Loyal Customers

Loyal Customers ... does anyone care?

Wednesday, February 13, 2013

Although business leaders know that the loyal customers are key ingredient for a sustainable and profitable growth, we still don’t see this being demonstrated in the companies that we deal with in our daily life. Why is it so? Why is it so difficult for these leaders to ‘earn’ the loyalty of customers instead of trapping customers on a dubious contract in the name of customer retention? Why companies can continue to earn the wrath of the customers while CEOs talk about customer loyalty, passionately? Why customers feel that they are misled or coerced into buying something that they don’t need for the next 50 years?

I believe this is because companies relying on CFOs’ numbers to measure their business success and nothing else. Companies tend to believe that when revenue and profit looks good, the customers are happy and loyal. Not true! In a survey done with hundreds of executives found that 80% of them believe that they are providing superior service to their customers, but when asked only 8% of these customers agreed. Why is there a huge disparity between what companies believe and how their customers feel. Is this disparity a surprise at all? 

When business leaders rely on accounting numbers, they lose the sight of how a profit was delivered. Was it delivered by creating value to a customer or by extracting value of a customer instead? Profits made out of hidden fees, tying customers with contracts, exorbitant charges for late payment or whatever profit generated that made a customer feel cheated or misled are bad profits that extracts value of a customer. You cannot find this difference in a balance sheet or income statements. So business leaders are clouded from the health of customer loyalty because all they get are financial numbers that have little or no linkage to how customer feels about a company.

Why is this important? Why a company needs to know if a customer is happy or not, as long the customer continue to buy and continue to pay? Well, it boils down to the fact that an un-happy customer buying from you because out of no choice. He will buy until such a time he gets an alternative, a new entrant to the market and will spread the negative word of mouth to the whole world, thanks to social media. Now everyone has a loud hailer to talk, especially about bad customer service.

Another reason for leaders not interested in the customer loyalty status of their company is because they could not find a reliable measure. Traditional Customer Satisfaction or Loyalty index has failed! Though these metrics should reflect the health of the customer loyalty, they are never reliable because business leaders  don’t seems to be able to link these metrics with their financial metrics. Such customer satisfaction metrics are a waste of company resources and will even cause further customer frustration. Sometimes it is better of not measuring customer satisfaction if companies don’t know why they are doing it and how it can help them.

I will talk about my awful experience running customer satisfaction surveys for a large corporation in the next write-up.

Satya Narayanan