‘Dans le Souk aux Cuivres’, Nicola Forcella, an Italian painter born before 1868 (Source: Wikimedia Commons)
Ideas for Leaders #364

How Customer Participation Builds Loyalty

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Key Concept

Companies focus on encouraging customer word-of-mouth while ignoring the benefit of customer participation — encouraging customer feedback and suggestions to the company. Yet, research shows that participation can increase customer loyalty even more than word-of-mouth. 

Idea Summary

Customer word-of-mouth is a hot topic in marketing today. Positive customer-to-customer reviews, whether verbal or written, are powerful marketing tools because they have more credibility with customers than company-generated marketing. In addition, once customers help spread the word about a company’s products, they are more engaged and committed to that company.

Customer participation, on the other hand, is systematically overlooked by the same marketers pushing word-of-mouth. Customer participation involves customers who offer constructive feedback and suggestions on a company’s products and services. They share not only their concerns or appreciation, but also their ideas for new features or even new products. Word-of-mouth is all about customers talking to other customers; participation is about customers talking to the company.

The interest in word-of-mouth is driven by the impact of customer-generated marketing — statistics show a direct impact on sales from word-of-mouth — and the increased loyalty and purchase activity of customers who engage in word-of-mouth.

These same effects occur with customer participation… and to an even greater degree.

A quantitative study of a global retail bank’s customers revealed that customers who both recommended the bank to others and provided feedback or recommendations directly to the bank were the customers who purchased the most. The second most valuable group: customers who did not recommend the bank to others but did provide feedback or suggestions to the bank. The same results applied to loyalty and attachment to the brand. High participation/high word-of-mouth customers were the most loyal and attached to the brand; high participation/low word-of-mouth customers were the next most loyal and attached. The least loyal and attached were customers who did not participate, even if they had spread positive word-of-mouth.

The positive impact of customer participation is not limited to the banking sector. Numerous in-depth, structured interviews and roundtable discussions with CEOs around the globe by the same researchers revealed the power of participation in a wide variety of industries.

Focusing on customer participation does not mean abandoning word-of-mouth. However, customer participation is very profitable, and should be emphasized over word-of-mouth, not the reverse. Ideally, companies should encourage both as they are “two sides of the same coin” — one focused internally, one focused externally, both building financial value for companies.

Business Application

To encourage participation and truly benefit from customer suggestions and feedback, begin by trusting your customers. If you feel that they don’t understand the intricacies of the business model enough to offer viable suggestions, remember that the most groundbreaking ideas in business often come from those who are not afraid to ignore “the way things are done.” Some companies are also worried about intellectual property complications: what if customers start demanding compensation for the ideas that are used? This view of customers as potentially greedy and conniving is a poor basis for a customer-company relationship.

For some companies, the process of customer participation can seem daunting. The answer is to start simple, then ramp up participation processes and systems. Begin with a simple invitation for suggestions, for example, then follow up (eventually) with more sophisticated programs to gather, assimilate and analyse customer participations — such as the Apple Support Communities website that offers customers a forum to talk among themselves or with the company.

Customer participation must become a core part of a company’s strategy. Southwest Airlines, for example, involves frequent flyers in their flight attendants recruitment process. No frills airline EasyJet made a significant change to its business model — offering a selection of paid reserved seats as opposed to first-come, first-serve only — in direct response to customer feedback.

Use the power of social media. One of the best examples is My Starbucks Idea, a website through which customers can post ideas for improving Starbucks. An online game company lets its community of users assess customer ideas and choose their favourites.

It’s important not to be heavy-handed in forcing customer participation. Make sure customers feel that they have volunteered their feedback and suggestions. Bombarding customers with messages about feedback creates the wrong spirit for partnership.

Finally, keep customers informed about how customer ideas are used. If customers feel their efforts will lead to nothing, they are not going to bother.

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Authors

Institutions

Source

Idea conceived

  • January 2014

Idea posted

  • April 2014

DOI number

10.13007/364

Subject

Real Time Analytics