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Winning Customer Loyalty in an Economic Crisis

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Shaun Smith

It is true that customers buy less in an economic recession. But the fact is that they still buy—customers are just choosy about where they spend their money. So the question is, why don’t customers buy from you? Where is your customer loyalty? If you are in a commodity market, then your customers may well be seeking lower cost substitutes. But in most cases, particularly for service brands, the reason for the lack of customer loyalty is not price.

According to Conceptual Selling, by Robert Miller and Stephen Heimann, in over 50 percent of cases, lack of trust is the primary reason customers decide not to buy. The next highest categories for not buying, "no need" and "no desire to change," both hover around 10 percent. "No urgency" and "no budget" trail even further behind. So, the elephant in the room in the failed sales department is absence of customer trust, and in turn customer loyalty. In an economic recession this will make or break your company.

We have known this for years, of course. Well over 20 years ago, J. D. Powers' surveys in the car sales market told us that customers would buy a car they liked, but weren't crazy about, from a salesperson they trusted, rather than buy a car they loved from a salesperson they did not trust. What is new, though, is the importance of customer trust when it comes to all brands' customer loyalty.

The Customer Promise in an Economic Crisis

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 customer promise fulfilled—a customer promise of quality, of service, of a certain style that it will bestow on its wearer. Promises have to be kept to ensure customer loyalty. But customers no longer trust the promises made by big brands.

The rot started with Enron and WorldCom, then Arthur Anderson, and, now, those bastions of dependability (or so we thought), the banks. The economic crisis has not improved this situation.

Lack of Customer Engagement Drives Poor Customer Loyalty

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 customer feedback was less than enthusiastic and the brand strategy proved ineffective.

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 by customers. This commercial discouraged customer engagement and was therefore a detriment to the company’s customer loyalty program.

Strong Customer Engagement Drives Strong Customer Loyalty

Contrast this with First Direct, the online and telephonic bank. Executives at First Direct sought customer feedback. They most loyal customers and asked them what they liked most about the bank. Through customer engagement the bank’s research identified that customers wanted to speak to a real person rather than an interactive voice response (IVR). This was an important driver of customer satisfaction, and in turn, customer loyalty. As a result, First Direct's advertising agency created ads that featured people speaking of their customer experiences with the bank’s call center, where they got through to a real person, any time—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 for their customers.

High Customer Trust Drives High Customer Loyalty

Advertising agency Grey Worldwide conducted research in Australia that found that trustworthiness has the greatest impact on customer 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 customer 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 , i.e. "We thought you might like to know about our customer satisfaction level."

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 Web site such as 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 Customer Loyalty Different Than Customer Satisfaction?

We have seen time and time again in the consumer research that smith+co has conducted in a variety of sectors that 90 percent of customers who award brands top scores for satisfaction indicate their intention to be loyal customers to that brand. That figure drops to around 20 percent for customers who are still satisfied with a brand, but rate one box lower. The reason is that over the past 10 years, brands 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 brand wishing to be successful. Customer satisfaction with a brand is crucial to achieving customer loyalty. 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 customer satisfaction. The brand has to create a real bond with the customer in order to regain customer loyalty.

So customer loyalty is not one and the same as customer 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 customer 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 organizations think that customer loyalty 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 encouraging customer loyalty.

True customer loyalty happens when the customer has an emotional engagement with the brand or product. This engagement comes from experiencing the brand or product in a unique way that creates true value for the customer. And this emotional customer 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 percent vs. 30 percent) and cross/up sell ratios (82 percent vs.16 percent) compared with those that did not."

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

Beyond Customer Loyalty

For those organizations 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 organization to other consumers.

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 percent of its new customers join as a result of a customer referral. First Direct's customers have become the bank's biggest brand ambassadors, reducing its costs of sale and increasing its share of these customers' spend. This is the way to win in an economic crisis.

Adapted from an article on