Winning true customer loyalty and trust in a recession

What is true customer loyalty and trust? Customer experience expert Shaun Smith provides his definition and unlocks the secrets of the firms who guarantee consumers will stick by them through the good times - and the bad.

It is true that customers buy less in a recession but the fact is that they still buy- they are just choosy about where they spend their money. So the question is why do they not buy from you? If you are in a commodity market then they may well be seeking lower cost substitutes, but in most cases, particularly for service brands, the reason is not price.

According to 'Conceptual Selling', by Robert Miller and Stephen Heimann, in over 50% of cases, lack of trust is the primary reason the customer decides not to buy. The next highest categories for not buying: 'no need' and 'no desire to change', both hover around 10%. 'No urgency' and 'no budget' trail even further behind. So, the elephant on the table in the failed sales department is absence of trust.

What is a brand?

A logo? A snappy slogan? A distinctive jingle? A brand may be all of these in part, but fundamentally it is a promise fulfilled; a promise of quality, of service, of a certain style that it will bestow on its wearer. Promises have to be kept. But consumers no longer trust the promises made by big business. The rot started with Enron and WorldCom, then Arthur Anderson and now, those bastions of dependability (or so we thought), the banks.

Let's talk about banks for a moment. Some years ago, Barclays aired a television advertisement called Big Idea. It was a beautifully crafted ad featuring Anthony Hopkins as a big shot businessman with a big house, a big car and a big meeting to attend. The tagline was: "A big world needs a big bank." The ad received a bronze award at that year's British Television Advertising Awards, but customers replied with a less than enthusiastic "big deal!"

The ad simply reinforced common customer pre-conceptions about large banks: that they don't care about the average person and are interested only in making as much money as they can and, therefore, are not to be trusted.

Contrast this with First Direct, the online and telephonic bank. Executives at First Direct spoke to their most loyal customers and asked them what they liked most about the bank. Their research identified that being able to engage with a real person rather than an interactive voice response (IVR) was an important driver of satisfaction. As a result, First Direct's advertising agency created ads that featured customers speaking of their experiences calling the company and getting through to a real person, any time of day or night.

The ad's engaging message and apparent empathy struck a chord with target customers. First Direct promises to be the bank that is "designed to fit around you, not us". But more importantly, they deliver.

Advertising agency Grey Worldwide conducted research in Australia that found trustworthiness has the greatest impact on brand loyalty, whereas being large had the least. Perhaps that is why so many of the recent mergers and combinations in retail banks have led to tears.

As a result of cynicism amongst consumers and lack of trust in traditional above-the-line marketing, we will see the nature of advertising shifting from expectation marketing - i.e. "We promise this benefit if you buy our product" - to experience marketing - "We thought you might like to know how our satisfied customers feel about us".

You don't believe me? Think about the last time you booked a holiday. My bet is that at least half of you reading this article visited a website like TripAdvisor.com or similar to check on that wonderful resort hotel, rather than take the word of the travel agent or their glossy brochures. And this is why customer loyalty is so important.

How is loyalty different to satisfaction?

We have seen time and time again in the research that smith+co has conducted in a variety of sectors that 90% of customers who award top scores for satisfaction indicate their intention to be loyal to that organisation. That figure drops to around 20% for customers who are still satisfied but rate one box lower. The reason is that over the past 10 years, organisations have become increasingly aware of the need for customer focus and customer satisfaction - so much so, that it is now the norm and the entry price for any organisation wishing to be successful.

As a result, differentiation on the basis of basic customer service has declined, price sensitivity has increased and it now takes a unique customer experience which goes beyond satisfaction and creates a real bond with the customer in order to regain the competitive edge.

So loyalty is not one and the same as satisfaction, neither is it the same thing as repeat purchase. Until First Direct came along and made it attractive and easy to switch banks, few customers would entertain the inconvenience of closing their account and applying for one elsewhere, yet the retail financial segment has generally low levels of satisfaction among consumers. What kept customers coming back was not loyalty, but 'stickiness' due to the hassle factor in changing accounts. Not any longer.

Loyalty is a misused term. Most organisations think that it is about customers being loyal to them when it should be the other way round - the brand should be loyal to its best customers by offering value that is not generally available to the mass market. An example of this is mobile firm O2. It gives privileged access to top rock concerts playing in the O2 dome to its best customers.

True loyalty happens when there is an emotional engagement with the organisation or product. This engagement comes from experiencing the brand or organisation in unique way that creates true value for the customer. And this emotional engagement matters. As Ogilvy found in its annual BrandZ survey: "Companies that were successful in creating both functional and emotional bonding had higher retention ratios (84% vs 30%) and cross/up sell ratios (82% vs 16%) compared with those that did not".

And of course when you get very high levels of emotional engagement with a brand than something rather wonderful begins to happen.

Beyond loyalty

For those organisations wishing to increase margins by driving down sales costs whilst driving up revenues, advocacy is the answer. This requires you to know who your most profitable customers are and to consistently deliver a customer experience so as to create a high degree of trust in your brand. Then these loyal and highly profitable customers are prepared to recommend your organisation to others.

It's no accident that First Direct claims to win a new customer every eight seconds and is the UK's most trusted bank, according to Research International, or that 36% of its new customers join as a result of a personal referral. First Direct's customers have become the bank's biggest advocates, reducing its costs of sale and increasing its share of these customers' spend. This is the way to win in a recession.

Shaun Smith of smith+co speaks and consults internationally on the subject of the customer experience. His landmark books on customer experience include 'Managing the Customer Experience - turning customers into advocates', 'Uncommon Practice - people who deliver a great brand experience' and his latest offering 'See, Feel, Think, Do – the power of instinct in business', which investigates the role of instinct and innovation in customer experience.