A really wasteful example comes immediately to mind. In the United States, the average auto dealership spends several hundred dollars to obtain each new car, light truck, or sport utility vehicle customer. Half of this expenditure is invested in local newspaper advertising. In the last century, American department store magnate John Wanamaker was quoted as saying that half the money he spends for advertising is useless, but he didn't know which half. That's even more true for auto dealerships. In our research, we have found that very few customers used the newspaper to select, or even identify, the dealership. This is like sending coal to Newcastle, totally unnecessary and misdirected.
Our organization does a good deal of customer and staff loyalty consulting with automotive dealership groups, and one of our multi-dealership clients, based in a suburb of Wilmington, Delaware, spends nothing on newspaper advertising, and very little in other forms of public media. Yet, even though he's in a small state, with modest population, his dealerships continue to set regional sales and service revenue records, month after month. His dealerships have a 'one-price' policy, where the vehicle price and financing terms are pre-set and negotiation free. Our research has shown just how much people hate to negotiate with dealership sales and financing staff when purchasing a vehicle, so setting a fair price removes much of the tension of purchasing. Their program has been well developed for customers, and incremental value is created through special service and other owner benefits. Staff are paid on straight salary rather than commission, so the tension is further reduced; and he has created an exceptional staff reward and recognition program. His 'loyalty' program focuses on maintaining communication, and creating long-term value, for current customers, building positive community reputation, generating referrals, and making a particular effort to recover former customers.
As he says: "It validates that people hate to negotiate, and that you can create traffic internally. It isn't my location. I'm surrounded by industrial parks and high density housing. In fact, on Summer weekends, beach traffic is so heavy that you can't pull out of our lot for a demonstration ride. There's only one driveway out of the dealerships. We're land-locked."
He is frequently invited to speak, or conduct workshops, on the success formula his dealerships apply for achieving such impressive sales and customer loyalty. So, what is his 'secret'? "It is all about process - clear process maps that give staff the tools to make customer loyalty happen. Then we let them use their customer insights, and their skills, and we reward them."
The process that we have helped him apply is one that we have developed and adapted from the world of Total Quality Management. It is called the Customer Loyalty Compass, and it consists of four disciplined and interconnected steps: Prepare, Assemble, Comprehend, and Employ. To make it easier to remember, you might want to call it what we do: The P.A.C.E. Process.
In the first step, Prepare, we seek to understand the company's readiness for applying customer information and insight. This is a planning step. What do you already know about current, former, and competitors' customers, from information databases, prior research, sales reports, customer service analyses, and complaint data? How well is the company culture prepared to create and support customer loyalty? What will staff say are the key influences driving value for customers? What is staff's role in customer loyalty?
We have discussed the tendency of many companies to be acquisition-oriented and satisfaction-oriented regarding customers, to create frequency marketing programs and espouse CRM without creating requisite value for either customers or staff. Often, customer loyalty has been embraced as a concept by champions in an organization. Typically, this is by senior management or a functional manager in an operations, marketing, or customer service role. They have the will and spirit to create customer value; however, they may be met with structural impediments and/or cultural resistance to change elsewhere in the company. Learning about these potholes on the road to customer loyalty, early in the Prepare step, can make application of process change and culture change much easier.
Stephan Butscher, author of the insightful book Customer Clubs and Loyalty Programs, has noted the predisposition of companies to hurry the introduction of their programs, without sufficient staff input or customer research. He counsels: "The overall investment of such a program, and its importance to the company, can be enormous, so it should not be rushed. It is always better to introduce a perfect program one quarter later than to rush in with a poor one."
Recently, I spoke with the General Manager of a group of automotive dealers in suburban Boston. He was all set to start a loyalty marketing program. He said that he had terrific sales and marketing staff, and they were really enthusiastic about having such a program. When I asked him how much he and his staff knew about their customers, especially how customers perceive value, how staff thinks they perceive it, and what actions might be taken with this insight, he was at a loss. A bit more time and thought at the beginning of the Prepare step will be a useful and important discipline for his dealerships.
Internal data is just the tip of the iceberg. It may provide an incomplete picture of customer needs and expectations, and it may even be misleading if it only reflects the staff's opinion of what customers require. These built-in biases can limit your ability to build loyalty. For example, if you create new services or make operational process changes based on complaints lodged with your customer service staff, the new services or process changes may be extremely misguided. Why? Because many customers, as we well know, never complain. They just go away, so you never learn the real changes that have to be made. That's one reason why, in the Assemble step, you must go directly to your current, former, and competitors' customers to find out about their needs and what creates value.
