Building loyalty through customer experience

While most companies agree on the importance of a loyal customer base, it remains an elusive goal. Many companies that track customer satisfaction quickly become frustrated and sometimes abandon loyalty efforts, according to Dr. Larry Crosby, Chief Loyalty Architect at global research and consultancy Synovate. "I'm happy to say there is a new loyalty management concept in town and that's the notion of the customer experience," said Crosby at the recent "Creating Value Through Service" symposium in Shanghai. The event was organized by the W. P. Carey School's Center for Services Leadership and the Center of Service Marketing and Management at Fudan University.

Many companies that track customer satisfaction quickly become frustrated and sometimes abandon loyalty efforts, according to Dr. Larry Crosby, Chief Loyalty Architect at global research and consultancy Synovate. In a 2007 Conference Board survey, customer loyalty ranked sixth among CEOs' most important corporate challenges, compared to topping the list in 2000. Crosby attributes loyalty's fall in the rankings to organizational frustration and loss of confidence in executing customer loyalty strategy.

Most companies agree on the importance of a loyal customer base yet it remains an elusive goal. "I'm happy to say there is a new loyalty management concept in town and that's the notion of the customer experience," said Crosby at the recent "Creating Value Through Service" symposium in Shanghai. The event was organized by the W. P. Carey School's Center for Services Leadership and the Center of Service Marketing and Management at Fudan University.

In a world where customers have complex and ever-changing expectations, creating exceptional and memorable customer experience is the key to customer loyalty. A 2006 Synovate survey found that only 29 percent of American customers perceived an improvement in the loyalty performance of their favorite brands, as opposed to 41 percent of customers in China or 77 percent in India.

"You can see that in growth markets, for historic reasons, customer expectations are not that high. So customers are very pleased when companies begin to take their interests into account. But in more developed markets where customer expectations are known to be high, companies have already done the easy stuff and found the quick fixes. So customer loyalty gains become much harder," said Crosby. As soon as companies provide better service, customers' expectations naturally rise to the level of that service.

Designed experiences

Loyalty schemes have traditionally offered customers rewards in exchange for continued patronage. This reactive approach has the disadvantage of spawning a "what have you done for me lately" attitude among customers, which can prove overwhelming and disheartening for companies. Proactively orchestrating a customer's interaction with a brand, product, or service, on the other hand, makes the experience itself the loyalty incentive, allowing companies to make sustainable gains in customer loyalty.

"While loyalty remains the goal, customer experience is increasingly seen as the way to make it happen," said Crosby. Importantly, these designed experiences must relate directly to a brand's core values. Inconsistencies between customers' perception of the brand and the customer experience may lead to a loss of loyalty, rather than a gain. Cabela's, the U.S.-based hunting and fishing supplier, enjoyed a well-established direct business in catalogs and online stores.

But in the early 90s, the direct outfitter needed to reconnect with customers and better recruit and retain buyers. The private family business decided to open a series of mega stores. These mammoth buildings did not resemble the bland warehouses of other retail brands.

Instead, the Cabela's stores, now numbering 28, are part retail space, part natural history museum and part tourist attraction, featuring stuffed game poised on artificial mountains, waterfalls, trees, gun libraries and murals. The flagship store in Sidney, Nebraska, the corporate headquarters, is one of the state's premier tourist attractions and welcomes a million visitors a year. The stores became a destination, inexorably linked with the outdoor-inspired brand.

The 28 stores attract school groups, hunting clubs, tourists and most importantly, their prime audience: older men who normally hate to shop. The company went public in 2004 and total revenue in 2007 reached $2.35 billion, a year-on-year growth of 13.9 percent. Cabela's translated a well-established brand into an exciting retail experience, increasing on- and off-line customers. But what if your brand and customers are in constant flux?

Operational capability

Marriott International opens its doors to a wide variety of customers across the globe. To stay competitive the global hotel giant depends on extensive customer research and customer demographics to constantly innovate around the "Marriott experience." Marriott works from 5-year customer experience platforms, developing distinct customer experiences based on current research and tomorrow's trends.

From 2000-2005, Marriott responded to a growing number of Gen X and Y travelers through the segment's proven need for "personal luxury." Marriott, across some of its 19 lodging brands, upgraded facilities with high-thread-count sheets, spa features in the bathrooms and the best in interior design.

For communication-minded business travelers, the 5-year module saw Marriott collaborating with the Korean IT provider LG to build a proprietary connectivity panel, providing guests with a multi-media interface for TV, iPod, and Wi-Fi Internet access. Marriott's continuous process of research and experience defines what Crosby calls "operational capability" — the demonstrated and sustained ability of the company to profitably provide an exceptional customer experience that builds lasting bonds with the customer.

Emotional motivation

Marriott and Cabela's, however, may be more motivated and suited to build an organizational capability aligned with the customer because they belong to more service-oriented industries. But customer loyalty is equally important across all industries, asserted Crosby. According to a 2008 Synovate meta-analysis of 275 studies, the average impact of emotional motivation on loyalty outweighs rational motivation by 2:1 margin, in both goods and services.

While B2B clients are slightly more rationally determined, emotional motivation still plays a large role. The customer experience, Synovate found, directly influences emotional motivation. Because emotional motivation remains a factor for B2B industries, companies like Zimmer Inc. have also seen the advantages of applying a customer experience strategy.

Despite the fact that Zimmer's clients are surgeons and hospitals, the precision tool manufacturer ensures a consistent, brand-oriented Zimmer experience — from the salesroom, manufacturing plant, surgical training centers to trade shows and conferences. "Across all these cases, emotional motivation is a stronger driver than rational. But where do companies focus most of their efforts? I would argue they focus most of their efforts on the rational side of the equation," Crosby said.

All companies, whether goods, services, B2C or B2B, should design and sustain an organizational structure centered about customer experience. An outstanding customer experience, consistent with brand DNA and supported by internal processes, means significant and sustainable gains in customer loyalty.

Bottom Line:

• Companies are struggling with making customer loyalty strategy work.
• Companies need to align the customer around the customer experience.
• Emotional motivation plays a key role across all industries, including manufacturing and B2B.
• Companies must build organizational capability not to look at loyalty one time, but to make loyalty a continuous process.

The W. P. Carey MBA-Shanghai, launched in 2003, is an accelerated executive program for CEO-level participants and top government officials. The vision of the program is to cultivate world-class executives for China's state-owned enterprises and to advance Sino-U.S. trading relationship.