Customer loyalty cannot be bought. Loyalty is created by great experiences. And loyalty is lost by poor experiences--or loyalty is lost to a competitor who takes care of customers better than you do.
If you've received a customer survey invitation on a POS receipt from a retailer or restaurant chain recently, you may have participated in Service Management Group's (SMG) unit-level study of customer experiences. (For the study highlights, send me an email requesting "Five Things We Learned from Talking to 100 Million People.")
Measurements of the customer experience by SMG at 60,000 franchised and company-owned locations show that:
In one experiment, SMG conducted a time series analysis with a sample company to show the relationship between customers' stated intent to recommend and actual sales.
How can you show the connection between sales and customer loyalty to unit managers and the front line? The vice president for a multiunit franchisee explained it this way.
"Loyal customers translate into higher traffic counts. Why? Because loyal customers come back more often and they recommend new customers to you. Higher traffic counts translate into higher sales. And these are not discounted sales. We're not using coupons to get more people in. These are full-margin sales increases.
"Those higher sales are laid off against the same fixed expenses because extra traffic doesn't increase the cost to keep the lights on. Of course, the variable costs go up, but the fixed expenses stay the same. Higher volume, with no discounts, means we're going to make more money."
He continues explaining to his operators: "The reason you want to measure customer loyalty all the time is because the opposite is just as true. Let's say you did a great job winning customer loyalty for the last two years and you built your business and had a great reputation. That's very fragile. If other management people come in and they decide to shave some quality out of the product, customers notice. Or, when managers are not as careful in their hiring and training, customers notice.
"Let's say a customer who has had great experiences in the past comes in and has a mediocre experience. But she forgives you because she's been coming in for two years and it's been great. The next time she comes in, she is once again disappointed in the mediocre service. Now she's wondering, 'Gee, what happened to this place?'
"Maybe she will come back a third time, simply in the hope that you can still be counted among her favorite establishments. But she has the third straight bad experience. At that point, she's not coming back at all, is she?
"If you only measured sales, you wouldn't have a clue that you were on the verge of losing this customer. Because when she has that first bad experience, and the second and third bad experience, she still paid her money. So sales weren't influenced. If you're just watching sales, you think, 'Oh, sales were great in April.' And then you can't figure out why, in July, sales took a dive. What happened?
"Well, all those people who had bad experiences in April and May and June finally gave up on you and it doesn't affect sales until July. That's why it's so important to respect the power of each individual experience, because that's what creates your reputation. That's what creates people's desire to do business with us again. Increases in customer loyalty lead to increases in future sales," according to this multiunit vice president.
The problem is that there are tremendous variations--within your own brand--in the customer experience. Take another look at the roller-coaster ride in Figure 2. This is a big challenge for multiunit operators in retail, restaurant, and consumer-service businesses.
The old saw is true: you can't manage what you can't measure. Are you measuring the customer experience at each location?
Jack Mackey is vice president of Service Management Group. Contact him at email@example.com or (816) 448-4556.
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