Loyalty—The New Business Model?
While most business philosophies today embrace loyalty as a critical building block to success, this hasn't always been the case. In fact, the idea of loyalty as a business model is relatively new.
A prime champion of this movement has been Fredich Reichheld. In his 1996 book, "The Loyalty Effect," Reichheld launched a major shift in the way businesses view their customers, shareholders and employees, opening our eyes to the economic impact of loyalty. Since then, he and others, including the Peppers & Rogers Group, have expanded this notion by defining loyalty's value through measurements and formulas including Return on Investment (ROI).
Loyalty-related concepts have recently permeated tradition-entrenched bank marketing circles, where terminology including Customer Experience Management (CEM), Return on Customer (ROC) and Customer Relationship or Retention Officer (CRO) is now common. Furthermore, 94% of banks responding to a 2005 Forrester Research report said improving the customer experience (and therefore customer loyalty) will be an important issue for them going forward.
Efforts to improve the customer experience are generating greater investments in technology. For example, and perhaps as a direct result of early findings about the financial impact of customer loyalty, Customer Relationship Management (CRM) software has ranked among companies' top IT investments in recent years.
Banks have been a leader in this movement. Consulting firm Financial Insights recently reported that financial institutions accounted for the purchase of one-quarter of all CRM systems in 2005. These investments are part of banks' continuing efforts to migrate from product-centric legacy systems toward more customer-centric initiatives.
Results from these investments in CRM software and systems have been largely disappointing, however. While CRM software provides a more holistic view of bank customers, it is merely a tool. To earn customers' ongoing loyalty, banks also need to make major changes in attitude, business procedures and corporate culture.
Banks must make enterprise-wide changes to become loyalty leaders. Future editions of MarketScope will examine how companies are making these cultural changes. In this edition, we begin by discussing how employee loyalty translates into customer loyalty.
Part I: Loyalty starts at home
One of the more important strategies for achieving client loyalty is one that is little discussed: Companies wanting to enhance client loyalty need to first strengthen the loyalty of their customer-facing employees. Companies that demonstrated low client defections (high customer loyalty) experienced a similarly low employee turnover rate and vice versa. Reichheld explains the phenomenon this way: "Motivated employees stay with a company longer and get to know their customers better … [This] leads to better service, [and] builds still greater customer satisfaction, which further improves the relationship."
Don Peppers and Martha Rogers support this notion in their book, "Return on Customer." They stress the need for businesses to recognize customers individually in order to interact with them more effectively and anticipate their needs. They suggest that a seasoned employee is best positioned to achieve this level of customer intimacy, and a loyal employee will be more inclined to engage customers in this way.
It would seem logical to assume bank customers similarly prefer to deal with seasoned employees. So while the following statistics from a December 2006 SAP/Accenture-sponsored webinar apply specifically to retail branch banking, the attitudinal information therein could apply across all bank business lines.
Titled "The Relationship Experience: Bringing Experience and Profitability Back to Banking," and hosted by SourceMedia, the webinar discussed 2006 Bank Administration Institute (BAI) research regarding attitudes affecting customers' willingness to do business with a bank. The research also reviewed which factors tend to build a customer's trust and confidence in a bank. Findings were based on BAI's survey of customers at 44 depository institutions. When asked about what key factors inspired trust and confidence in their bank, 73% of customers selected "The staff at branch is familiar and has been there a long time" from among a series of multiple-choice answers.
Equally high numbers of respondents chose "Branch staff can make decisions on their own" and "Branch staff is knowledgeable about products." BAI concluded that 60% of "high impact" customer experience attributes can be related directly to how effectively a bank employee engages a customer.
In the coming months, MarketScope will examine some of today's bank loyalty leaders, how they create value and how that value impacts their bottom line. We'll also provide tips on how to measure loyalty and improve the customer experience.
In the meantime, click on SourceMedia's Web site here to view the SAP/Accenture webinar.
