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Tying trust to customer value

Gaining a customer's trust can have long-term impact on your bottom line

Trying to maximize a customer's value is roughly the equivalent of maximizing that customer's trust in your company. And although trust is the welcome consequence of any successful customer relationship, it is not something to take for granted. It can be eroded by bad business practices just as surely as your bottom line can be eroded.

As we delve deeper into the concept and methodology of Return on Customer (ROC), trust is a critical factor. But to increase the overall return generated by a customer (including long-term value as well as current profit) you must change the customer's behavior, creating more value than otherwise was expected. To create value, you must put yourself in the customer's shoes, understand the customer's own needs, and then act accordingly. Ultimately, this requires you to earn your customer's trust.

Product quality, price, and service all factor in to the customer's purchase decision. But other factors figure in as well. To maximize your ROC, you must balance both the current profit from a customer and the long-term increase in a customer's value.

Trust violations

In order to illustrate this connection of trust to ROC, let's look at an example in which trust has been violated. In September, Japan's Financial Services Agency ordered Citigroup to close its four private banking offices in that country, following an investigation into problems that included possible money laundering, stock manipulation, and misleading investors. According to the agency, Citigroup exploited its 5,000 Japanese private banking clients by suggesting unrealistic returns, urging them to buy complicated derivative products they didn't understand and overcharging for services.

While the effect on Citigroup's earnings is expected to be miniscule—less than 0.5% -- Merrill Lynch nevertheless downgraded the firm's stock because "Citigroup might lack something that poses a threat to its future growth: a sense of right and wrong."

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According to an article in the Japan Times, Citibank "tied salaries closely to sales performance, giving incentives to managers and employees to break rules if it meant large profits."

This kind of poisonous culture makes headlines when it surfaces at an otherwise respected, global corporation. But an obsession with short-term results will destroy value at any business where it's allowed to reign unchecked.

What does trust look like?

If customers trust a company, they share personal information. They will trust it to make recommendations about other products and services. They will even let the company help them in other lines of business. They will recommend a company's products to their friends. Trust is inversely related to self-orientation—the kind of self-orientation that can cause a company to gamble on the quality of customer experience to nail this quarter's revenue number. And trust does not necessarily mean the same thing to companies and their consumers. A recent Accenture survey says 74% of businesses blame online security fears for compromising consumer trust. However, when consumers were asked what compromises trust, 67% cited aggressive marketing as the most corrosive factor.

Trusted companies are not just selling something. Look at USAA Insurance, which, according to a June survey by Forrester Research, is the highest ranking financial services company for customer advocacy; and in Forrester's research, high customer advocacy was correlated with customers' stated intent of buying from a firm in the future. It's no surprise then that USAA took the unfortunate circumstance of the recent series of Florida hurricanes to increase its trust profile. For its Florida credit card customers, it dropped interest rates to 0% through January 31, 2005. It deferred credit card payments for 90 days, waived all late fees, and offered hurricane victims unsecured loans up to $25,000. That may not get USAA the maximum short-term revenue, but it's an excellent example of investing in the long-term value of the customer base and increasing ROC.

That kind of culture leads to maximizing customer trust. Trust is an investment in the future of your customers. You have no more important asset; you have no more important strategy. When you execute these strategies and then take the next step, which is measuring the actual Return on Customer, you'll see that it pays off financially as well.

Copyright © 2005 Carlson Marketing Group, Inc. All rights reserved. Peppers & Rogers Group is a Carlson Marketing Group Company.

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