Business Case and Implications for Consistency – Part 3: The Causal Chain from Consistency to Customer Loyalty
In an earlier post we discussed the business case for consistency, primarily because consistency drives customer loyalty. This post describes the causal chain from consistency to customer loyalty.
Brands are defined by how customers experience them, and they will have both an emotional and behavioral reaction to what they experience. It is these reactions to the customer experience which drive satisfaction, loyalty and profitability.
There is a causal chain from consistency to customer loyalty. McKinsey and Company concluded in their 2014 report, The Three Cs of Customer Satisfaction: Consistency, Consistency, Consistency, that feelings of trust are the strongest drivers of customer satisfaction and loyalty, and consistency is central to building customer trust.
For example, in our experience in the banking industry, institutions in the top quartile of consistent delivery are 30% more likely to be trusted by their customers compared to the bottom quartile. Furthermore, agreement with the statements: my bank is “a brand I feel close to” and “a brand that I can trust” are significant drivers of brand differentiation as a result of the customer experience. Again, brands are defined by how customers experience them. In today’s environment where consumer trust in financial institutions is extremely low, fostering trust is critical for driving customer loyalty. Consistency fosters trust. Trust drives loyalty.
Previously we discussed the concept of “moments of truth” where some experiences in the customer journey have far greater importance than others. These moments of truth represent increased risk and opportunity to leave a lasting emotional impression on the customer; a lasting impression with significant long-term implications for both customer loyalty and wallet share. The purchase and sales experience is one such moment of truth. One study published in McKinsey Quarterly has determined that the purchase experience of financial services motivated 85% bank customers to purchase more financial products or invest more assets with the institution. (Beaujean et al 06)
We also introduced the concept of defining emotions using two dimensions of mood: valence (positive or negative) and arousal. Again, as we previously observed, modern research into brain activity during the decision process suggests that decisions are made within the brain before we are consciously of them. Emotions provide a short cut to acting on decisions, and rational thought appears to justify decisions after they are made on the subconscious level.
So…given that emotions play a key role in financial decisions, what are the emotions bankers encounter as part of the sales experience?
The emotions financial service customers experience vary by customer, financial need, circumstance and product/service sought, however the emotions a prospective customer may experience include:
• At Ease/Satisfied
So…what do we do with this enlightenment?
First, knowing that people are motivated to maintain positive emotional states and change/mitigate negative emotional states, it is important for the banker to recognize the prospective customer’s emotional motivation and offer solutions which will achieve either of these ends.
Kinesis has conducted research into purchase intent as the result of financial service sales presentation which may be instructive. Click here for this research.
Time and time again, in study after study, we consistently observe that purchase intent is driven by two dimensions of the customer experience: reliability and empathy. Customers want bankers who care about them and their needs and have the ability to satisfy those needs. Specifically, our research suggests the following behaviors are strongly related to purchase intent:
Interest in Helping
Discuss Benefits & Solutions
Promised Services Get Done
Friendly & Courteous
Both empathy and reliability require employees with Emotional Intelligence. These are employees with a positive outlook and a, strong sense of self-empowerment; self regulation; awareness of feelings (both their own and customers); master of fear and anxiety and the ability to tap into selfless motives.
Sales presentations are moments of truth with the potential to leave a lasting impression on the customer with significant long-term implications for both customer loyalty and wallet share – with obvious financial benefits for the institution. We’ve found that branches with above average frequencies of behaviors associated with reliability and empathy experienced a 26% stronger three-year branch deposit growth rate than branches with low frequencies of these behaviors.
Next, we’ll take a look at moments of truth in the context of problem resolution.
There is no such thing as customer loyalty. Loyalty…true loyalty… loyalty through thick and thin – requires an irrational customer, one who will stay with the bank regardless of the bank’s performance.
Every time a customer interacts with their bank, they may learn something as a result of the experience, and adjust their behavior as a result of what they learn. What we perceive as loyalty is an illusion, rather it is actually the product of an ongoing calculation each customer makes conscious or subconsciously to either initiate or maintain a relationship with a bank. This is the customer value equation.
The customer value equation is simply the sum of the benefits of banking with a given institution minus the sum of the costs of choosing another provider. If this sum is positive, the customer will act as if they are loyal. If this sum is negative, the customer will behave as if they are disloyal.
The first term in this equation contains all the possible benefits associated with the bank. These include the obvious, such as convenience of location or hours, rates and fees, breadth of delivery channels, and customer service. However, they also include less obvious intangible benefits, such as doing business with a local community bank, or the prestige of one financial service provider over the other.
The second term contains the sum of all the costs associated with the banking relationship. Again, the obvious are rates and fees. However, there may be other acquisition costs, such as, the effort of switching providers, as well as intangible costs such as potential risk of switching financial providers. These intangible costs are significant, and play a significant role in what we perceive as customer loyalty, where customers remain with a financial institution more out of inertia, than other reasons.
A common objection to the customer value equation as a model of customer decision making is that it assumes that all customer decisions are completely rational, something that flies in the face of modern research using fMRI machines to probe the biological underpinning of decision makings. This research strongly suggests that many decisions are neither conscious nor rational. However, the customer value equation model allows for this equation to be subconscious and the intangible terms on both the cost and benefit side of the equation allow for irrational benefits and costs to be inserted into the customer’s decision making.
The proposition that customers are not loyal, and that behaviors we use to describe loyalty are really the result of an ongoing calculation of benefits and costs at first may seem daunting, but embracing the proposition that customers adjust their behavior based on what they perceive about a provider, gives managers a valuable model to think about customer loyalty in ways that mirror customer decision making. Understanding the customer value equation gives bank managers a rational framework to make investments in product, positioning, price and place to best match their offering with their customers’ value equations.
How might banks use the concept of the customer value equation to manage the customer experience?
A colleague of mine is fond of saying there is no such thing as customer loyalty. He argues loyalty…true loyalty…loyalty through thick and thin – requires an irrational customer, one who will stay with you regardless of the outcome.
The fact of the matter is customers are rational. What we perceive as loyalty is an illusion, rather it is actually the product of an ongoing calculation each customer makes to either initiate or maintain a relationship with a provider. This is the customer value equation.
The customer value equation is simply the ratio of the benefits of a product or service over the costs of the product or service. If this ratio is greater than 1, the customer will act as if they are loyal. If this ratio is less than 1, the customer will behave as if they are disloyal.
The numerator in this equation contains all the possible benefits associated with the product or service. These include the obvious, such as the quality of the results and the process quality. However, they also include less obvious intangible benefits. The owner of a luxury car, for example, may perceive an intangible benefit of status associated with this luxury vehicle.
The denominator contains the sum of all the costs associated with the product or service. Again, the obvious costs are price. However, there may be other acquisition costs, such as installation or maintenance. Additionally, this should include intangible costs such as potential risk of switching.
As customer experience researchers, we are constantly considering the customer value equation to provide context from which to interpret our research.
Furthermore, understanding the customer value equation gives managers a rational framework to make investments in product, positioning, price and place to best match their offering with their customers’ value equation.
How might a manager use the concept of the customer value equation to manage the customer experience?