Loyalty Management – The New Competitive Advantage

Customer loyalty might be the only sustainable competitive advantage, especially in challenging economic times. Yet, only few businesses understand how to create customer loyalty. Customer loyalty depends on providing satisfaction not simply to customers—although this is critical—but also to those employees and partners who can positively (or negatively) influence the customer relationship. For a company to sustain customer loyalty, it must identify “loyalty drivers”—the key business attributes that have the greatest impact on the satisfaction of customers, employees, and partners.
What is Customer Loyalty?
Customer loyalty can be defined as a customer’s sustained commitment to a company as demonstrated by repeat purchases, increased wallet share, and positive word-of-mouth referrals. Research indicates that when a company can command such loyalty, the benefits include, but go considerably beyond, incremental revenue. Loyal customers purchase more, they will pay higher prices, they are easier to service (thus reducing operating costs), and they help expand the customer base by giving positive referrals.
Three Critical Relationships
The key to customer loyalty is customer satisfaction. That much is obvious, but the means of achieving customer satisfaction are not so obvious. Customer satisfaction begins with providing customers with superior service, but cannot stop there. Customer loyalty comes from satisfying not just customers themselves, but also from satisfying the employees and partners who interact with them. It is only by effectively managing these three critical relationships that the benefits of customer loyalty can be achieved.
The logic of this observation is clear: employees and partners provide the touch points at which customers everywhere interact with companies. If at those touch points customers meet individuals who are in any way dissatisfied with the company, that dissatisfaction will become evident in the interaction—and the opportunity for increasing customer loyalty will be lost. On the other hand, satisfied employees and partners will be likely to increase customer loyalty, because they will be more ready and willing to provide the superior service that is a fundamental contributor to customer satisfaction.
Virtuous Circles of Satisfaction
The satisfaction level of employee constituents is directly related to their ability—as they perceive it—to provide the superior service that customers demand of them.
Companies that invest in employee & partners service capability will see a typical virtuous circle.
• Employees who are given the appropriate information, resources, and tools to serve customers better will be more likely to succeed at their jobs, and thus remain there.
• Through increased customer contact and ongoing training, these longer-tenured employees will further improve their ability to serve customers.
• That improved ability will increase customer satisfaction and customer loyalty, and will increase customer appreciation for the employees themselves.
• By tracking these results, loyalty-driven companies will continue to invest in training, reward their most effective customer-facing employees, and further strengthen the virtuous circle of employee-customer satisfaction.
For partners, a similar virtuous circle ensues. When partners are given the tools and resources they need to deliver superior customer service, their satisfaction level rises, and they are better equipped to improve the satisfaction level of customers. Moreover, companies that support their partners in this way typically realize additional important benefits.
• Satisfied partners demonstrate allegiance to the partnering company and are more likely to report their satisfaction to other business associates.
• Satisfied partners are more willing to commit matching resources to joint projects than are partners who feel they have been shortchanged in the business relationship.
• Satisfied partners are far less likely to form alliances with competing firms.
In an economy in which employee productivity and global alliances are essential to success, a customer loyalty strategy must embrace all three constituents: customers, partners, and employees. Only by measuring the satisfaction and performance of all three can companies understand which business attributes really drive customer loyalty. And only by interactively managing all three relationships can they ensure the appropriate allocation of resources for the greatest customer retention. In operational terms, this is accomplished by adopting a loyalty-based satisfaction measurement system. Such a system is built on four sequential steps:
1. Identify loyalty drivers—those key service or other business attributes that have a substantial impact on customer loyalty, employee retention, and partner allegiance.
2. Allocate the necessary people and other resources to ensure superior performance against these loyalty drivers.
3. Measure and track performance results against these key attributes.
4. Periodically readjust allocations as performance measures indicate, and as customers’ perceptions of delivered value change.
Managers who implement such a system must begin by recognizing the three interlocking constituents and by understanding that an attribute that is indispensable to one constituent might not be critically important for another. Each has its own loyalty drivers.
For example, customer loyalty can be driven by such standard service dimensions as reliability, responsiveness, and empathy. It can also be affected by a company’s performance on “tangibles” such as physical facilities, equipment, and the professional appearance of customer-facing personnel. Employee loyalty is likely to be affected by financial benefits, on-site working conditions, training, management style, and performance appraisals. For partners, loyalty is more likely to be driven by how easily and productively the partners can engage the company’s sales, service, marketing, and alliance personnel.
A good customer loyalty program must manage all of these disparate value perceptions simultaneously.

Author

Dinesh Chandrasekar DC*Practice Director CRM & MDM CoE
Sierra Atlantic Software Services Ltd, India


“Dinesh Chandrasekar is the global Practice head for CRM & MDM CoE, at Sierra Atlantic Inc. He has over decade of experience in multiple CRM & MDM Packages Implementations, Consulting & Industry Solutions Domain expertise and published various whitepapers and articles in various Oracle and non Oracle Forums. Before joining Sierra Atlantic, he worked with GE Capital Software and Citibank Technologies. Dinesh comes with a rich experience and expertise in solution orchestration of CRM, MDM and Analytics solutions.”

Email: dinwin@ hotmail.com
http://in.linkedin.com/in/dineshchandrasekar