Top Management Story

Writen by Adam Ramshaw

Increasingly organizations are becoming dissatisfied with their customer satisfaction surveys and turning instead to designing and implementing customer loyalty programs. The reason is simple, after 10 years of running national customer satisfaction surveys the American Customer Satisfaction Index has, basically, not moved at all. This is despite industry reportedly investing USD800,000,000 each year on improving customer satisfaction.<

So what to do? Organizations are beginning to understand that it's not just about satisfaction. In order to improve their businesses they have to implement customer loyalty programs. Customer loyalty programs are different to normal customer satisfaction surveys because the later use outcome as an indicator of past success. The real goal is to understand and improve the areas of the business that drive customer loyalty.

In my experience there are five key steps to implementing good customer loyalty programs.

Step 1: Link customer loyalty to business outcomes

Before you make any investment you need to understand what the potential returns are going to be. The heart of Step 1 is linking your business goals (revenue, profit, market share, growth, whatever) to changes in customer loyalty.

That way you demonstrate the benefits as well as the costs of your customer loyalty programs when you present them to your management.

Start by taking your key business measurements and link them to changes in customer loyalty. If customer loyalty were to increase by 10% how much would profit rise? You can download our free tool to make this task easy or create you own.

Step 2 Find a loyalty indicator

While customer satisfaction surveys are measuring satisfaction at finer and finer levels it is becoming clear that, as a metric, customer satisfaction is not a very reliable measure of loyalty. Customer satisfaction surveys were always intended to be customer loyalty marketing surveys but they are in fact no such thing.

Research is now showing that, depending on your industry, unless your customer scores you in the "top box" in your customer satisfaction surveys, i.e. 5 out of 5 they have little real loyalty to your organization. Lets face it good customer satisfaction is now table stakes -–you have to do better to keep them loyal.

However, recent research (1) has shown that there is one question, the answer to which is a good indicator of customer loyalty. That question is "How likely would you be to recommend us to a friend or colleague".<

It's simple, straight forward and easy for your customers to understand. But most importantly the answer is closely correlated to customer loyalty and business profits. This question should be in all of your customer loyalty marketing surveys as a key outcome indicator.

Step 3: Identify the drivers of customer loyalty

Every business has a range of attributes that might impact on customer loyalty. If you're in financial service it could be areas like service fees, line lengths in branches, product features, etc. If your business is a physical product they might be delivery times, stock holdings, and order quantities.

Starting with the one question above, add questions about these different potential drivers of customer loyalty to your customer loyalty marketing surveys. Don't add too many. Maybe 10 or 15 and make sure that you use a rating scale to collect the customer perception of your performance.

Now comes the most important part: find someone to do some reasonably statistical analysis on your results to determine which of the drivers are most significant in terms of customer loyalty. There are a few different techniques but correlation and regression analysis are the most common.

Step 4: Implement your customer loyalty programs

Now you have the vital information that you need: you understand the state of customer loyalty and you understand which of your business attributes are most important to that loyalty.

Start by focusing on just a few of the most important drivers that you also believe that you can change and start making changes in your business.

Perhaps you have found that line lengths in your branches are a key driver of customer loyalty. Work with your staff to identify ways to change you business processes and reduce line lengths. Make sure that you align staff compensation plans and bonuses so that the changes you make will be permanent.

Once you've improved the most important areas move on to those that are less important.

Step 5: Re-survey your customers

Remember that the goal is to improve customer loyalty. Marketing surveys repeated at regular intervals will let you know how you're customer loyalty programs are doing on both customer loyalty and the important drivers of customer loyalty that you have identified.

(1) "The one number you need to grow", Frederick Reicheld, Harvard Business Review December 2004.