Retaining Customers

Doug TurnbullJanuary 29, 2018

In product meetings, when I advocate for customer retention - regular, repeat business from the customer over months/years - I sometimes get blank stares. Teams want to do everything they can to maximize conversions: a customer action with value - such as a product sale/signup/job application/consultation/etc. To many teams customer retention seems softer and too long-term of a phenomena to measure, while driving ‘more conversions now’ has immediate value.

Yet you can’t build a brand on the altar of conversions. Retention – really loyalty or fanaticism – carries the foundational importance. Brand fanatics intrinsically know the value of the brand, and are eager to turn over cash in exchange for that value.

Recently, I was amazed at how readily I turned over cash for an iPhone X without much research. Ironically I had to go through a rather frustrating ‘conversion’ experience: the sales rep. took forever to navigate AT&T’s signup systems over my lunch break. Yet there I was, patiently waiting to turn over cash for another Apple product.

Creating and monetizing such loyalty is the fundamental problem of product development. After struggling to best advise clients, this article captures my thoughts on the problem with what I think may be some promising solutions.

Loyalty Programs?

With loyalty programs, a business regularly tells customers about deals personalized for them. They’ll hopefully reengage, and make the next purchase.

In my experience, loyalty programs can be a crutch. It’s hard for customers to tell the difference between a loyalty program they signed up for years ago and other spammy ads. Increasingly, customers learn to tune out ads. Such loyalty programs are a ‘bad smell’ to me, saying ‘we know ads, but not our customers!’ Ads can be important, but not as a foundational loyalty strategy.

There are exceptions to this rule. Many brands have a customer segment that clips coupons and seeks deals. This may be built into the business model. Even at such places, many customers do not fit into the ‘deal seeking’ group.

Unfortunately loyalty programs are foisted thoughtlessly onto every customer, forcing each to opt-out at every transaction. As an example, electronics retailer, Best Buy, overburdens the checkout process with endless loyalty prompts. Recently I visited to purchase a few iPhone dongles. It took 12 minutes to process 4 customers! Customers grumbled while sitting in line - “Best Buy is terrible, why do I come here?” said one. I contemplated just ordering what I needed on Amazon while I waited and leaving. All because Best Buy thought everyone wanted its loyalty program.

The experience needs to be flipped. Instead of foisting it on every customer, force the deal-seekers to opt-in to the ‘cool kids’ club for special deals. There’s psychology at work by flipping the script. From the classic book Influence you can see the outlines of really effective loyalty programs. Exclusivity and scarcity increases the perceived value of an item. “Sorry we only allow 5 people a day per store to sign up for the ‘cool kids discount club’”. Getting customers to make affirmative commitments to a loyalty club also tends to increase perceived value. People want their choices to be validated. Finally, consider charging for membership to such an exclusive club, further increasing the commitment and perceived value.

These strategies allow the right population to opt-in to a program that stands out from advertising. Most importantly: these programs don’t interfere with regular purchases like those described at Best Buy. In other words, it minimizes interference to the conversion-focused side of the business while creating a way for certain segments to seek discounts from the brand.

Customer Experience

Customer experience means improving the efficiency, reliability, quality of the brand’s interactions with the customer. Great customer experience can be a key to retention.

Some psuedo-conversions related to improved customer experience can be measured. Some activities put the brand at the customer’s fingertips, hopefully improving repeat business. These can look like classic loyalty programs: encouraging the user to register online and save their credit card. Or encouraging downloads of a mobile app. Unlike classic loyalty programs, they’re about simplifying the experience, not about advertising. These activities can be studied, especially as they related to repeat business and higher total customer value.

Other forms of customer experience can be tougher to measure, but still incredibly valuable. An easily accessible Apple store in every major city, is a reliable way of seeking support and looking at Apple products. I’ve been impressed lately by Brooks Brothers that has consistent customer service around buying & maintaining fancy clothing. I can show up with an item that needs mending, and they’ll send it off to their tailor. Circuit City was known for paying top-notch and informative sales people at their electronics stores, lowering wages and driving off the sales staff has been cited as a major reason for the brand’s failure.

Consistent customer experience often matters more than excellence. Consistency allows me to easily assign a value to an experience. I know exactly what I’m getting out of a trip to McDonalds. I’m not getting the world’s best Hamburger. But I’ll get mediocre food quickly and without fuss. Conversely, a local restaurant that has an excellent hamburger 8 out of 10 visits is frustrating. It becomes hard to know what I’ll get on every transaction with that brand.

Step back to understand how your product fits into the customer’s broader life. Recently, I was struck when writing a mobile search study that two pictures emerged. Analyzing Google or Bing mobile search logs reveals simpler tasks than desktop counterparts. You might walk away thinking “mobile search is simple.”

But when actual users studies occurred, the context of their mobile searches painted a very complex picture of users on the move, trying to use any tool at their disposal to solve a complex problem. A search for “What’s the weather?” really corresponds to a user preparing for some outdoor activity. “When does the grocery store close?” is actually a small step of the broader experience of planning meals, which involves many steps with and without technology.

