Are customer relationships valuable: Measuring the costs vs benefits of relationshipsby
Should an organisation focus on fostering relationships with customers when those say they don’t care about them? And how do you calculate the benefits (vs costs) of fostering relationships?
How much value ($$$) do businesses get from forging relationships with customers?
When we ask business people, they tend to say, “of course, that relationships are important,” Still, the benefits of those to a business are not that crystal clear to calculate, while the costs involving visiting customers are. Then if you actually ask customers (and we’ve done this many times, as we’ll share with you later), they will say that product price, reliability and so on are way more essential for them than feeling a sense of a relationship with an organisation, their account manager or sales agent.
So should an organisation focus on fostering relationships with customers when those say they don’t care about them? And how do you calculate the benefits (vs costs) of fostering relationships?
I was contemplating on some of these questions while working with a large international pharmaceutical company in the midst of the COVID-19 pandemic. I was having one-to-one interviews with their customers (although some involved a translator), and having done these kinds of interviews for more than 10 years, you learn to read between the lines and tap into their subconscious motivators. A number of people specifically referenced and talked about their relationship with the organisation, how long they’ve known their account or sales rep, how many have changed over the years, and so on. Others didn’t mention the word “relationship”, but it was implied from the conversation.
As these conversations took place during the pandemic, I asked about their experience working with the organisation during these turbulent times, how things have changed, and so on. People said that before agents used to visit them, talk to them and the staff. That made them feel valued and cared for. Now they do zoom meetings with their account or sales reps. Some said that the zoom meetings are fine and work for them; others that they hope to get back to actually meeting their representative.
This made me think that the organisation is at crossroads. When the pandemic is over, do they stick to the zoom meetings, or do they send some people back on the road? It’s easy to calculate the potential cost savings. It’s fuel, car costs, insurance, employee time, and costs. How about the benefits of the relationships, though? Not so easy!
This was one of the things that set me on a research quest that culminated with me writing a book - The Big Miss: How Organizations Overlook the Value of Emotions (Business Expert Press, 2022). I analysed data collected from some 18,537 customers of 24 large organisations from nine different industry sectors, conducting structural equation modeling analysis on 59 customer groups. In the process, B2B and B2C customers based in the US, Canada, UK, Europe, the Middle East, and East Asia answered 1m+ survey questions.
Here are some examples of what I found in our database.
You can see on the chart above that:
- Customers of a global logistics provider said that competitive pricing is much more important to them than the feeling of a relationship with the sales contact, but predictive modeling analysis showed that in fact, the latter has a bigger effect on their attitudes and behaviour towards the organisation.
- Similarly, customers of a US insurance provider said competitive insurance rates were hugely important to them while feeling a relationship with the organisation was not at all important but again, the extent to which they felt a relationship with the organisation was a much stronger predictor of their attitudes and behaviour than their perception of the competitiveness of insurance premiums (as a side note, we’ve recently had a research project with a client where roughly the same amount of customers complained about or complimented their pricing).
- The situation was pretty much the same with mobile telecom customers in UAE. They said “network reliability” was most important to them (three times as important as the feeling of a relationship with the organisation), but the latter had a much bigger effect on the likelihood to recommend the organisation and the average revenue per user (ARPU) for the high-end segment of customers.
In my research, I looked into the typical customer lifecycle journey touchpoints (i.e. things like brand and advertising, learning about the product / service, the buying experience, the joining experience, the product price, quality, ease of use, the quality of customer service, communications, the self-service and account management options, and so on) that businesses use and measure (to some extent) and also added a touchpoint for the “feeling of a relationship”. The results of that research showed that the feeling of a relationship (or a form of an emotional attachment) was by far the biggest driver of value for organisations. As I already shared the research highlights in a previous article, I won’t go into any more detail about those.
If you are wondering why customers say one thing and do another, how come they don’t know what they really want and what the inner drivers of their behaviour are, I wrote at length about that in my book. I also provided examples in a previous article about how listening to customers can lead to multimillion $ mistakes. A quote I like from the famous Scottish psychiatrist R. D. Laing is: "The range of what we think and do is limited by what we fail to notice. And because we fail to notice that we fail to notice, there is little we can do to change; until we notice how failing to notice shapes our thoughts and deeds".
I think failing to uncover the real drivers of customer behaviour (and thus $$$ for the organisation) frequently leads to waste of resources and is one of the causes why many customer experience programmes fail to deliver tangible results.
One thing that is almost certain and universal is, more often than not, the feeling of a relationship is a key driver of value from organisations. To keep this article short, I won’t go into the psychology behind this phenomenon (I look into that in my book), and I’ll get to the “so what” does this mean for organisations.
Measure the value of relationships
One company that we worked with, a US-based global B2B hardware & software company, found that customers who describe the organisation as a “trusted advisor “allocate 32% of their budget with them vs. 26% of those describing them as a “partner” and 22% as a “vendor”.
You can also measure repeat visits/purchases, the basket value of those customers that feel a stronger relationship with the company, the tenure of the relationship and, of course, the customer lifetime value (CLV).
