You're Not Customer-Centric Just Because You Say You Are

Jim Barnes

Are we talking about loyalty or loyalty?

Steve, Graham, Malcolm et al

An interesting discussion, but it seems to me that, as with many such discussions, it founders on the problem of definition. What is customer loyalty? The answer, as it often does, depends on who is doing the defining.

If Reichheld can be characterized as simplistic (as he most assuredly is when he promotes his NPS), then Reinartz & Kumar are doubly so. A re-read of their widely-quoted HBR article will show that they defined customer loyalty almost entirely in behavioural terms. To them, a loyal customer is one who shops regularly at a particular store or who buys a certain brand every week. What they are talking about is repeat buying or customer retention, not loyalty (at least as I define it). Such “behavioural” loyalty as Reinartz & Kumar have discussed it is typically driven by convenience, low prices, an absence of attractive competition, and other such factors.

When I speak of customer loyalty, I am defining it from the perspective of the customer. So defined, customer loyalty implies a close connection with the firm or brand. Customers will reject the notion that they are loyal to a company just because they buy their products all the time. They may well be loyal, but they are not necessarily so. Loyalty does involve buying from the firm on a regular basis; but repeat buying does not necessarily mean loyalty.

Are all repeat buyers loyal? Certainly not. Do all customers have the potential to become loyal? Certainly not. I completely agree that a company should focus their loyalty development efforts (their customer centricity) principally on those customers who offer the greatest potential to become loyal. The problem is that most companies do not have the resources to be able to determine which customers represent the greatest potential value. Where they do have such resources, as enabled by customer databases, most firms resort to defining customer value (as Reinartz & Kumar did) in RFM terms — the recency, frequency and monetary value of their behaviour. Those who buy most often or spend the most are not necessarily the most loyal; but that is a convenient definition of loyalty.

I work closely with a large number of SMEs every year. Most of them intuitively understand loyalty and what it takes to engender it. Most lack the ability to calculate the ROI on their interaction with customers. In fact, most don’t think in those terms. They understand what it means to be customer-centric and they conduct themselves accordingly.

I worked recently on a project that involved doing focus groups with owner-managers of SME companies. During one of the groups, I asked participants to complete the following sentence: “Why can’t all of our suppliers be more like _____?” I was expecting them to answer with names like FedEx, Dell, or Office Depot. Instead, two of the owners replied in unison “US”. What can’t our suppliers be more like us? We know what it takes to please customers and to drive loyalty.

As we all know, SME owners are closer to the customer and have a greater likelihood of knowing what works and what doesn’t. The challenge is for larger companies to emulate them.

I’d like to suggest that Steve’s last paragraph should actually be turned around, in the name of customer centricity. Rather than focusing first on the products and services that give US the best return, I would think that a truly customer-centric company would start with understanding customer needs; not a simple task in itself. Focusing first on what delivers the best for us suggests to me a rather company-centric view of customer centricity.

Jim Barnes