Innovating in customer relationships: From loyalty to empowerment
Businesses should strive for customer loyalty, right? Loyal customers tell their friends and contacts how good a company is, thereby lowering acquisition costs. Loyal customers stick around longer, keeping the competition at bay. Loyal customers provide repeat business, a bigger share of wallet, and more useful feedback about problems and opportunities. No wonder companies in so many industries emphasize locking in customers by winning their loyalty.
But the pursuit of loyalty has become more complicated in the digital world. The cost of acquiring new customers has fallen, even without loyalty programs. Customers—empowered by digital tools and extensive peer-reviewed knowledge about products and services—now often do a better job of choosing among buying options than companies do. Switching costs are low. Most significant, the former passivity of customers has been superseded by a desire to fulfill their own talents and express their own ideas, feelings, and thoughts. As a result, they may interpret efforts to win their loyalty as obstacles to self-actualization.
Instead of fighting that trend, why shouldn’t companies embrace the paradox that goes with it: the best way to retain customers is to set them free.
The invention company Quirky, for example, lets the ideas and votes of its online community guide the products it designs and produces. MakerLabs, an interactive design–build collective, provides its members with the tools and expertise they need to build what they want.
Established companies can also make the switch from loyalty to empowerment.
Consider the pension and insurance industry, long governed by the belief that complex investment decisions are best made by experts (companies or intermediary financial advisers) on behalf of account holders. A multinational insurance and pension provider reframed that belief by proposing the opposite: what if customers preferred to make their own investment decisions, even if they didn’t have the credentials of investment professionals? The company now provides customers with web-based investment information and decision-making tools, along with appropriate risk warnings. These enable customers to invest a percentage of their funds directly in businesses of their choice. This effort is in its early days, but customer pick-up and the profitability of products are promising.