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The New Science behind Customer Loyalty

The power of Customer Experience and growing competition are driving companies to take a more scientific approach to building customer loyalty.

The term Customer Experience is becoming increasingly used to describe all the touch-points, engagements and interventions that your customer has with your people, your products and services, and your brand. Ensuring a consistent and positive experience throughout these will ensure customers are happy to continue spending money with your company rather than with your competitors.

As Marketers, we must therefore understand the key requirements to making our customers happy and then measure how effective our brand is at meeting these requirements.

Forrester Research, global industry analysts, have created a multi-dimensional index that accurately links CX quality to customer loyalty and goes beyond the standard NPS (Net Promoter Score) standard of measuring customer loyalty. For those not familiar with NPS, it is basically the result of asking the following question: “how likely are you, on a scale of 1-10, to recommend our company/service/product to a friend or colleague” and then tallying up the results. The NPS only provides a one-dimensional view of loyalty and advocacy by assuming that customers always do what they say.

Forrester’s CX Index instead measures 1) how effective you are at meeting customers’ needs, 2) how easy it is to do business with you, and 3) how adept you are at making customers feel good about their interactions with your brand. They sum up these three aspects as the “The E’s of Customer Experience:” Effectiveness, Ease and Emotion.

However, according to Forrester, this is still only part of the picture. The impact each aspect has on building customer loyalty varies from industry to industry. For example, focusing on emotion, and not ease or effectiveness, has a bigger impact on building loyalty in the banking industry than it does in the auto industry. Fortunately, Forrester have come up with an algorithm that takes the industry you are in into consideration when determining your ultimate CX Index Score.

Building Data-Driven Strategies

Once you have determined how well you are doing across these three aspects, you can focus on developing strategies that improve on those areas using data analytics.

According to a recent study by McKinsey & Company, intensive business users of customer analytics are 9 times more likely to clearly outperform their competitors in terms of customer loyalty. Plus, their likelihood of migrating an above-average share of customers to profitable segments is 21 times that of non-intensive users of customer analytics.

Start by reviewing real customer or operational data. Operational data analytics can help identify where processes can be improved to make it “easy” to do business with you. For example, call centre data can reveal bottlenecks or frequent customer issues. You can turn these insights into a loyalty enhancing experience by pre-empting calls with an email or SMS notifying them of an issue before they ever need to make the call – saving customers time and frustration waiting on hold and creating substantial savings for your call centre.

Transactional and behavioural data can help you build a better understanding of your customers and allow you to segment them accordingly to communicate only relevant offers and make your brand more “effective” in meeting their needs. Demographic data can be used to segment and speak to customers in their “language” – be it a more casual or formal tone, or simply using English or Xhosa – to be more effective in improving the “emotion” aspect of your CX.

By using data to gain insights into customer preferences, trends and behaviour, you can devise Customer Loyalty strategies that help ensure that content, channel and communication style for each segment are all relevant, engaging and consistent.

In summary, we all need to review our customer loyalty strategies and make use of the deluge of data we have at our disposal in order to create a better customer experience that helps us win, serve and retain customers in a more profitable manner. Read more here about our 3 Step process to optimise Customer Loyalty and Retention strategies.

Blog post originally published 10 February 2015.