This step often requires some form of qualitative research: in-depth interviews, focus groups, or mini-groups. We will want to find out, among other things, what factors customers use to assess the value they get from suppliers, what the supplier does well and poorly, how the supplier compares to competitors, what new needs or services the supplier might provide, how their performance has changed over the past year or so, what complaints or concerns are evidenced, whether the supplier is perceived as commodity-oriented or customer-oriented.
This last point is particularly important: does the supplier perform only the basics, or is there genuine interest in creating real customer value? The product of this research is two-fold: the anecdotal insights we gain from customers, and the essential input for crafting a set of performance attributes for quantitative measurement.
The qualitative research may also begin in reverse order, with the internal development of loyalty program ideas before going to customers for further refinement. I have facilitated and participated in all-day cross-functional program concept workshops. Their objectives are to craft loyalty program concepts which strategically, and positively, differentiate the client's products and services and optimize customer loyalty. In addition to facilitators, workshop members may include client marketing, customer support, and technical staff, and outside marketing, advertising, technical, copywriting marketing research, and customer loyalty program experts. The output of their work is usually solid loyalty ideas which are then exposed to customers (and prospects) as fully-formed concepts.
Whatever form the qualitative research follows, the company will be in a position to move to the next step: Comprehend, or understand the voice of the customer. This is the step during which quantitative research is conducted. The objective is to learn which areas of performance and complaint, and what elements of a loyalty marketing concept or program, have a positive influence on customer loyalty and value, and which can impact attrition and possible defection. Remember, though, that if you are merely trying to create higher satisfaction, customers may say they're satisfied such as they might with automobiles, office products retailers, banks, supermarkets, or restaurants - and your web site as well - and still defect. As we've discussed, many American companies have learned to their dismay that defectors are often just as likely to be satisfied with products and services as loyal customers. Has the company created barriers to exit? That's what we want to learn.
Many things come clear as a result of information generated during the Comprehend step. In the United States, as in the U.K. and elsewhere in the world, companies tend to latch on to quick-fix and copycat programs in their efforts to capture the affection of customers. The automotive, telecom, and supermarket industries, to cite three, tend to know relatively little about what creates loyalty and value for their clients. Most frequently, they compete on a single dimension: price. As a result, they experience a great amount of migration and churn. We have spoken with a French expert in telecom churn who estimates that, of the customers they lose, 80% will immediately go to a competitor, drawn away by an equipment upgrade or what appears to be lower price.
If companies in these industries wish to learn how to keep the customers they want, how to re-establish value for customers on the verge of defection, and how to reclaim attractive customers they have lost, they can achieve this with well-designed loyalty research and intelligent data analysis. When combined with the demographic and psychographic information they can generate about their customers, this yields a powerful customer loyalty information system.
If you want to create or modify a frequency marketing program, or develop more positive and permanent relationships with your customers, the insight coming from the Comprehend step should be invested only in resources that create customer value. The knowledge from this step should also include the quantitative input of your own staff, for purposes of counterpoint learning, new or modified program buy-in, and possible targeted loyalty training. Such programs and operational improvements come from the final step, which is Employ, or take action.
These actions can be simple, such as alterations to the scripting of customer service staff, or complex, such as a new frequency marketing program, new approaches to sales relationships, or new customer communications initiatives; and it may take a few days or many months to put them into place. It all depends, ultimately, on which performance attributes have the greatest impact on customer loyalty. To respond more quickly to product or service inquiries, for instance, you may need to form a cross-functional team of staff from several departments to examine your customer service follow-up procedures and then recommend solutions. In our work, we often lead such teams and facilitate their process or program development activities. Be sure, as well, to give these improvements and programs a chance to kick in. They won't affect loyalty until customers recognize and understand them. Several months later, you can survey customers again to see how well you did in creating value and determine what is still left to be done to optimize their loyalty.
The P.A.C.E. Process can be a highly effective customer loyalty tool for your company. Like anything really worthwhile, the process does require a bit of discipline. There is a good old American baseball analogy to the P.A.C.E. Process. In the movie A League Of Their Own, Tom Hanks, the manager of a woman's baseball team, said to one of his star players who was quitting the team because baseball had become hard, not fun: "It's supposed to be hard. If it was easy, everyone would do it. The hard is what makes it great!" Our sentiments exactly.