customers feel the brand "knows" them.

Customization Challenges

• Not all customers want an ongoing relationship
• Over-personalization can irritate customers.
• Permission Marketing is important - Acknowledge privacy concerns and only send messages if a customer has consented.
• Empower Customers: Involve customers directly in product creation, today's customers have more control over when and how they interact with companies.

Empowerment Limits

• Some customers only engage for tangible value or discount/coupons.
• Not everyone wants to be deeply involved with the brand.
• Recommendations from friends, family, and online reviews shape purchase decisions significantly.
• Ensure Quality and Integrity of Reviews by monitoring for fake content and encouraging genuine feedback.

Complaint Handling

• Only a small fraction of dissatisfied customers complain; many silently leave.
• Quick resolution can recover up to 95% of dissatisfied customers.
• Employ easily accessible channels, like toll-free numbers and social media, for complaints.
• Provide a rapid response to complaints to lower dissatisfaction and negative word of mouth.
• Accept responsibility, show empathy, and fix the problem.
• Resolve fairly by balancing resolution costs against customer lifetime value.
• Watch for abuse, because not all complaints are legitimate.
• Customer Lifetime Value (CLV): Monetary equivalent of the value a customer creates; also known as customer equity when summing all customers' lifetime values.

CLV Importance

• Not all customers are equally profitable; some might even cost more than they bring in.
• A focus on high-value customers is central to maximizing shareholder value and optimizing resources.
• Frequently, 80% of a company's profits come from the top 20% of customers (80/20 rule).
• The lowest 10-20% of customers may reduce overall profits because of high demands or minimal margins.

Profitability

• Identify Profitability Across Segments: Large customers aren't always the most profitable if they demand deep discounts or extensive services.
• Small and midsize customers may pay more than those customer segments.
• Analyze Customer Profitability with Activity-Based Costing (ABC): Assign real costs to specific customer activities.
• If a customer's revenue doesn't exceed allocated costs by a sufficient margin, that customer is unprofitable.
• Link data to see how many unprofitable customers a company carries.

Equity Focus

• Customer Equity Focus: Financial in nature, emphasizing lifetime revenue from customers, minus acquisition and service costs; best in banking and subscription services
• Brand Equity Focus: It's Strategic, emphasizes brand awareness, and intangible assets, used best by product-centric firms unable to track profitability at an individual level.
• Brand equity can drive intangible value, while CLV links to financial outcomes from identified customers.

CLV

• Enhance Customer Service: Train employees to create satisfying experiences.
• Increase Customer Engagement: Keep customers involved with the brand.
• Grow Each Customer's Potential: Offer complementary products or services without creating an unmanageable cost burden.
• Manage Unprofitable Customers: Encourage them to buy in larger quantities, pay higher fees, or screen them out altogether.
• Reward the Most Profitable Customers: Offer special treatment or perks to VIPs.

Elevate the Customer

• A customer touch point is any brand interaction through a store, website, phone support, or product use.
• Consistent, pleasant experiences at each touch point build loyalty and amplify lifetime value.
• Create Loyalty by Building Trust; The three blocks include Competence, Honesty, and Benevolence.
• Measuring CLV via Net Present Value (NPV) Approach: Sum expected future profit minus costs of acquisition, retention, and servicing to identify true profitability.

CLV Factors

• Revenues per customer over time.
• Costs (marketing, servicing, returns).
• Probability of Repeat Purchases or longevity (customer churn vs. loyalty).
• Discount Rate (reflecting cost of capital and risk).
• Factor in advocacy and evangelism when looking at revenue.

Explore customer acquisition through the 5 A's framework: Aware, Appeal, Ask, Act, and Advocate. Learn how to measure customer progression, identify bottlenecks, and enhance Customer Lifetime Value (CLV). Discover strategies for boosting loyalty and customer retention.