Customer Now 2021/03

Respect as a source of competitive advantage

By Jessica DeVlieger

The companies that are getting it right know that insight – when operationalized – has the potential to drive growth and create competitive advantage.

According to new research from McKinsey, we’re now in a market in which as many of 80% of customers have tried new channels, new brands, new stores and different products. Behavior is notoriously hard to change, and yet in 2020 customers changed their behavior en masse.

Now, as customers settle into these fresh choices, brands want to know how to make their gains stick and to claw back lost business. Understanding your customer is critical to that endeavor.

A resurgence in respect

One of the biggest challenges for any business is that customers think and feel, whereas companies measure and manage. Companies want to know how to sell more, build more, engage more, list more or position more. The process of running a company is functional – on an industrial scale.

Customers, on the other hand, respond to how an experience makes them feel.

We see this evidenced in our customer benchmark, which shows that – in this year of chaos – the drivers of loyalty aren’t found in the functional aspects of the brand – like having high quality products – but in the intangible or ‘emotional’ aspects.

Indeed, the belief that a company “respects you” is a key driver of customer loyalty, according to our data, and it’s the only driver that gained in significance in 2020.

But here’s the challenge: a company cannot easily manufacture respect, it’s not transactional; it’s a deeply emotional and acutely human emotion that traditionally develops over time. And yet… right now, respect matters to customers, and, for companies, the ability to operationalize respect authentically and quickly across multiple touchpoints will become a matter of competitive advantage.

Here’s three quick provocations about how to get it right:
1. Have a little faith – trust drives respect.
2. Be more human: it’s – your competitive advantage.
3. Being respectful ≠ earning respect.

1. Have a little faith – trust drives respect

Digging deeper into our customer benchmark, we find that trust – and specifically the feeling that a brand trusts YOU – is a key driver of feeling respected.

We saw this idea in action when working with a large insurance company and discovered that customers’ trust of the company started with believing that the company trusted them.

As you can imagine, given this was an insurance company, every communication, procedure and policy was built on the belief that the company could never fully trust the customer. Over a 12-month period, in collaboration with the insights team, we worked with every department – including the actuaries – to identify safe ways to demonstrate more trust in customers. We overhauled communications and customer service, and even made policy changes. There were some risks associated with these changes, but the resulting increase in NPS score and the power of loyalty this shift engendered far outweighed the risk. Imagine how it feels, as a customer, to be insured by a company that demonstrably trusts you.

That’s a big organizational shift. But we heard from customers that trust can also start small and simply. It’s as easy as just taking a customer at their word. And a demonstration of trust is powerful, even on a small scale. It’s the mom who told us about her child’s tablet breaking after a few months and being sent a new one no questions asked. No hassle, no argument, no spending time she didn’t have digging around to find receipts. Just we trust you and we’ll make this easy.

Consider: Knowing that trust is important, companies can consider reframing the provocation, from “Do you [customer] trust this company?” to “Do we trust our customers?” How are you demonstrating this trust across your business operations?

2. Be more human: it’s – your competitive advantage

Respect and trust are deep rooted psychological constructs that inform how we view the world and how people expect and desire to be treated in any interaction, including with companies. It’s perhaps unsurprising then that the most significant driver of “feeling respected” is “feeling treated like a person” (not a dollar, an opportunity, a target or a segment).

Customers told us that to feel respected they need to be heard and to receive attention accordingly. It means having conversations with customers about their needs; it means acknowledging when something goes wrong and then solving the problem; it means allowing customers to interact with other humans at every touch point (not just bots).

In the case of a customer who needed to reactivate a cell phone for a daughter suffering domestic abuse – it meant seeing that interaction in human context:

I called Verizon to see if I could add [my daughter] to my plan and if they could activate an older smartphone we had. The lady on the phone was so very helpful, compassionate, asked if my daughter was safe and alright. She did everything over the phone, including activating the SIM card in the old phone. All I had to do was mail the phone to my daughter. She had but to take it out of the box and turn it on.”
-Daviann M.

