April is International Customer Loyalty Month….and That’s No April Fools

April is the month where you are to make a special effort to create more loyalty among customers. I’m not kidding, there’s a month dedicated to this.  It seems strange that you only have to do this one month a year. Is there a month for being nice to your Mom or telling the truth?  It would seem that what’s important in April would also be correct all year around.

 Even Google didn’t seem to know who thought up this approach, but whoever it was probably understood that loyal customers buy more from you even without promotional offerings. They recommend you to others and they even give you a second chance if something goes wrong. 

 The question is how you achieve loyalty? Loyalty is a gut level thing rather than the transactional phenomena of satisfaction that many companies seek. You are loyal to your alma mater, your home town or some sports team and of course your dog. This is a long lasting thing that doesn’t go away quickly like the satisfaction you get from a good ice cream cone.  Studies have shown that satisfaction doesn’t motivate people to buy, but loyalty does.

 Our significant studies into loyalty show that it is developed through three elements. First, there does have to be a history of satisfactory transactions. If your broker doesn’t return you phone calls, or your store is out of stock on the items you want, or your bank charges you fees that are not justified in your mind there is little hope of loyalty. Businesses have to be good at what they do. 

 Secondly, loyalty occurs when the organization is unique in something important that they do. Nordstrom is unique in their focus on service. Wal-Mart is unique in their ability to deliver low prices. Loyalty is developed when some unique part of the company offering attracts you because it is an important differentiator for you.

 Thirdly, there must be ongoing and effective communication between the organization and its customers or members.  A conversation, sharing some important information or otherwise adding some value to the relationship all qualify as effective communications. Imagine that the only communication between you and your alumnae association was their request for funds. This would probably not make you want to contribute, but if they effectively reminded you about the wonderful campus days, the story might be different. That communication kindles the loyalty.            

 Organizations who focus on developing loyalty thrive even in tough economic times. Perhaps the focus on loyalty is why Southwest Airlines is the most profitable and fastest growing US airline while the others crank out their satisfaction surveys and add ancillary charges for just about everything. Maybe they will change now that it’s International Loyalty Month.

Reprinted with permission of Evergreen Newspapers

What Causes Businesses to Fail?

When the economy turns down, there is always an increase in business failures. At the same time, there are always businesses which thrive even in tough times.  I have thought a great bit about why this dichotomy exists.

 I recently completed Jim Collins new book “How the Mighty Fail.” which studies the downfall of once mighty companies. He maps out a five stage formula to track the downfall and predict whether a turnaround is possible. Many smaller companies, don’t last through five stages, they simply go from viable to unable to make payroll as revenues are pushed down by a tough growth cycle.

 One of the key points Mr. Collins makes is that successful companies must understand what has made them successful.  That is, even in good times, what is it that attracts customers to the company?

 My observations convince me that if asked, “What is it that attracts customers to you and causes them to keep coming back” many CEO’s would struggle to give a clear answer.  Allow me some examples, please. Would the head of the post office know the answer, hmm probably not. How about Chrysler or Sears? I don’t think so. What about Southwest Airlines, Wall Mart or Fed Ex; you bet they know and they focus on the delivery every day.  

 So, the point is that all business owners should focus on maintaining whatever attracts and retains customer loyalty.   If you have the lowest prices and the best deals in your industry, raising prices is a formula for disaster. If you differentiate yourself with personal service, reducing your service offering will do you in. Would Wall Mart ever give up their absolute fixation on low prices or would Nordstrom lessen its clear focus on the customer and the service excellence strategy?

 In order to follow the simple idea of not giving up what makes you special, businesses must know what their differentiator is.  The weak economy may hasten business failure, but businesses that don’t understand and protect what’s special about them are on borrowed time anyway.

 As the economy improves, and business cycles dictate that it will, those businesses which strengthen what makes them special will recover faster and better.  The business cycle doesn’t define business success, the ability to deliver what makes a business special does.

