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The Current State of Customer Loyalty – What Can Companies Do About It?

In my last blog, I shared some evidence that suggests that customer sentiment is on the decline, which I hypothesized was a function of the economy. The bottom line was that left unchecked, this will become a self-destructive cycle that can have severely negative impact on the company and its employees. So, what can we do about it?

 

Here are five strategies that companies can pursue to ensure that they come out of the recession as intact as possible (and, possibly, emerge as an even stronger organization):

 

1)      Understand where you provide value, and invest in it – Companies that do not understand where they provide value will be tempted to make flat, across-the-board cuts in their budgets in an effort to control costs. This is terribly short-sighted – rather, they should analyze how (and where) they provide value relative to the competition and – perhaps more importantly – where they are spending money that creates little or no value. Once these areas are identified, invest in value creators and eliminate the non-value-added activities. Understanding these dynamics will provide more opportunity to do more with less without having an adverse effect on the firm.

 

2)      Reinforce your value proposition externally – We have never seen a client that cannot benefit from more (and better) communication with customers; this is particularly critical during challenged economic periods when customers are more likely to be frustrated and – at the same time – will exert price pressure.

 

3)      Use the strained economy to launch a product versioning strategy – A challenged economy may be the best time to develop a product versioning strategy – in other words, develop variations on existing products and services that provide another (generally lower) purchase point for customers. Some will balk at this – after all, it means, to some extent, cannibalizing your own customers; however, if the alternative is that the customers do not buy (or bargain so hard that they eat the margin of top-tier products), this does not serve the company’s best interest.

 

4)      Look for synergies via a strategic acquisition – Loyalty leaders experience greater profitability, less volatility in stock price, and generally greater stock value appreciation over time. These benefits are essentially magnified during a challenged economy, as less customer-oriented firms will likely struggle more. This position of strength may provide the financial wherewithal to pursue a strategic acquisition; however, we would caution firms against the temptation to absorb a weaker competitor simply to gain market share. The reason comes back to customers – a weak competitor will likely have greater flight risk among its customer base, suggesting the asset you are buying may not be stable. Our guidance – make sure you know what you are buying.

 

5)      Adopt a “we are all in this together” attitude – with both customers and employees – This is more of a communication strategy that can be done in conjunction with the prior three strategies – showing your employees that you know where you create value with reinforce what is critical to the firm (and will provide a clear line-of-sight on where the greatest opportunities for success are). The product versioning strategy reinforces to customers that you recognize the economic realities (and value them as customers), but it also re-frames the expectations around features, service levels, etc.

 

Starting with an understanding of what customers value (and how you can invest and differentiate on this value) will help to ensure that you are focused on generating the greatest return and can serve to focus employees on what matters most.

 

Employees should be mindful of how they fit into the picture; in the final blog of this series, I will discuss some strategies that will serve employees well in any economy (but particularly in a challenged economy).

 

Mark A. Ratekin

Senior Vice President, Consulting Services

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