SmoothSpan Blog

The Twitter #scrm group is a wonderful place to pick up new threads around the whole Social CRM movement.  But as I’ve remarked before, it is so tough to wring a conversation out of Twitter’s fabric (this is a problem for Twitter, not those valiantly trying to have the conversation), that I generally watch without trying to join in. 

Recently, there has been a great back and forth on customer loyalty.  Does it exist anymore?  Don’t people just buy on price?  Can Social Media affect loyalty?

What had been troubling me about the discussion was its fairly one dimensional nature.  Loyalty either existed or it didn’t.  Blogger Glen Ross put it into a better context for me, by writing about customers that are loyal, versus customers that will always buy the cheapest offering no matter what the service levels are.  Exactly!

I was immediately reminded of one of my all time favorite business books, Michael Porter’s classic on Competitive Strategy.  If you’ve never read the book, you should, because it crystalizes competitive strategy in an extremely powerful way.  In this case, Porter says there are three ways that companies can compete:

–  On price

–  By having the best product

–  By focusing on a particular underserved market segment

Porter is at great pains in the book to point out that businesses have to pick just one of these focuses, and that they cannot afford to try to straddle the fence.  Resources are scarce and all the wood must go behind the winning arrow to succeed lest some competitor do a better job appealing.

If we turn that around to the customer’s perspective, and ask ourselves how it applies to customer service and how Social Media can help, it makes total sense.  These three competitive positions reflect 3 broad categories customers fall into.  They buy for value, quality, or because they are part of some special needs market that isn’t seeing the love.  Companies that successfully tap into the right competitive strategy and focus are simply connecting with one of these broad customer types.

There is a continuum of service experiences companies can provide that range from just enough service to avoid destroying the brand to Four Seasons and Ritz Carlton level pampering. 

Companies on the first part of the continuum are all about the cost savings.  For them service is a necessary evil.  BTW, their customers are very likely the ones who only care about price and service is a necessary evil for them too.  That doesn’t mean bad service can win or survive for this segment, BTW.  It means that at best, service done well for the value segment is service that creates no negatives.  Investing to create positives for this audience probably does not have the same benefit as returning that investment as further cost savings.  Really bad service destroys the notion of value, which is paramount.  If I can’t get the value from the product because of bad service, then no matter how cheap it was, that product cost too much and I”m going to talk about by disatisfaction.  Ironically, the value sellers may have less room for bad service than the other two categories because they already refuse to invest much in service, having passed that investment along as savings.  Hence they have little margin for error.

At the other end of the spectrum, service is part of the customer experience.  It is part of the product you are buying because it is the best possible product.  You’re going to Zappo’s not only because they have the great shoes you want, but because their service makes the “product” of buying shoes that much better than your other shoe buying customer experiences.  I liked Denis Pombriant’s recent description of this kind of service:

Customer experience has come to mean a literal experience had by a customer with a vendor, product or service rather than a product or service cultivated — through value add — to be an experience.

One has a sense that the “literal experience” side is very much reactionary.  It’s all it really can be in the case of a value sale.  The process of delivering service is one of reacting to service needs of customers in as inexpensive a way as possible that avoids doing too much damage.  The other end of the spectrum, the Zappo’s/Ritz Carlton end, is the service that is “cultivated through value add” until it becomes something uniquely valuable itself.

The focused competitive strategy deals with the needs of an underserved market.  It is often a vertical market, rather than a broadly horizontal market.  Yes, the major motorcycle makers may all have off-road bikes, but there are makers dedicated strictly to the off-road market.  That’s all they do, and it is a passionate focus.  They can afford to do better than a maker that wants to cater to all.

Moving back to Social Media and Social CRM, we can see how to mesh up our strategies there with these competitive strategies:

The value player wants to provide service that minimizes the negatives enough that costs are conserved and can be passed on to the customer.  Spending any more than that means they have to raise prices to pay for better service.  Spending any less than that on service means they have to raise prices to pay for marketing, refunds, and whatever else is needed to repair the damage.  The customers are pretty tolerant.  They just need answers when they have a problem that they don’t have to work too hard to get (the link is a hilarious Customer Service story by Zoli Erdos, BTW).  Social CRM is extremely effective at lowering service delivery cost while getting the customer the information they need.

The “most differentiated product” player wants service to be a part of the differentiation.  Prompt, attentive, and friendly service that does the unexpected in the customer’s favor is the order of the day.  Social Media is again, very effective at delivering personalized service experiences.  It’s also effective at helping customers to get together with one another.  Being a part of the group is often something this segment desires, which is why Porsche, Ferrari, and similar marques have owner’s clubs and driver’s course and other “team” activities for their customers.  This is where brand is so important because often brand is not just the indicator of value (that’s thinking for the value segment), but is instead a signalling device that says, “I’m a member of this group.”  Hence that polo player looms as large on the breast of you shirt as the big gold Rolex does on your wrist.  These sorts of customers want to display their affinities, and what better place to do that than Socially on the web?  They will also want more access to your experts and perhaps even celebrities within the organization than you can provide except by means of the Social Web.

The focus category also fits very well.  After all, what underserved community wouldn’t like a special place just for them?  A place that engages in the way they want to think about your products and markets, and that only engages that way, instead of making their world a tab on the side of some larger world they’re not really interested in.

So then what is Loyalty in the context of each one of these categories?  It should be easy to see that the category will determine the nature of the loyalty to an extent.  Loyalty is a measure of the conviction the customer has that your product is a good fit for their mode of buying.  For Walmart, loyalty is a conviction that the best prices can be had in those stores.  That conviction means they tell others about the great purchases they made there.  Like other forms of loyalty, it is emotional, not rational.  Most value customers do not have total awareness of prices from every venue for every product.  They have to let their guard down once in a while, and they will do so wandering the halls of a place like Walmart because they’ve gotten enough deals in the past that they would like to believe all the deals around them are good deals (BTW, they’re not!).

For the differentiated product customer, Loyalty is a conviction that the product is the best.  They are willing to pay more for it as a result and will defend that decision to the death.  It’s always entertaining to watch a value enthusiast (Corvette) locked in a discussion with a differentiated product enthusiast (Ferrari).  The former will remark that their car goes just as fast and costs 1/4 as much, so only an idiot would spend that much on the Ferrari.  The latter will shake their head and somewhat look down their nose at the pooly informed value buyer who thinks they know the soul of an automobile by reading a few road tests in magazines.  They know in their bones that there is more to their Ferrari than the 0-60 times.

I could spell out the meaning of Loyalty for the focused niche customer, but you get the idea.  In each case Loyalty exists and can be accessed by an appropriate strategy.  In each case there is a price to be paid when the company lets their customers down on expectations.  Remember that the same person may be a value buyer for some things, a best product buyer for others, and a focused niche person on still others.  I recall trying to buy a Fax machine one time.  I could care less about a Fax machine, but we had to have one for my startup.  So I was a value buyer.  I had always kind of thought Fry’s was a value seller (they aren’t really, they’re an underserved market seller for Geeks) and I was terribly disappointed when I went next door to Staples (which is a value seller) and saw the same Fax for less money.  Fry’s was never the same for me after that.