Q&A with Jill Griffin: Companies Can Generate Customer Loyalty

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Griffin Group, Inc.

Jill Griffin is author of theinternationally publishedbusiness bestseller CustomerLoyalty: How to Earn It,How to Keep It, a HarvardBusiness School WorkingKnowledge recommendedbook. The Griffin Group, Inc.,is headquartered in Austin,Texas. Ms. Griffin’s clientsinclude Dell Computer,Marriott Hotels, WesternUnion, Advanced MicroDevices, Raytheon Aircraft,Cisco and the U.S. Navy.She can be reached atwww.loyaltysolutions.com.

Jill Griffin explains how companies can generate customer loyalty.

DTL: How do you define customer loyalty?

JG: There are different types of loyalty. “Premium” loyalty is the best. Customers that have premium loyalty exhibit four key behaviors. Number one, they buy regularly; number two, they buy a cross section of an organization’s products and services; number three, they refer others; and number four, they are immune to the pull of the competition.

When I began in earnest to research loyalty in the early ’90s, I was serving on the marketing faculty at the University of Texas. Knowing of my interests, UT Professor Robert Peterson generously shared with me a then-unpublished white paper by his colleagues A.S. Dick and K. Basen, noted academics and consumer behavior experts. I found the white paper extremely helpful in bringing into focus some often overlooked components that drive the purchase phenomena we call “loyalty.”

Dick and Basen explained that the level of attachment a customer feels toward a product or service is a prerequisite to loyalty. This attachment is shaped by two dimensions: the degree of preference (the extent of the customer’s conviction about the product or service) and the degree of perceived product differentiation (how significantly the customer distinguishes the product or service from alternatives.) Highest attachment occurs when a buyer feels a strong buying preference coupled with a high degree of perceived product differentiation. After attachment, the second factor that determines a customer’s loyalty toward a product or service is repeat patronage. Four distinct types of loyalty emerge if low and high attachment are crossclassified with high and low repeat purchase: they are inertia loyalty, latent loyalty, no loyalty and premium loyalty.

DTL: Do special promotions such as reward cards really increase revenue for companies?

JG: They can when they are executed effectively and build long-term loyalty. But having the right customer information is key.

Most firms lack a 360-degree view of their customer because they have no centralized database. Billing departments, sales divisions and customer service centers might all have their own databases with no effective means for creating a complete customer information composite. To effectively implement a sound customer loyalty strategy, data from all customer touch points must be combined into a centralized customer database. Without it, the firm is greatly handicapped in its efforts to serve the customer.

It’s a lesson casino operator Harrah’s Entertainment has aggressively leveraged. In the mid-’90s, while most other casinos invested money in creating glitz, Harrah’s took the road less traveled and built a winner’s information network (WINet) that provided the backbone of the firm’s Total Rewards Program. Harrah’s coast-to-coast customer database is an industry first and enabled the company to have the first integrated, nationwide system that allows real-time communication between all of its properties. This means that Harrah’s in Las Vegas can know a visitor from New Jersey’s gambling, eating and spending preferences. This customer insight enables the company to tailor services to the visitor through customized comps such as free dinners, hotel rooms, show tickets and the like. Bottom line, when the New Jersey customer comes to Harrah’s in Las Vegas, customized service can follow.

What’s more, Harrah’s can better target its marketing promotions so that customers are more likely to bite. For example, a customer receiving a mail promotion will call Harrah’s centralized call center for more information. The call prompts an array of customer information to pop up on the computer screen of the Harrah’s customer service representative. From knowing the customer’s tier (platinum, gold or diamond) to how much he’s won or lost to even possibly an estimate of his financial worth, the rep is armed with key information to help turn the caller into a confirmed reservation. The result? Sustained record sales and profits since the firm’s customer information system investment. Despite a sluggish economy, Harrah’s customer database capabilities helped drive the firm’s record $4.43 billion of revenues in 2003, up more than 5 percent from 2002.

DTL: How can emotional loyalty be generated?

JG: I encourage clients to think about the development of loyalty in stages. These stages are: suspects, prospects, first-time customers, repeat customers, clients and then ultimately advocates. We focus on identifying the emotional cues that are going to deepen the relationship from one stage to the next. Businesses can distill this emotional bonding by looking at three key questions. Very early in the relationship, when you’re trying to turn someone from a prospect into a first-time customer, the question that has to be answered is, “Why should I trust you?” You’ve got to be offering the cues that show that you are worthy of trust. After someone has bought for the first time, the customer’s next unspoken question is, “Who’s looking out for me?” Oftentimes customers have an incredibly good experience with a process or a person on that first purchase, but as they move into continuing customer status, the players that serve them may change. So the organization has to create emotional cues and experiences that positively reinforce that the new team is capable of providing a great experience. The third unspoken question arises in the later stages of customer development – at the client and advocate stages. At this point the customer wants to know, “What have you done for me lately?”

The biggest mistake an organization can make is to believe that a customer’s needs in the early stages of the relationship are the same as the customer’s needs in the later stages of the relationship. That is simply not true.

DTL: What might the different stages look like in terms of generating that loyalty?