Gain More Credibility
Through the Questions You Ask—
Not the Stories You Tell
By Jeff Thull, CEO, Prime Resource Group
Establishing credibility is one of the most critical elements in securing a new customer and providing the foundation for a long-term relationship. When we ask sales professionals what makes up credibility, they often include elements such as a proven track record, a list of satisfied customers and the number of years in business. Our next question is, "How do you establish or convey that credibility to a prospective customer?" Invariably, the response is, "We tell them."
Now the sobering question: "How different are your two top competitors' credibility stories from your own company's credibility story?" Unfortunately, they likely sound quite similar.
Telling the credibility story results in your prospects seeing you and your competitors as more equal than different. We refer to this as "expected credibility." In other words, people expect you wouldn't be in business if you couldn't relate the same credibility story above.
To truly set yourself apart, however, you must develop "exceptional credibility." This concept is all about understanding what you know about your business and your solution, and, just as importantly, what you also know about your customer, their business, their objectives and their challenges.
The best way to do this is through diligent preparation and thought-provoking questions. Alternatively, our traditional emphasis on presenting solutions as quickly as possible leaves little time for us or our customer to understand the unique nature of their situation. We all ask questions during our sales processes, but what type of questions are we asking and do they establish exceptional credibility? Let's consider three levels of questions.
Level One
Level One consists of questions about the customer's demographics. Oftentimes, salespeople ask questions to discover facts about customers, and use those facts to tell stories and "relate." Examples include queries about their number of employees, locations, customers, etc.
In today's world, the answers you receive from Level One questions are likely available through many other sources. Do your homework. At this stage, you should be verifying information, not asking for it.
Level Two
Level Two contains "opinion" questions designed to collect information from the customer. Examples include, "What are your concerns regarding …?" and "How would you like to measure the solution's success?" These standard questions gather the customer's opinion about their problem, what they think the solution should be, and how and when they will make their decision.
These questions do not expand the customer's knowledge of the problem, their view of the solution or our credibility, however. Again, these can be good questions, but are very limiting if we stop there.
Level Three
Level Three questions expand the customer's understanding of the problem to be solved and the optimal way to solve it. These questions build exceptional credibility, and move the diagnostic process toward revealing and clarifying the problem. They're diagnostic in nature and focus on observations rather than opinions.
To illustrate the difference between opinion and observation questions, consider a utilities firm that is experiencing increased costs due to check fraud. If you ask an opinion question such as, "Are you frustrated with your level of check fraud losses?" the answer will be, "Yes, the losses continue to increase." The part of the question "Are you frustrated with…?" asks the customer to draw a conclusion based on an implicit self-diagnosis and render their opinion.
Instead, ask a question that calls for an empirical observation. For example, "Considering the number of checks you receive, what percentage is fraudulent?"
"I believe it's about 38%," your customer might say.
Then ask for another observation. "Have you noticed an increase in this percentage over the last year or so?"
This observation question lets you access the facts that are relevant to a complete diagnosis. They are empirical, thought-provoking, and result in greater conversational clarity.
The overriding goal is to let your questions establish exceptional credibility. Do this successfully and you will be viewed as a problem solver and trusted advisor for your customers who will clearly step out and ahead of the competition.
About the author
Jeff Thull is a leading-edge sales and marketing strategist and valued executive advisor at major companies including Shell Global Solutions, 3M, Microsoft, Intel, Citicorp, IBM and Georgia-Pacific.
He is also the author of the best-selling books Mastering the Complex Sale: How to Compete and Win When the Stakes are High and The Prime Solution: Close the Value Gap, Increase Margins, and Win the Complex Sale. Jeff’s new book, Exceptional Selling: How the Best Connect and Win in High Stakes Sales, is now available.
For more information, please contact: Prime Resource Group, 3655 Plymouth Blvd., Suite 110, Plymouth, MN 55446, [email protected], www.primeresource.com, 1.800.876.0378 or 763.473.7529, Fax: 763.473.0792.
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