"You don't earn loyalty in a day. You earn loyalty day-by-day." - Jeffrey Gitomer
In 2004, Marc Benioff gathered his army of managers and stormed into a room for a meeting that was going to change how Salesforce was going to visualize its future customers. David Dempsey, Senior VP at Salesforce, responsible for all the recurring business at Salesforce, had concerns about a recent threat he found in their approach to recurring business.Recurring business, essentially responsible for Salesforce’s expansion, contributed to ~70-80% of the total annual bookings. In 2015, the revenue from recurring business alone approached $5 billion. Salesforce was enjoying a healthy growth in 2004 after seizing a market cap worth $500 million, a number that increased 5x in 2005. Even their customer base was witnessing an upward trend, reaching 20,000 customers - an increase of more than 3x in just two years! But the message about to be shared by David Dempsey did not look good for the company's future prospects.
Salesforce was enjoying its highest customer base ever since the company’s inception in 1999. However, at the same time, it was losing 8% of its customers per month. Simply put, the company was in a death spiral - and customer churn rate was to blame.
The business recently started moving to a subscription-based model from the perpetual license-based model, which, in turn, gave more flexibility to customers. Customers could now pay only for the services which they use, and abandon the platform if the services were not up to the mark. For the first time, it was not only the product, but services which were pushing the customer away. At this rate, the company would lose all its customers in just a few years.
Dempsey’s presentation would lead to company-wide changes that focus on customer churn, paving the way for customer success and loyalty in the long run.
Loyalty: Difficult to gain, more difficult to sustain
Businesses seem to have realized the true value of customer loyalty in the digital age. In the US alone, organizations are spending $2 billion on customer loyalty programs each year, all of which mostly spent on marketing through laser-targeted campaigns focused on gaining customer loyalty. However, many organizations still have miles to go before reaching the finish line when it comes to sustaining customers and keeping them loyal. Research suggests that an average U.S. household is enrolled in 29 loyalty programs, but is active only in 12.
Customer Loyalty can be best described in two dimensions:
- Behavioral Loyalty, where a customer chooses one brand over another through his actions. These actions can be a direct result of various factors, such as rewards points, legal restrictions, or contracts. Behavioural loyalty is very crucial for an organization because it offers repeated business from a customer.
- Attitudinal Loyalty, which depicts the customer’s physiological commitment towards one brand over another. This might be the result of great customer experience, or CX Memories associated with the brand. These are the customers who promote the brand through word of mouth.
As a brand operating in the digital age, the latter is always preferred for a variety of reasons - one being the willingness to pay for a premium experience, another being that they are less vulnerable to competition. Most importantly, they are more likely to advocate for the brand.
But, why is it so hard for companies to retain customers once they’ve sold to them? Why are companies spending ridiculous amounts to fight attrition and win the battle for the 21st century customer? As the old saying goes - all good things come at a cost. Attitudinal loyalty is much harder to create and sustain, as it proves to be expensive for an organization. This is because, it costs a lot more to create an experience that delights, rather than one which, simply, tries to not annoy.
Additionally, the cost of customer acquisition is 6-7 times more than the costs associated with retaining a customer. Also, companies can opt for other alternatives available in the market without incurring any significant costs of switching from one provider to another. In such cases, the fate of the company lies in the hands of the customer.
One thing is for sure - existing customers perceive loyalty differently. Now, the big question is - how to setup a customer success or loyalty system in an organization? There have been many advancements in the field of customer loyalty management, but the core has always remained the same:
1. Know Your Customer: Listen to Customer and Personalise the Relationship
It is important to understand exactly what customers expect from a business. For this reason, it is important to listen to customers and analyze their demands. Communication with customers can be direct (for e.g., writing mails to support or calling the help care number), or indirect (for e.g. posting about the product or the brand on a social media). Each interaction creates a personal experience between the customer and the brand.
Many organizations have started adopting omnichannel solutions which can be used to track the interaction of a customer through any media, be it a call on the help care number, or a review posting on a social website.
2. Learn from the Interaction and Make the Necessary Changes
Every interaction with the customer provides marketers with vital information either about the product, or about the customer’s expectations. Continuously capturing data and incorporating the learning from the customer journey to optimize customer experience can make a huge difference in how customers perceive a brand.
Artificial Intelligence is emerging as a new tool of the future for businesses monitoring customer behaviour and engagement in the digital age. Not only does AI help in finding crucial flaws in the product, it also helps in creating a personalised experience for customers through customer segmentation. Analyzing customer history and engagement data can provide unique insights into optimizing customer experience to increase delight.
Examples of the implementation of artificial intelligence in real life is all around us. Netflix, an American entertainment company offering streaming and video-on-demand, uses AI to analyze user behavior, interactions, choices & interests, and recommend movies and TV shows. Similarly, Siri is Apple’s flagship personal assistant that uses machine learning to understand and respond to natural language queries and instructions.
Designing Loyalty Programs Tailored for Success
When incentivized effectively, loyalty programs can account for as much as 60% of the company’s revenue. In the 21st century, offering rewards is not enough to drive business growth. It is important to incentivize behavior that provides insight into consumer behavior and buying habits. It is equally important to focus incentives on consumer behavior that aligns with business goals.
Interested in a quick read? Here are 5 Tips on How to Ace in the Game of Customer Loyalty.