Creating Loyal Customers

If you want to stay competitive in 2000 and beyond, you'd better know the answer. There's a deceptive myth that has many believing that satisfied customers are loyal ones. "Customer satisfaction, in and of itself, does not lead to loyal customers," says Bob Tate, head of marketing at Vantive Corp., a US-based customer-information systems-software vendor. "You can have the happiest customers imaginable, but they still buy competitors' products. It is through loyalty that you are able to generate much higher revenues and increase margins. It's been shown time and time again that loyal customers pay more money for their second purchase than the first purchase."

That's all well and good, but it's also been shown that companies with even great reputations typically lose 50% of their customers over a five-year period. You only have to look at most people's buying practices of personal computers for an example. Chances are your current brand of computer is different from the last, and it's likely that when you buy a new PC, a different brand's "Special Deal!" is going to tempt you to switch again, given most PCs today are virtually identical.

One exception: Macintosh users. The Macintosh, in spite of the woeful company that makes it, has created passionate customer loyalty that's kept the faithful buying Mac after Mac, even when Apple danced with death 12 months ago. Other products achieving a similar loyal following include Harley Davidson motorbikes, a few makes of cars, Coca-Cola and Nike sports shoes. But for most of us, today it's a Sony; tomorrow it's a Matsushita or Toshiba gizmo.

So if products and customer satisfaction fail to inspire loyalty, then what does? Speaking to the American Chamber of Commerce High Tech Committee in Tokyo recently, Tim Tyler, director of business development with Baan Japan, the Dutch-based enterprise resource planning, or ERP, software vendor, cited work done by researchers from Texas A&M University on what inspired loyalty. In order of importance, those surveyed required reliability, company responsiveness, company assurance and empathy. Only in fifth position came tangibles like price and materials.

But for a company to achieve such an elevated level of customer understanding, it must first have in place an information technology system for seamless sharing of real-time customer and corporate information. "Yet the very people who typically have customer information needs are not the ones who interface with customers," says Vantive's Tate. The reality is that in most corporations, the support people can't tell customers what is the shipping status of their products. Instead, they tell customers to phone another department. Meanwhile the sales staff has no idea that a service engineer has learned of a customer's plan to ditch its old products.

The need for seamless communications is why ERP companies are now scrambling to tie their back office software to front office systems used by those who interface with customers. "Companies need systems that can recognize individual customers today," says Baan's Tyler. "They need systems to supplement service providers' memory of the customer, systems that accelerate the service process.Ó

It all boils down to making customers feel important, to know what they need, and to provide it before they have to ask. A company can no longer depend on monthly or weekly sales forecasts to create loyalty, "Because they'll not be ready to meet the changing demand," Tyler says.

But the message is getting through. Corporations are beginning to enhance their entire supply-chain management so that they can move from an impersonal "make to stock" model to an "engineer to order" interactive service. This requires that the sales force and the entire support and service folks keep their ears pricked and feed back customer information to each other as well as to manufacturing, thereby keeping on top of changing needs and adding value to their role in the chain.

As the next decade rolls around, the ERP model of the '90s won't be enough to keep satisfied customers from straying to the competition. The new model for the new millennium is Value Chain Resource Planning, where the entire company becomes responsive and proactive to its customersÕ needs in an effort to turn them into loyal ones.

This is something Japanese companies in particular are going to have to come to grips with. Their over-weighted focus on manufacturing, to the detriment of providing sophisticated IT-driven services, means they are typically still working at the impersonal level, just as customers are beginning to expect a personal touch.

John says he's working hard to improve his own value chain in order to turn casual readers of Industry Eye into loyal readers. If you have any suggestions send them to boyd@gol.com.

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