Breakthrough to customer loyalty management

Jan 20、2016 By Naoki Endo

Why customer loyalty is needed now

As Japan's domestic labor force is shrinking every year, the aggregate demand is declining. In other words, when running a business in the future, how you keep your existing customers is becoming more important than acquiring new ones.

Many businesses have two ways of handling this situation: One is "global business expansion," and the other is "new business development." Even if they succeed in expanding global business, however, emerging markets too will eventually reach maturity as Japan's has. Leveraging their existing customer bases, many companies become engaged in developing new businesses. Their success depends upon how strongly they have established their loyal customer bases. Customer loyalty has become as imperative as ever before, indeed.

For example, a big part of Amazon's continuous successes of deploying new services can be explained by their abilities to cultivate among customers such a sense of trust that "let's try the new service because it is Amazon that is offering." The trust is the accumulated results of the such services as free shipping or next day shipping that have profoundly impressed customers, "Amazon, you are genius!" Companies would find it difficult to leverage their existing customer bases if they wouldn't have enhanced customer loyalty among their customers.

It can be said that creating customer loyalty among existing customers is one of top management's issues for the success of their next move of whether they preserve existing business in the contracting domestic markets, develop new businesses or expand their business to overseas.

Differences between customer loyalty and CSAT

So what is the difference between customer loyalty and CSAT activities?

There lies a major difference in each target level between the two. While CSAT activities aim at the level of "no problem," customer loyalty activities aim at the "exciting level. It is through customer loyalty activities, which aim not at a comparative level, but at an absolute level from others, that companies can differentiate themselves from other competitors and realize business growth.

So how do you create the exciting level? First, companies need voluntarily to engage themselves in increasing customer loyalty, not only by passively responding to VOC but also by actively acquiring and accumulating what is not vocalized or expressed by customers.

As companies carry out conventional CSAT activities on a per-department basis, most improvement policies hardly ever leave their various departmental jurisdictions. On the other hand, in order to achieve the exciting level, companies need to treat CX as a series of events and implement cross-departmental measures because customer experience are made up of accumulated interactions with a variety of departments needs.

Customer Loyalty: correlated with revenue

There actually was a case in the past where a service company we provided our service saw the number of contracts declining despite the impressive results of customer satisfaction surveys. There had occurred the situation in which CSAT and revenue did not correlate. In other words, it shows that the level of "satisfied" and "no problems" cannot keep customers from dropping off.

While CSAT is an indicator that measures the "no problems" level, NPS (Net Promoter Score) is an indicator that measures the exciting level. NPS is calculated from the question of "How likely is it that you would recommend our company to your family or friends?" This makes responders think about their responsibility, which arises when they make a recommendation to others, and makes them compare the relevant company to other competitors to see if they would recommend it over others. As a result, compared to CSAT, NPS enables the company to obtain more strict and accurate evaluations of itself from customers.

Having observed the negative trends, the aforementioned service company conducted a NPS survey and discovered a negative evaluation, which clearly contrasted with its CSAT survey results. It is conceivable that damage to customer loyalty accumulated among customers without being noticed was revealed in the form of a drop in revenue one day.

Why it is hard for customer loyalty to succeed in Japan

Even if they attempts to increase customer loyalty, Japanese companies will face an uphill battle. There are two main reasons for this:

The first reason is corporate silos. Generally, each department of marketing, product development, sales, and customer support carry out its activities independently. Each department is constructed in such a way that it is difficult for it to handle anything outside its areas of responsibility. Meanwhile, from the customer's perspective, it will be annoying to be told, "We're afraid we cannot handle this. Please call other department," when he/she calls a customer support. He/She would probably think, "After a long wait, I want you to transfer me to the relevant department." Vertical organizational structure, along with customer expectation gaps, contributes to keep the company from increasing customer loyalty.

The second reason is the probability of a short-term drop in sales when companies pursue strengthening customer loyalty. Many probably can't stop those practices that generate substantial profits, even though they may want to, while understanding that confusing complicated fee structures or processing fees to prevent cancellations invite customer dissatisfaction.

By nature, sales should be something earned as a result of the value provided to customers. Yet if they only chase after the business results of sales, they can no longer see the process that leads to the results, which makes them difficult to notice whether they are using the methods to earn sales that annoy customers. For customer loyalty management, separating from Bad Sales and pursuing only "Good Sales" is the way to go.

Approach to reform for Japanese companies

What can we do to get customer loyalty management to take hold in Japanese companies? We believe that three main approaches are required for it.

First, companies need to create small successes exercised by customer loyalty leaders. In other words, idealistic leaders, who are empathetic to customer loyalty, need to create success stories, which prove that they can generate revenue growth by increasing customer loyalty.

As mentioned earlier, in order to increase customer loyalty, companies need to carry out improvement activities horizontally throughout the organization. It will be ideal for top management, who by nature has authority over all departments, to take the initiative. But to do so, they need to build up a consensus within the organization by creating such success stories proving that they can increase revenues and employee's morale at the same time by enhancing customer loyalty. The success story could be a small one, and the leader could be one working in the middle levels of the organization.

The second approach involves the introduction of such a customer loyalty indicator as NPS as a KPI. Many companies set up sales a KPI, but as mentioned before, if they only look at sales figures, they can't determine whether it is the sales figures resulting from happy customers and customer loyalty increase, or the sales figures obtained while angering customers and jeopardizing customer loyalty. If they intend to pursue customer loyalty, companies need to set customer happiness as a target. By introducing a customer loyalty indicator as a KPI, it becomes possible for companies to realize a business model, in which customer loyalty leads to sales.

Once they introduce as a KPI, companies need actions for meeting their target. To do so, companies need to launch a CX department, whose role is to take initiative and coordinate among silos so as to accelerate customer experience throughout the organization. This will cut across the organization to make definite activity progress. This is the third approach.

Summary

Customer loyalty management is only achievable if top management is involved, as it requires total optimization within the organization. It will be a starting point that such activities are initiated by middle-level leaders, who empathize with customer loyalty and aim to make it a reality. With the accumulated "small success stories" that show that they can grow sales by pursuing customer loyalty, they can gradually turn their initiatives into a top management issue, transforming them into overall corporate initiatives to greater heights.