Your brand may be step 5 in an 11 step process to accomplish a larger task that goes beyond what you immediately see in customer data. Understanding what the customer ultimately wants to accomplish, and offering solutions that assists that process, ensures your brand remains part of that experience.

Habituation

There’s an even deeper level of customer retention. Great customer experience can become so good, and so deeply embedded in customer lives, as to be habituated. Consider a recipe app. Instead of ensuring ‘get a recipe’ remains at step 5 out of 11 on a journey to prepare a meal, can we create a product that fundamentally alter how human beings prepare meals? Can we revolutionize the customer’s life so profoundly, that our product becomes habituated in accomplishing some task?

Consider some brands that have great customer retention, and you’ll see habituation front and center:

First of course is Amazon Prime. Amazon Prime has done such an effective job at customer experience, but it goes far beyond just that. Amazon used to be a place to buy things online, but with expensive/slow shipping, it never supplanted the going to the store for immediate gratification. But Prime changed that. With two day shipping for everything, the default reaction shifted to “go find thing on Amazon and order it.” It takes 10 seconds.

Amazon prime has fundamentally rewired how we purchase stuff. It’s become habituated & rote to use Prime to get much of what we need.

Another example is illustrative: my wife and I bought ourselves a Peloton bike for Christmas. I was skeptical of this bike with online exercise classes. (Why not go to the gym? Take a spinning class?) But I find myself now with the ability to very efficiently roll out of bed and be in an exercise class. I no longer need to drive to a gym. The convenience really reshapes my day, making me more efficient. I’ve come to depend on the Peloton for fitness needs in my busy schedule.

Human beings want predictable, reliable, ways to achieve what they need in life. They want rote and automatic, they don’t want to ‘think.’ Customer experience can be so great, so deeply understanding of what customers are really trying to do, that it rewires the customer’s life around the brand. Peloton changed my exercise habits. Amazon my buying habits. Google altered my information seeking habits. Facebook and twitter, social & news habits. Text messaging has altered our communication habits.

I don’t exert effort to use these products: I just execute my rote, boring routine. Disrupting the habituated behaviors becomes emotionally upsetting. I want to stay on the rails of automatic, well-known ritual. Take any one of these products away, or harm their customer experience, and my life is thrown out of the whack. I become a fanatic precisely because of what these brands mean in the boring fabric of my life.

Conversely, look at the Best Buy checkout example mentioned earlier. We still have a habit of going to the store to get something very quickly. But Best Buy is harming that habit by foisting endless loyalty programs on customers. Ironically, this hurts retention, and reinforces the value of a service like Amazon Prime.

Beyond the personal rote routine, these habits often dictate how we’re expected to work together in society. Traveling to Scotland in the early 2000s, I noted that directions were easy to follow and locals could help you sketch out how to get from point A to point B. (Remember back when we wrote down directions for people! Or printed mapquest directions!). Now there’s a social expectation amongst human beings that you’ll have a smartphone, and it will have Google Maps. When I went to Cambridge, UK in 2015 I noted how everyone was navigating with their smartphone. Street signs could be inaccurate, but Google Maps got everyone where they needed to go.

Text messaging and social media are other obvious examples. Social communication changes to revolve around the experience of a specific product. If you don’t catch up, you may be locked out of social circles. Twitter is reworking how American politics work (perhaps not for the best!). Facebook may have killed the purpose for the high school reunion by keeping us up to tabs with past friends.

Designing Habits

Product designers should think of themselves as habit designers. This is the hard work of product design. Not arbitrary optimizations in their own end, but defining the way the product changes habits and society, then measuring whether that change is happening. Changing habits is the real disruption: the way that old industries die and new industries supplant them. They create a mote of habituation that customers are loath to break out of.

However, changing habits can also be challenging. Customers cling to their current habits, and for a new habit to supplant an old one, it needs to be a rock-solid customer experience. It’s crucial that the target customer be thoroughly studied. That indeed, for example, a customer population is in need of simplifying meal preparation. And that you know what’s missing from the current habits to allow you to rewire them into a better experience.

Targeting and measuring habituation helps to unify the conversion-focused and retention sides of the business. You hypothesize a segment of the market wants a certain behavior change. The work becomes to understand how and if that market hypothesis is true, if some of the customer population can be ritualized fanatics of your product, and how exactly they’ll turn over cash to realize the brand’s value.

To conclude, when I’m asked about retention now, I start with habituation. What about the product has become rote that absolutely should not be disturbed? How can that habituation be further reinforced through better experience? How can it be monetized? What purely ‘conversion focused’ strategies might threaten the product’s habituation?

Even in my seemingly self-contained world of ‘search relevance consulting’ this matters tremendously. Matching the customer to ‘what they need’ can have little to do with what they’ll purchase, but rather where they are in a habituated journey that they relate to the brand. Both need to be optimized, but the real problem with product design is ‘knowing what to optimize for’. If your only answer is ‘sales’ then you may not really understand your customers or product.

Disagree? Think I’m crazy? Get in touch and chat us up.




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