It is a question not often formally asked of customers. The response to this question is assumed. “Customers trust us. Why else would they do business with us?” However, it is a question you should consider asking your customers based on our experiences. Their responses may surprise you and may also make a difference to your company’s bottom (and top) line.
Trust and Loyalty: What’s The Connection?
Intuitively, managers know that it is better to have customers that trust them more than less. Since trust, we think, is derived from experiences customers have with a supplier, I want to identify those areas that are critical to enhancing the level of a customer’s trust in your company.
The connection between trust and loyalty is a topic debated by marketing professionals. There are several noteworthy articles that shed light on this question.
The first is from work done by Frederick Reichheld and Earl Sasser (“Zero Defections: Quality Comes to Services”, Harvard Business Review, originally published in 1990; updated in 2000). Through their research, they showed the connection between satisfaction and loyalty. One of the clear messages from their work is that just having customers who are “satisfied” is not good enough. Customers must rate their satisfaction very high to come back and be repeat customers.
The second piece of research comes from the Journal of Targeting, Measurement and Analysis for Marketing (“Customer Satisfaction, Customer Retention,” Journal of Targeting, Measurement and Analysis for Marketing, London, September 2003, Chatura Ranaweera and Jaideep Prabhu). This research showed that satisfaction and trust have strong positive associations with both customer loyalty and word-of-mouth. They also discovered that trust was only slightly less important than satisfaction as a driver of WOM—something very important to most all companies, especially industrial companies since the customer universe is often relatively circumscribed.
An Illustration
This article is based on a client engagement. The client, The Power Company (a disguised company) manufactures and sells major industrial equipment which is used in a variety of industrial applications. The harsh nature of the environment in which the equipment is used means that significant amounts of parts and service support are needed. Moreover, for most of the customers, the equipment is “mission critical,” so providing timely, accurate, and effective support is essential. The parts and service support is provided through a network of outlets.
The Daniel Group was engaged by the client to identify steps needed to improve parts and service areas. Since the market for the equipment sold by the client was becoming more competitive, providing top notch product support was critical to enhancing customer value, improving profitability and increasing revenue.
The research process included in-depth telephone interviews with randomly chosen customers of The Power Company. We asked questions about how the service and parts organization was viewed as well as questions about purchase behavior. For example, we asked customers to rate the degree to which they trusted the supplier to act in their (the customers) best interests when performing service and repair work (1 to 10 rating scale with 10 meaning they completely trust the supplier to act in their best interests). We also asked them to rate the perceived value of the supplier’s products and services. The last question of note was to estimate the share of service and parts business given to the supplier (share of wallet). Let’s see what we learned!
Trust and Share of Wallet
Intuitively, the connection between trust and share of “repair wallet” is obvious. Consider the magnitude of the impact:
On average, The Power Company captured a 60% share of the major repair business from those customers who rated their trust level more than 7 (At The Power Company, after-sales services are split into three areas: minor repairs (e.g., regular maintenance); major repairs (e.g., more extensive repair work); and parts. If the rating was less than 7, the share of major repair business dropped to 22%. In this particular business the difference between the shares is as much as several hundred thousand dollars per year per customer.
The Power Company had branches through which it provided product support. There were significant variations in the trust rating from branch to branch. The financial performances of the branches with higher customer trust levels were consistently better than the other branches. Keep in mind that the sample is small so firm conclusions are difficult to draw. It does raise an interesting question about connections between trust and financial performance.
Trust and Perceived Value
Not surprisingly, we also saw a connection between the level of trust and perceived value of the products and services. Customers who rated The Power Company more than 8 on the trust scale also rated their perceived value significantly higher.
What to Do?
There are lessons you can apply to your business. Intuitively, most of managers know that trust is important to a variety of business outcomes. We want to offer suggestions to improve trust, satisfaction, and the entire customer experience.
Understand customer expectations.Think about it. When you buy most anything from a supplier you have a set of expectations. Those expectations are formed from advertising, past experience, word-of-mouth, and a range of other elements that contribute to the customer experience. Customers are evaluating the actual experience with their expectations of the experience. When there are disconnects between expectations and the actual experience, satisfaction and trust are impacted.
Ask your customers what they expect. Make sure you understand what they really want from you. Sometimes the expectations are rather pedestrian! They may not expect a flashy web site but they do expect to receive a bill that is accurate and understandable.
Understand the customers’ experiences. While a customer is buying goods or services, they are also experiencing a process when they do business with your company. Understand what that process looks like.
Consider the following questions:
- How easy is it for customers to do business with your company? Shop your own business as a customer would. You might be surprised at what you find out.
- Where are the points in that process that can most affect customer expectations? These are those critical “trust” points. Sometimes those points seem small and inconsequential. For example, when customers call in, do they first have contact with someone who is both knowledgeable and friendly? That first contact matters.
- Do you have metrics that determine the degree to which customer expectations are being met? Customer satisfaction surveys are helpful to a degree. Monitor customer purchase trend constantly. If a customer’s purchasing pattern changes dramatically, find out why.
Is your company’s value proposition clear? Can employees explain it to customers? There are value propositions throughout a company (or should be). A clear value proposition answers the question as to “why” the customer should buy a product or service or even do business with your company. To illustrate, I will share a recent experience. I was getting maintenance done on my car at a dealer I trusted. When I brought the car in for some regular maintenance, he suggested an additional maintenance service that should be done AND why it was needed. His effective approach resulted in an additional $75 on the total bill. A counter example was from an experience my wife and I had with her car at another dealer. The technician suggested an additional service but could not explain what the real value to the additional service was. I thought it was nothing more than an attempt to increase an already too large service bill. I declined and my medium level of trust in this company was further lowered.
How do you handle customer problems? My first job out of business school was in sales. In the company’s training, they repeatedly made the case that a customer problem often represented a sales opportunity. As a “green” salesman, I thought they were wrong. I quickly learned differently. Many times, if you handle the upset customer effectively, there are opportunities to not only sell the customer but to reestablish and even enhance the customer trust level. Are customer issues viewed as “problem” customers, or customers with a problem?
A Modest Proposal
The question of trust applies in most any market situation. Ask your customers if they trust your company to act in their best interests. See what they say. Listen for the expectations they have of your business. If those expectations are not being met, ask why? Remember, meeting those expectations at every point of the customer’s experience is a sure way to create a stronger company. It is a question of trust. It is also a question of the bottom line!
