Would you rather have satisfied customers or loyal customers?
Satisfied customers are likely to recommend you to others.
Loyal customers are likely to return.
Or maybe you'd like to have both.
Most managers would guess that the same practices that result
in customer satisfaction also result in customer loyalty, but
that isn't necessarily so. That's one of the conclusions of
a study conducted by Laurette Dube, from McGill University.
Ms. Dube explored satisfaction and loyalty, but she drew from
a theory developed for a very different environment to
formulate her ideas: interpersonal relationships.
The theory is titled the "investment model," and it explains
satisfaction and loyalty in marital relationships. She tried
applying its ideas to customer-business relationships.
The investment theory explains deteriorating marital
relationships in terms of costs and benefits, emotional
investments, and replacement costs, but Ms. Dube recognized
that some strategies offered in the theory are already in use
in business.
For example, businesses may employ value-added strategies to
increase the long-term value of their relationships with
customers by offering greater benefits to repeat customers
than to occasional customers. Frequent flyer promotions of
airlines are an example.
Businesses may also employ value-recovery strategies to
respond to unhappy customers who have experienced breakdowns
in service. Guarantees, complaint-management programs, and
compensation for inconvenience are examples.
Ms. Dube explored value-adding and value-recovery practices
in business experiments she conducted at her school. She
exposed her subjects to a critical breakdown in service
delivery, and then she examined how various value-added and
value-recovery strategies affected satisfaction and loyalty.
One of her more interesting findings was to demonstrate how
people could be loyal, but not satisfied.
Dissatisfied, loyal customers are those who have large
investments in the relationship with the business, but
repeatedly experience breakdowns in service. As with
battered wives, they would lose too much to end the
relationship, but they aren't happy.
For example, airline customers can be loyal because frequent
flyer programs allow them to gain a benefit without incurring
additional costs, but when an air carrier experiences
frequent service breakdowns and makes no value-recovery
efforts to compensate affected customers, then these loyal
customers can become very unhappy.
Some businesses choose value-added strategies, like frequent
flyer programs, and intentionally neglect value-recovery
strategies. They rationalize the unhappiness these policies
create, explaining to themselves that the benefit of one
should balance the penalty of the other. Unfortunately,
Ms. Dube's research revealed a different pattern.
In her experiments, customers experiencing a service
breakdown with a company that provided both value-recovery
and value-added strategies were so much more satisfied and
loyal, that Ms. Dube recognized this as a genuine business
opportunity for anyone wishing to follow both of these
practices.
In plain language, if your business offers only value-added
strategies to benefit loyal customers, then you're very
vulnerable. And if you offer only value-recovery
strategies, like guarantees, then you're vulnerable, too.
The best approach is to offer both strategies, but if you
must choose between the two, it is far safer to offer
value-recovery strategies.
Reference: Dube, Laurette and Manfred Maute (1998) Defensive Strategies for Managing Satisfaction and Loyalty in the Service Industry. Psychology and Marketing, 15(8), 775-791.
Customer Psychology Findings, by James Larsen, Ph.D.
Loyal Customers
Research reveals a vulnerability and an opportunity.