How to measure loyalty without alienating your customers
Research suggests a 5 percent increase in customer retention will boost profits by 20-100 percent across a wide range of industries, which helps to explain why businesses both big and small are so focused on measuring customer loyalty and brand advocacy.
A common method is to simply phone customers after they bought a product or service to ask how satisfied they are. More business-savvy entrepreneurs will frame the question differently, asking customers how likely they are to recommend the brand to others. This produces what’s known as NPS, or Net Promoter Score.
But such bold tactics can be counterproductive and produce inaccurate results - phoning customers can damage the brand, surveys can be misleading and there are more reliable ways for fledgling businesses to track customer loyalty.
The impact of phone call interruptions
It’s understandable that a startup would want to engage with its early adopters to better understand their motivations and thoughts regarding the company’s products or services.
But calling them up isn’t such a good idea - phone surveys usually take place during working hours and are an unwelcome distraction. Researchers at Berkeley determined that on average, interruptions take 23 minutes and 15 seconds to recover from - even if the distraction is brief.
Disruptions make it harder to complete the task at hand, causing stress and anxiety. Every time someone is interrupted by an unexpected phone call, cortisol - the stress hormone - is released into the person’s body, raising their heart rate and stirring feelings of fight-or-flight (a physiological reaction that occurs in response to a perceived harmful event).
Those negative connotations are then associated with the cause of this stress: the company or brand that phoned them. Similar feelings are also associated with full-screen mobile banner ads that interrupt the reading of content or engaging with an app.
Dan Cobley of Google applied Heisenberg's Uncertainty Principle to marketing, demonstrating that the act of observing consumers changes their behavior, diminishing the usefulness of customer surveys.
How? We’re wired to avoid negative emotions, which is something we usually experience when giving negative feedback. Unless the product or service a business provided went terribly wrong, when asked people will probably say everything was fine and that they’d recommend it to others, rather than confront the company representative on the phone.
There’s a difference between what people say they do and what they actually do. Customers may say they’re likely to recommend a brand to their friends, but in reality they soon forget the company.
There’s also a phenomenon called ‘extreme responding’ where people tend to give a very high or very low score even though their true feelings are less pronounced. Researchers have found that certain regions - such as the Middle East and Latin America - are more prone than others to this kind of bias, while it’s rarer in the likes of East Asia and Western Europe. This makes conducting surveys in culturally diverse places such as Dubai even more hazardous.
These behavioral trends also explain how brands can achieve high NPS scores yet still suffer from low repurchase rates.
Better methods to measure user satisfaction
There are a few approaches that entrepreneurs should use to better gauge and encourage customer loyalty.
The first is to set up a referral program, which incentivises customers to share a referral code with their connections via social media, email or messaging apps.
Businesses can then analyse how many times each code was shared and how much revenue each code generated. Entrepreneurs can buy referral program templates that are easy to tailor to their own business, one example is Viral Loops.
Companies such as Dropbox and PayPal used referral programs to rapidly build customer loyalty and it remains a fantastic way to recruit advocates for a fledgling brand.
Another method entrepreneurs should consider is ‘Dark Social’. This refers to content - usually URL links - that’s shared through the likes of messaging apps or emails, and as such are beyond the reach of standard web analytics programs.
This data can be found, however, by configuring custom reports in Google Analytics or using third-party tools such as sharethis.com. Tracking parameters are embedded in the web page url, enabling Google Analytics to record how many times the url was shared and/or clicked, and how many purchases were generated through the link.
Lastly, the ‘K-factor’, or viral coefficient, measures the virality of an app or website when content is shared on social media. It measures how many new users are brought to the app or website by other users.
A common definition of K-factor is the number of invites each user sends multiplied by the percentage of accepted invites.
So if each customer sent five invites to their connections and out of these five, one became a new customer, the K-factor would be calculated as follows:
5 (invites sent ) *0.2 (portion of invites accepted) = 1
A K-factor of greater than 1 indicates exponential growth and a k-factor less than 1 indicates exponential decline.
To sum it up, the goal of every entrepreneur is to build a database of happy customers and a healthier bottom-line, rather than just analysing the numbers. Collecting customer feedback must be done when a business is able to listen to its customers and turn feedback into action.