 Jim Rohrer, Managing Partner of The Loyalty Partners is a business consultant and expert in loyalty

I recently read the quip, “Service isn’t what it used to be; it never was.” One approach to service in the auto business is to include it in the price of the car. BMW and Mercedes do this the best and they generally deliver very high levels of service. Selling prepaid service is not a particularly new idea. Sears has been doing it for years in their appliance business and may other retailers attempt to sell product protection plans just in case your product breaks or otherwise becomes inoperable. Part of what’s being sold with the prepaid service is piece of mind. I say that now, but learning this was a hard lesson for me.

As Operations Manager for the Michigan retail stores, a significant part of my responsibility was to oversee the various service departments which served the customers of the Michigan stores. Ultimately the profit or losses of these service units folded into the profitability of the stores. Actually it was a very significant factor and the poor performance contributed to the profit ranking of the stores as 39th of 42 regions within the company. Obviously, improving the performance of the service units was a very high priority for me.

Of course, there were many factors in the poor performance of the service departments, but the most obvious need for improvement was in the area of selling prepaid service called maintenance agreements. The Detroit stores were particularly bad; in fact they ranked last in the entire company. Store salespeople either couldn’t or wouldn’t sell these agreements. The high levels of appliance sales from these very large sales producing stores, made it very difficult for the service department to compete with units in other parts of the country.

I attacked this problem with vigor. We had sales contests and many other promotional events to cajole the salespeople into doing a better job. No improvement. We had our people ride with service techs so they could see first hand how the service business was conducted and how important it was that we serve the business well. No improvement. Then we got tough. We told our people that selling these agreements was part of the job and if they were not able to do this successfully, they might not be right for that important and high-paying job. No improvement. This was not a short-term problem. It had existed forever and it seemed that it would continue. It was clear to me that without significant improvement in this important area of our business, the profit improvement we needed would not occur. Other regions made millions of dollars annually in service, but we never booked even a half million dollars.

Finally in desperation I agreed to visit the Memphis Region which led the nation in the sales of these agreements. I remember that I was not eager to make this trip. I doubted that there was anything I could learn there. This Detroit problem was just something that came with the territory, and would probably never change.

When I first arrived, I was directed to the call center where customers called to describe their service need and arrange for service to correct their problem. At first, the calls sounded the same as our calls, but after listening a little more carefully, I started to hear things I never heard in Detroit. Customers were asking for next day service and the folks on the phone were agreeing. Back in Detroit, we couldn’t possibly grant such requests. If we got to the customer’s home in less than 4 or 5 days it was considered a good response.

I checked the percent of time that the service call had to be repeated because the service van didn’t have the right part on board. Their percent of this was negligible, while ours was very high. This meant that their investment in stocked parts must be much higher than ours. While I saw the differences, I was unable to translate that into profitability at first.

As I talked to the managers, it became obvious to me that their level of service to their customers was so much higher than ours. Their service levels made selling the piece of mind that prepaid service offers a short jump. In Detroit, selling piece of mind was next to impossible because of the very poor level of service we provided our customers.

Another important factor in the service level we gave was the lack of confidence our service people had in our leadership. Our technicians were unionized and the conventional wisdom was that they didn’t care about the company. The truth was that the company had not communicated to them that they cared about the company’s customers or the technicians that provided that service. We rented a movie theater and brought in all 700 of our unionized technicians. I told them that the meeting would be a short one. We had decided to be the best in terms of service, but admitted that we didn’t really know where to start. We asked for their help and told them we had instituted an 800 number to record their suggestions and had appointed a bright young assistant manager who they respected to sort through the suggestions. I promised that every reasonable suggestion would be seriously considered.

The calls started slowly, but finally they came in. Give us more technical training, have the right parts in stock, update our tools, fix our old and decaying truck fleet and many more. We did them, but we also demanded that customers tell us when they wanted us to come rather than for us to tell them when we would be there. Managers were graded on the percent of promises they kept and the number of calls that were completed with one service call.

We reported these improvements to our store salespeople, and the customers reported them as well. Gradually, the sales of the maintenance agreements began to increase. It reminded me of a rocket launch in that it took a great deal of power to see any movement. Then it rose slowly, but finally it soared.

Detroit was not the problem, poor service was. Once we began to provide the type of service our customers deserved, our people had no trouble producing at high levels. Our reward was profits over twenty times greater that the best service profit year ever.