And while these circumstances might be more dramatic than most, the actions of Verizon were not. The transactions that customers complete every day are meaningful to them. And what they are looking for are companies that are willing to engage with them outside the transactional view.

When we shift our perspective to see not the micro transaction like a phone activation but the customer centric view of the person behind that transaction. And when we respond in a human way. That is when we enter the territory of actions which earn respect, generate a sticky customer relationship, and drive loyalty .

Consider: Do you know at which touchpoints human interaction matters to your customers? Do you recognise that short term gains made from automation and AI may create churn in the longer term?

3. Being respectful ≠ earning respect

There is a subtle but important difference between brands that behave respectfully (towards stakeholders) and brands that earn the respect of stakeholders.

Acting respectfully shouldn’t be too challenging for a mass market brand to deliver against – it’s a hygiene factor. It requires the company to fulfill the functional aspects of customer expectation, such as providing quality products and services. Beyond that it requires them to avoid offence.

The challenge with this approach is that in a world of exponential competition, it’s increasingly necessary for brand and customer experience to engage customers in a “stance” across a broad range of social issues in order to create permission to play and to differentiate. Oftentimes the brand stance will alienate people as much as engage others, so a deep understanding of core customer and target market is required to avoid growth limiting mistakes.

One of our models helps us assess the maturity of a company’s relationship with its customers across four levels. Progress across those levels demonstrates better customer centricity and financial outcomes. One of the characteristics of the lowest level of customer maturity, is the sense that a company treats its customers as captives – characterized by a business model that locks customers into a contract and then penalizes them for being in the long-term relationship with the company (for example by increasing fees over time, offering better deals to new customers than existing). In these instances, a deep disrespect for the customer is written into the organization’s business model.

Understanding how & where to make operational changes in your business to engender respect. There is no respectful set of messages, or ad campaign that can alter that fundamental experience of a business. It requires the company to reconfigure the model to put respect at its core. It requires active management over-and-over with each and every interaction. It requires meeting the customer where they are and acknowledging them as who they are. Those companies that take these active steps will be rewarded with a fierce following.

Consider: Would your company reinvent its model to one that respects the customer, knowing that it might make short term losses to drive longer term gains?

Learn more about PayPal in our Outside In Podcast conversation with Dan Schulman.

Customer Now 2021

How did 2020 change the rules of engagement between customers and brands? For nearly a decade, we’ve tracked the connection between companies and customers; what we saw in 2020 was a complex and rapidly changing picture - fluid emotional shifts, driven by economic, political, cultural, and environmental uncertainty.

Over the next 12 weeks, we’ll be sharing what we’ve discovered about the state of the customer, now — and the implications for brands — answering three key questions:
— What really changed with customers in 2020?
— Which behaviors are here to stay?
— Which brands are set up to succeed in 2021?

Methodology
In March of 2020, we launched “Customer, Now” - an online community of 504 people in China, Germany, India, Japan, UK and the US, to build an ongoing relationship over-time and understand more deeply how the events of 2020 were affecting them. We produced weekly “episodes” on from “Customer, Now” through 2020.

Our COVID tracker, fielded weekly from April 10-13 through July 2-6, 2020, with a total of N=68,358 (base for all analyses unless otherwise noted):

  • US n=57,985: sample with respondents from all 50 states.
  • UK n=2,783: sample with respondents from England, Scotland, Wales, and Northern Ireland.
  • Global n=7,590: international sample with respondents from 45 other countries, including India, Canada, and Mexico.

Our customer benchmark has surveyed more than 125,000 US customers over 6 years, to benchmark which brands they love and how this picture changes over time. Companies are rated across more than 30 different brand behaviors as well as several outcome measures including NPS, recommendation, discouragement, and intent to purchase. From this, we have identified a core battery and four additional levers that help companies form strong emotional connections with their customers. In 2020, we also included in our benchmark 5 brand behaviors specific to COVID which form their own index alongside several other COVID specific questions. We found these metrics to be especially important in our on-going monthly tracker which we began back in the Spring to track consumer sentiment in relation to COVID.

To hear more about this framework, get in touch.

We will be publishing a full report on this subject in April 2021.