Reliability and service don't drive loyalty
Despite the commonly held view that good customer service and reliable products will keep customers loyal, more than half of customers are likely to defect to a competitor's brand when a product needs updating or when their current contract expires, according to a study by global research consultancy TNS.
Almost two thirds (60%) of customers are likely to defect to another brand when buying new electronic products; 57% would replace their car with a different brand; and 64% would opt for another manufacturer when selecting white goods like a washing machine.
According to TNS's global analysis of 40,000 customers, companies can no longer ensure loyalty and spend just by providing a reliable, consistent service. In fact, many of those who defected to a competitor actually felt their current provider was performing well.
Looking at the banking, utility and telecoms industries, TNS identified that more than 50% of companies are failing to translate good performance in terms of product and service delivery into customer preference for their brand. European mobile network providers were found to have the most notable 'performance-preference gap', with one in five customers rating their provider's performance highly but admitting they still would not necessarily prefer them over competitors.
Companies that fail to address this gap are wasting their budgets trying to improve their individual performance in the eyes of customers, while failing to understand the risk posed by other providers, and more importantly, how attractive these competitors are to their customers.
"Given the fierce competition in many markets, securing valuable customer relationships requires a deep understanding of what drives your customers' behaviour," said Stefan Schmelcher, global head of customer experience for TNS. "The most successful businesses are able to translate what's best about their performance into an active customer preference. They don't just invest in any service or promotion; they get smarter about the customer experiences that matter and deliver on the bottom line. Simply throwing resources at different touch points - without understanding how to build a personalised service - will only undermine long-term credibility."
The study found that the strength of the customer relationship is the key to loyalty: customers with the strongest relationships with their various providers are three times more likely to stay loyal, six times more likely to recommend the brand, and five times more likely to buy additional products and services from the same company.
"In each case, companies need to uncover the optimal balance between what customers want and what delivers profitable growth for the business," concluded Schmelcher. "The reality for today's brands is that best isn't always right. The most successful companies permanently question their investment in different customer experiences, and they know where they gain the most advantage and then build their proposition on customers who love and advocate their brands."