JG: The first hurdle to cross is answering the question, “Why should I trust you?” I’ll give you a very simple example. I have a boutique consulting firm here in Austin. There was a mom-and-pop printing company that was opening its doors near my office. I popped in one day with a quick job and the woman behind the counter told me that they were not actually allowed, by virtue of their business license, to start conducting formal business until the next day. But because all their machines were ready, she took my file, made the quick copies, and told me she would put the receipt under the cash drawer and that I could pay on my next visit. As a first-time customer, she earned my trust, in a big way, by first extending trust to me.

Let’s look at the unanswered question of “Who’s looking out for me?” Consider the car industry, for example. When you buy a car at a dealership, your first relationship is with a salesperson, and if the sale was successful, you probably have a good relationship with the salesperson. Now, the next transaction, when you come back in to get that car serviced, will take you from the sales floor into the service department. That’s a completely new team. So here’s a customer, who is now coming back as a repeat customer and the team has changed. So what do you do as a dealership to transition that relationship so that customer is equally comfortable with that new team?

As the life cycle of the relationship continues, these service customers will hopefully come back into the sales opportunity down the road when they’re ready for the next car. This is where “What have you done for me lately?” comes into play. One of my favorite new loyalty features at Harrah’s is that they are able to mine their data, in real time, for high-value customers who are on the casino floor at that very moment. Let’s say that customer is on the slot machines. Harrah’s knows by virtue of mining the data that this is a high-value customer, and they can tell that the customer is on a losing streak. They have created luck ambassadors who go out on the floor and say, “We’re so glad you’re here; sorry things aren’t as you hoped they would be right now; here are some tickets for a show tonight; please enjoy it on us.” That’s an example of maintaining the customer relationship by leveraging the customer’s unspoken question, “What have you done for me lately?”

The No. 1 advantage of any kind of loyalty-card program is the information that’s collected about your customer base; that’s the whole point of these reward-card programs. A lot of companies don’t think about it that way. They think it’s about getting Joe Blow to redeem a $2 coupon. But what it’s really about is understanding what Joe Blow’s value to the organization is in relation to other customers, so that you can step back and manage Joe Blow as an asset.

DTL: How do workforce issues relate to building sustained customer relationships? How can companies satisfy and retain staff?

JG: Companies that enjoy high levels of customer loyalty also have high staff loyalty. Customer service comes first, but we also put staff loyalty processes in place so that we are doing everything in our power to create an environment where employees want to perform on behalf of the customer. There is nothing that can replace the good feelings, the empowerment and the zeal that employees can feel about their workplace when they feel well-treated. That spills over into how they service customers, and nothing can replace that. Employers need to think in terms of, “How do I make sure the needs of my employees are met so that they in turn can serve customers?”

How can companies satisfy and retain staff? One of my favorite books is First, Break All the Rules: What the World’s Greatest Managers Do Differently, by Marcus Buckingham and Curt Coffman. This book looked at best practices of over 80,000 managers and over 400 companies. One of the great findings in this book, and I’d seen this played out time and again with my consulting, is that the first-line manager, that person who is overseeing the employee day to day, that’s the person who is really going to define what that company feels like for the employee. Teaching managers to get into the hearts and the minds of the employee is key.

DTL: What are some innovative approaches that help companies gain loyalty?

JG: Rather than just talking specific companies, I would highlight another of my favorite books, How Customers Think: Essential Insights into the Mind of the Market, by Gerald Zaltman. Zaltman argues that corporate America has done itself a big disservice in thinking that customer questionnaires and focus groups are the means by which an organization learns about its customers. Surveys have a place, but, like Zaltman, I don’t see firms spending nearly as much time talking to customers face-to-face as they should. Zaltman has taken one-on-one interviews with customers to an entirely new level in regard to understanding how customers think and what’s on customers’ minds (unconsciously in many cases). The only real path to building loyalty is to continually uncover the needs of customers and then deliver to those needs.

DTL: What are the three most important things a company can do to provide great customer service?

JG: The first is to understand that the frontline manager has everything to do with how that employee is going to perform on behalf of the customer. Number two is having an ongoing process for uncovering how customers define value. I think companies today are very guilty of using old definitions of value. A great example of redefining value is Starbucks. Back in the 1980s, most of the major coffee manufacturers were engaged in price wars. They believed that couponing and lowest price were what would win customer loyalty. And then Starbucks shows us a whole new value model, and suddenly you got Starbucks customers coming back 17 times a month paying $3.50 or more for a cup of coffee!

Number three is that a firm’s systems (good or bad) drive employee behaviors. Systems should be in place that support the customer-centric mission and values the company says it stands for. Mission, values, relevancy and metrics together create systems that drive employee behaviors. Firms must look constantly at employee performance and how their systems are encouraging that behavior.

DTL: Do you think most companies do an adequate job of connecting with their customers?

JG: Some companies do it very well, but most are average to mediocre. Every company now has a huge upside opportunity to get better. Today’s stars are successful because they’ve seen the necessity and are relentless in pursuit of what’s next. The technology to gather customer information and turn it into insight has become affordable for even the smallest of companies. But I also think that customer-centricity starts at the top with the CEO. It’s one thing to give lip service to being customer-centric, but it’s another thing altogether to lead the firm so that it truly practices customer-centricity day to day.