How to Build Customer Loyalty in a Recession

Most executives say that customer experience is very important to their business, but very few really understand how it affects their bottom lines. With the current recession on everyone’s mind, you may be tempted to abandon your customer experience efforts because you are not sure your company will be rewarded with stronger customer loyalty.

To better understand the link between customer experience and customer loyalty, my colleague at Forrester, Bruce Temkin, used feedback from nearly 5,000 consumers and examined the correlation between how they rated a firm's customer experience and two measures of loyalty: 1) their willingness to buy another product from the firm, and 2) their reluctance to switch business away from the firm. His analysis covered 112 firms across nine industries. Here's what he found:

• A firm's Customer Experience Index correlates to customer loyalty. Although a company's Customer Experience Index (CxPi) has more of a connection with consumers' repurchase plans than it does to their reluctance to switch providers, there's at least a medium degree of correlation in both of these loyalty measures across all of the industries.

• Repurchase intentions can swing 15%. When it comes to the consumers' intentions for purchasing additional products from a provider, those in the top quartile of the CxPi were 6% higher than industry averages, while firms in the bottom were 8.9% below the average.

• Switching intentions can swing 18%. When it comes to the consumers' reluctance to shift business to a competitor, those in the top quartile of the CxPi were 6.8% higher than the industry averages, while firms in the bottom were 11.2% below the average.

If you are faced with new budget constraints, make sure you company stays in a position to capitalize on the business up-turn that lies somewhere ahead.

• Continue to champion the value of a differentiated customer experience. Keeping focused on the needs of the customer is difficult during a downturn because executive discussions typically focus on much more on financials and much less on customers. Forrester’s data demonstrates the positive correlation between customer experience and customer loyalty. Make sure that the executive team understands the tradeoffs that it is making. Dig in your heels about budget cuts that will significantly affect the experiences of key customers.

• Prioritize key moments of truth. With less money to spend on wide-ranging customer experience efforts, it's even more important to pick the right areas to focus on. That's why customer experience execs should identify a handful of moments of truth (MoTs) to work on. This tightening of focus will also help in determining the funding cutbacks that you can live with.

• Protect your most valuable customers first. All projects and customers are not equally valuable. Try to put the majority of cuts in areas that have the least impact on your most important customers. You may want to increase spending in some areas and make up for it by entirely cutting off other areas. It is crucial to deliver the best experiences for your most important customers, even if it means lower priority segments may have to suffer.