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How is service design influencing the customer loyalty landscape?

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14th Jul 2014
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For businesses, loyalty is all about why customers become devoted to a brand, product or service. But for the customer, loyalty is about the moment they have to make a decision to purchase, whether they choose to try a new product, or stick to one they have used before, therefore showing loyalty.

Customer loyalty comes down to a series of decisions regarding where to place their loyalty. Examining the motivation at each stage in the customer journey reveals that indifference, convenience, opportunism and apathy all tend to be stronger drivers than a sense of loyalty to a brand or product.

Loyalty, rewards, membership and savings programmes have different names and ways of working, but all share the same ultimate goals: acquire and retain customers. Some programmes, however, fail to deliver - by investing in customers who do not have commitment to a brand, or who are already committed to buying.

What loyalty means to customers

The most popular and familiar loyalty programmes are in the retail sector - Tesco Clubcard, Boots Advantage cards and Nectar can be found in most Brit’s wallets, but loyalty means different things to customers in different sectors. In consumer goods, loyalty manifests itself in repeated sales of a branded product. Whilst in the hospitality and leisure sector loyalty displays itself in repeat visits and recommendations.

A strong driver for one customer in one sector does not necessarily sway customers in another. Loyalty is also often measured in past actions, but past loyalty is no guarantee of future behaviour.

Customers often have a brand preference but this is not the same as loyalty. In most cases customers will skip or even switch to the next best alternative when faced with small obstacles that hinder access to the desired product or service. If Coca-Cola is not served in a pub, most customers will happily have a Pepsi instead, rather than refuse to drink there.

Building customer loyalty is highly dependent on the perceived experience of a product - including availability, accessibility and the level of service. Service is the one consistent driver of loyalty across all sectors. Good service is likely to bring customers back and build allegiance with a brand, whilst bad service is likely to ensure a customer never returns.

Getting the basics right is the beginning of building any sort of relationship with your customers. Bad service(s) will prevent the relationship between customer and business from ever growing into one that displays loyal behaviour. On the other hand, services are a platform to attract, retain and grow more loyalty within your customer base, without having to give away incentives and rewards unnecessarily.

The Apple Hotel Experience

Let me tell you a story. I recently stayed in a hotel with the most delicious apples in London. Let’s call it the Apple Hotel. As a regular guest, I booked my stay with a couple of clicks on an app. However, I was surprised to find out after arriving (just before midnight) that my reservation was not confirmed.

This is not the first time that I’ve arrived at a hotel after midnight without booking. But it is the first time I have had to wait almost an hour to get to my room.

In this instance, the manager was excellent and did everything to make my wait more comfortable. He apologised with sincerity, and when I got to my room they had upgraded me, the room was nice, the bed soft and the apples sweet. But it is not the service itself that affects loyalty, but how bad service is handled.

The customer of a hotel is not always the same person as the guest. This is especially true in the case of business travellers. In my guest role all I want is a big bed and hot shower, close to my morning meeting. As a customer I have a different set of criteria: price, availability, rating, ease of booking, payment facilities and feedback from guests.

According to research from LateRooms.com, more than one third of customers will not book a hotel room without reading reviews first. Bad service tends to be noticed and shared more than good service.

It is becoming cheaper and faster to collect customer data and analyse customer patterns and preferences. These customer insights are only the first step in identifying which customers can be developed into “loyal” ones. The challenge is not the ability to configure an attractive offer for customers, or formulate the accurate response. Loyalty is earned by consistently doing the right thing at the right time, in the right way.

The Apple Hotel failed that night as they did not recognise me as a frequent customer, and therefore lost my loyalty. The hotel has my company, personal and credit card details, as well as records of my many stays. Being a member of their customer loyalty programme should mean something. Instead I was treated as a first time guest, not a frequent customer.

Service businesses such as hotels, restaurants, and travel operators often assume that a great guest experience leads to customer loyalty. The guest experience certainly translates into word of mouth, but customer loyalty is harder to attain. The fundamental basis of customer loyalty is to recognise customers, reward them for repeat business and offer targeted incentives to keep them coming back.Top of Form

Designing the right service

Service design is all about identifying problems and designing simple solutions that add real value, to both the organisations that implement them and the customers that experience them.

Service design seeks to understand where organisations are struggling to serve customers, investigate how services can make a positive difference to both and then design solutions that deliver real value. This involves applying service design principles more widely, looking beyond the service offering of an organisation to design improvements to how a business is structured and how it operates. Over recent years, it has been employed by a wide range of industries, from banking to public transport.

It combines a wide range of practices from deep customer research to story board creation to understand a businesses main raison d'etre, allowing it to achieve a mutually beneficial relationship with its customers. And it is increasingly become part of the process of building customer loyalty programmes. 

Being able to use a customer’s past loyalty to further build on that commitment is key. Remembering previous interactions is always appreciated and also creates the opportunity to continue the relationship into an up- or cross-sell situation. Services can be a non-monetary way to affect customers’ perception of a company, product or service. Better still, they can also enable a business to distinguish itself from its competition and create positive customer lock-in.

Attracting new customers based on a one-off promotion or offer might be the right strategy for growing your customer base. However this approach may attract customers who are price sensitive, which can create a culture of customers looking for discount deals in exchange for loyalty.

Focusing on new customers and ones at the end of the customer lifecycle is a good way to secure commitment for future purchases or extending use of your product or service. A recommendation from a long-time customer carries more weight than one from a customer who recently had a good buying experience, so make sure you take this into account.

Understanding loyalty

Loyalty in all its forms is the difference between success and failure. Traditionally smaller businesses appreciate their customers and remember their preference more than big businesses do. Creating a loyalty programme that consistently puts the customer at the very centre and rewards committed behaviour, turns a big company into a small one in the eyes of its customer.

89% of customers began doing business with a competitor following a poor customer experience. Service is key to loyalty, and getting service right is the first step to building a loyal customer base. Service design concepts can help businesses achieve this by giving you the outside-in perspective that is crucial to successful loyalty programmes.

Melvin Brand Flu is a managing partner at Livework.

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