Does satisfaction equal loyalty?
Documenting "divorce costs" can help retain not-so-loyal customers
By John F Monoky -- Industrial Distribution, 8/1/1998
Much has been written regarding the need to satisfy your customers. I am not against customer satisfaction. In fact, it's critical! However, have you ever lost a satisfied customer to a competitor? Chances are the answer is yes, even if it was a customer you were doing all the right things for. They may have been satisfied based on the measurements you use, but decided for whatever reason (probably price) to go somewhere else. They were satisfied, but were they loyal?You see, customer loyalty is not the same as customer satisfaction.
Therefore, you need to measure the "cost of divorce." While keeping customers satisfied, start to document and measure the costs they would incur if they stopped doing business with you. How do these numbers stack up against competitive offers? If the divorce is cheap, customer loyalty may be suspect. These "pain factors" are your true value-added, plus anything else you do for the customer.
In an article titled "Partnering as a Focused Market Strategy," James Anderson and James Narus identify several ways to increase the loyalty of your desirable customers:
* Warranty, maintenance, and repair agreements can be offered to reduce the risk associated with usage of a supplier's products.
* Cooperative advertising and promotional allowances can serve the dual purpose of enabling small customers to advertise regularly and coordinating customer and supplier market communication efforts.
* Joint sales calls can be utilized to assist firms in developing new markets, or to deal with problem accounts.
* Coordinated cost-reduction programs dramatically pare the customer's real costs of doing business. Computer-to-computer order entry systems and just-in-time inventory programs are some examples.
* Technical assistance can augment the customer's technical product and application knowledge. Experts can make suggestions on how the customer can gain cost savings through substitute materials and alternative production processes.
* Logistics and delivery systems create value. For example, a manufacturer of paint pigments in "slurry form" -- rather than in "dry bag" form -- created greater value for the customer. This enabled the customer to reduce costs in the production process because they no longer had to emulsify the pigment before use.
* Computer networking capabilities can be used to troubleshoot customer problems from a remote location. Data and computer software can be downloaded on-site and transferred to the man- ufacturer's simulation computers. The distributor can troubleshoot the software and make corrections. The correct software can then be sent back to the customer.
* Value-enhanced programs upgrade the value of present customer products. Considerable value can be added to the product offering by reallocating upstream processing and production functions. For example, many steel service centers stamp doors and window panels for automakers, resulting in lower overall costs.
* The above benefits, along with the switching costs identified using activity-based costing, must be documented and reported to your customers regularly. These divorce costs can play a big role in assuring customer loyalty.
John F. Monoky is president of Monoky & Associates. He can be reached at (419) 536-7637.
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