Focus On The Causes Of Dissatisfaction To Increase Customer Loyalty
By James A. Schauer, F.C.Inst.M.
The traditional departmental, or fragmented approach to solving customer complaints has been to address current problems Ð the quicker the better. Satisfaction or your money back, no questions asked, goes the popular cry. This thinking may be adequate for having customers satisfied in the short term; but we also know that some 70% of satisfied customers are not also "loyal customers". The most successful organizations, on the other hand, understand that present customers are, in the longer term, their most-valued asset. Customer loyalty also requires a dedicated, active approach to dealing with customer dissatisfaction and complaint long before these become visible problems.
The unsatisfactory outcome of neglecting past customer relationships is likely to deteriorate further if outdated practices do not meet future challenges from more demanding customers. Today, growing expectations reflect a changing competitive market environment, as conventional mass markets continue to shrink. In the long term, more will be required from businesses to develop more lasting relationships with customers in a world where individual expectations are already beginning to dominate.
The true value of effective complaint handling systems that also focus on eliminating earlier indicators of customer dissatisfaction, has yet to be understood by many of even the most progressive business organizations. Today's customers do not expect everything to be perfect all the time. Air travellers today are more aware of times when delays are inevitable, that suitcases do go astray and hotels do overbook. None of these service failures need become serious problems if situations are resolved quickly, with genuine concern expressed for customers. In practice, they can actually strengthen the businesses' market image. While occasional service failure may be unavoidable, the big test is what companies do when things do go wrong. But more important, the earliest indications of any cause of customer dissatisfaction can provide a wealth of information to prevent most problems happening before they begin.
Complaints don't "just happen". A "complaint" is the ultimate outcome of customer or end-user dissatisfaction. Like highway or flying accidents, complaints usually escalate from very small beginnings. Experience shows that complaints develop their own momentum. Dissatisfaction levels - and the costs to resolve them - increase almost exponentially, from one stage to the next, with their own growing "life cycles". Conversely, visionary organizations appreciate that, "when a member of the public has plucked up the courage to complain, he or she is unlikely to want to argue about the semantics or definitions."
Equally astute, these visionary businesses also know that - just like icebergs - barely 5% of all complaints ever surface formally; access to the remaining 95% of less-than-satisfied customers represents valuable information - which costs virtually nothing! In this way it is possible to prevent - rather than resolve - most complaints to begin with, and build healthy customer relationships, with a growing positive impact on increasing customer loyalty and the market share. This can be a major cost-effective benefit to overall business performance.
While the business environment is changing almost daily, the pace of change is also increasing. This is no secret; but it is less well known that an organization's learning to deal with the resulting impact of these changes actually begins with understanding your customers. Their expectations are the first to adapt to any marketing changes, based on comparison shopping and timely awareness of actions by competitors, political or economic forces. The need for understanding customers' changing expectations and their value perceptions must therefore also be reflected in daily actions, as critical success factors. Good management of customer relations may also alert astute business managers that not all newcomers are good customers for your particular business.
A major hidden benefit from involving customers in the feedback process could be an adaptive organization where employees are far more likely to react positively to change than to internally generated initiatives. In the long term, visionary businesses will inevitably discover the practical strategic benefits from concentrating on increasing their share of loyal customers and its impact on internal operations. No business can exist without customers - this is a given. But successful organizations must learn to become customer-centered - where the customers are actively valued as a central part of the business - as distinct from being merely "customer-focused". Customer-centered companies quickly learn to appreciate the real benefits of information feedback involving their customers and end-users, becoming less content with merely measuring satisfaction levels. Feedback and questions focusing on customer loyalty are largely perceptual and motivational, and so are quite different from accepted "satisfaction" measures.
If we wish to retain an optimum share of our present customers - and consider this level as potentially 100% loyal support - then traditional customer satisfaction measures effectively focus somewhere below that point, with an emphasis on what's good for the business rather than the customer. The effect is limiting a company to merely satisfying customers, thereby confining companies to less than half of their real market potential. Conversely, understanding this potential allows firms to target the approximately 30% of known truly loyal customers with their almost exponential impact on growing business revenues with time. This growth is further influenced by loyal customers' positive word-of-mouth influence on their friends, relatives and workplace, to effectively generate new business - without additional advertising expenditure.
A well known axiom tells us that: it costs five times more to acquire a new customer than to retain an existing one. Unfortunately this "wisdom" turns out to be somewhat negative and, by implication, counter-productive. It reflects traditional thinking of focusing on customer satisfaction, which essentially is the pursuit of mediocre results and outputs, rather than higher possible outcomes and effectiveness. Analysis of customer or end user-derived feedback into the likely causes of dissatisfaction can lead to far better understanding of customers' expectations and value perceptions. This in turn will enable you to increase your share of loyal customers, with holistic and more profitable outcomes.
Beyond increasing customer loyalty, the financial benefits can be considerable. In my own experience in the international travel and hospitality industry, some 30% to 35% of our annual repeat business came from existing customers, who in turn influenced another 10% of new customers to purchase. The effect of this growth combined to permit a corresponding increase in our company's market share. It also spun off a corresponding reduction in advertising, promotion and operating costs, to increase corporate profits overall. Contrary to the popular axiom, this outcome points to "loyal customers being four to five times as valuable as a one-time satisfied customer".
In conclusion, management can benefit considerably from a unique, customer-derived information feedback system. In turn this information allows for better integration of service processes and continuing service quality improvements, compatible with customer expectations. Better understanding of these expectations then provides a more meaningful basis for the development of corporate vision, future goals, targets and business strategies. Most of all, a customer-centered marketing organization has a better understanding of the true value of its customers. This can strengthen its own future viability as a growing enterprise with positive outcomes of increased customer loyalty, as well as growing optimum profitability.
Jim Schauer draws on his considerable expertise as a marketing management professional in developing holistic customer-sensitive performance measures and strategic planning. With more than 30 years' experience in analytical research, including leadership in service quality improvement for over 20 years, he has served both public and private sectors in the delivery of financial services, international travel and tourism, evaluation of air, hotel and communications services. Jim is president of Easton Marketing Services Ltd., and can be contacted at (905) 344-5081, or e-mail at:[email protected].