Have a purposeful strategy to forge deeper relationships with customers
A B2B company in the early stages of setting their customer experience function shared with us that they found that they start making money on a new client only after 2.5 years into the contract. That means that if a customer ends the relationship prior to that, they lose money on all the services they’ve provided to that account. So for every customer, they created a “relationship map,” indicating the key stakeholders e.g. decision makers, gatekeepers, etc. as well as the state of the relationship with those people.
In the B2B world, it’s also common practice for sales reps and account managers to go on “calls” or semi-yearly meetings with customers. However, in many instances, these meetings are driven by the account managers. They set the agenda with no input from customers and it’s essentially another sales pitch. Such was also the case with a client we worked with as more and more customers started to express a lack of interest for this kind of meetings. The meetings were often like “look at the wonderful catalog of products that we have and these two new additions, for which we have a discount offer at the moment. How many would you like?”
Tactical quick wins in B2B
Inspired by the remarkable turnaround story of the worst school in the US and the science of personal relationships, we advised some changes in how these meetings were organised. Before a meeting, the account manager would call the customer to discuss what topics they’d like to put on the agenda for the meeting. Then during the meeting, the sales rep would essentially ask three main questions:
- How is the business going? This may sound like a cliché to start with, but the point here is to listen to the customer actively. A knowledgeable account manager would notice the products on display, would ask about the prices they are selling them, the quantities and would offer valuable advice. This helps both the customer and the organisation to sell more.
- What are your plans for this year? This would show areas where the customer could need support. Some would have a marketing plan with events that the organisation can support; others would be expanding the business.
- What can I do to help your business? Typically, by now, the account manager would have picked up some actions, but this is another way to see how else they could be of help and make an action plan for the next steps. At this point, customers would bring problems with deliveries, orders and pricing plans or would just work out the details for the marketing support for the upcoming events.
Customer relationship strategy in B2C
While in the B2B world, having multi-million or multi-billion customers means you can afford some F2F visits by sales or account reps and have a strategy around relationships this is not to say that you can’t form relationships with customers in the B2C sector. Indeed, our research found that the feeling of a relationship (emotional attachment) was a stronger driver of value in the B2B sector (48%) compared to B2C (40%), but even there, it was still by far the biggest driver of value.
The difference in the B2C is, of course, that it is a mass market, so the feeling of relationship should be driven by mass means. Those mass means include showing that you “know” your customers, personalisation at scale and exemplar customer service. It could also be achieved by emotional marketing (creating a bond with organisations whether because consumers like the campaigns or because they feel they share the same values with the organisation) or even by product design that appeals to customers at a visceral level (beautiful products), behavioural level (intuitive to use products) or reflective level (this product is for people like me and reflects my personality).
Creating a relationship with customers starts by showing that you “know” them (think of “I see you” from Avatar). Charles Duhigg, a New York Times bestselling author, shares another very interesting example about the power of showing you know customers in his book The Power of Habit (2012). He tells the story of how YMCA (often referred to as the Y), one of the United States’ largest nonprofit organisations with more than 1,600 gyms and community centers, hired a social scientist and a statistician to figure out how to make people more engaged with their programmes and exercise more. At the time, the conventional wisdom at the executive level was that people wanted fancy exercise equipment and modern facilities. After analysing the data from more than 150,000 member satisfaction surveys gathered through the years and they found what got people to stick, whether employees knew members’ names or said hello when people walked in.
Think about why you and others you know love to shop at the local bakery or coffee shop. People generally like to feel recognised for their custom and feel that their loyalty is valued (and some also like a small chit-chat ☺).
Similarly, working with a Water Utility company, we found that the notes on their tablets were organised from oldest to newest, so when the crews visited a customer, often times, they had to scroll through nine pages in areas with slow connectivity just to get to the notes about their latest call. This didn’t help instill the feeling the organisation “knew” customers and what their problems were. Worst of all, because in many instances, the real problem was not fixed, the organisation had to send back the crew, which cost the company an extra $100+ per repeat visit.
Another simple but powerful trick about showing that you know your customers and value the relationship is American Express’s “Member Since” tag on their cards. Here is what one customer says about that “I am thinking of canceling my AX personal card for a few months, and while I know I can just sign up for a no annual fee card, I don't feel really inclined to do so. I have been a member for a very long time, and thus chuckle when I see the "Member Since" date on my card.” That’s the rational giving way to the emotional!
Other strategies for fostering a relationship with customers in mass relate to personalisation, customer service interactions that aim at specific emotions, emotional marketing, and emotional product design. I discuss these topics and how to approach the creation of an emotional attachment with customers as a science and a strategy in my book “The Big Miss: How Organizations Overlook The Value of Emotions” (Business Expert Press, 2022) where I have written about the seven business practices for emotional connection. Make sure to follow me on LinkedIn and Twitter, where I share more insights and tips.
Part of this article is based on content first published in “The Big Miss: How Organizations Overlook the Value of Emotions” (Business Expert Press, 2022) by Zhecho Dobrev.
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