Want to increase profit? Focus on customer loyalty!


Increasing business profit is usually about making more money. Because a common perception is “the more money you have, the richer you are”. Others, like myself—Sérgio Pinheiro—believe that being rich is not about who owns the most, but about who needs the least! This approach requires a radically different way of thinking though. Let me explain how we believe you can increase profit by focusing on customer loyalty instead of financial targets.


Making customers happy

Ask any contemporary entrepreneur about what their top business values are. Most of them will tell you they’re in it to make customers happy. Gartner has even predicted that from 2019 onwards, 50% of organizations are directing their investments towards Customer Experience innovations. Customer value and relevance is rampantly increasing over time, to no one’s surprise. Because at the end of the day, no business can generate income without a receiving end. So, the real value comes from the outcome of the transactions between both parties.


The equation of customer value

Doing business revolves around making a transaction, which the Cambridge Dictionary defines as “an occasion when someone buys or sells something, or when money is exchanged or the activity of buying or selling something”. In other words, doing business comes down to: you pay me X and I give you Y. Simple, right? Let’s do some proper math, then.

The X in the equation represents the cost of the transaction, i.e. service or product fee, whilst Y is what a customer gets in return, such as a particular product or service delivered by the provider. Mathematically, an equation asserts equality between two expressions. The value asserted within this metaphor is one with a capital C and V: Customer Value.

Value-driven decision-making

Quarterly or yearly reporting on financial targets alone provides investors assurance but poses a risk to customers and ultimately, business growth. Insights into profit-oriented targets and metrics can make managers and decision makers decide to compromise on quality or raise customer charges in order to achieve said goals, possibly causing severe reputational damage to a provider. Because true business value is measured by the sum of existing and future transactions, as both word of mouth and word of mouse travel even faster when initiated by a dissatisfied customer. And you know what? It is 6 to 7 times more expensive to attract new customers than retaining existing ones (see Figure 1)!



Figure 1 – Customer Value Calculation Diagram by Bain Consulting


The answer becomes clearer and clearer. Now more than ever, businesses should aim for conquering customer loyalty by delivering customer value through great, if not awesome, Customer Experiences.


When are experiences great?

According to a service quality management study led by Michael Chih-Hung Wang (see Figure 2) and based on the expectancy-confirmation paradigm, customer satisfaction begins with the perception of usefulness and enjoyment. These are experienced through every interaction between customer and provider, from phone or email contacts to the available self-service technologies (SST). Next comes the perception of control and convenience. Frustrating menus or user interfaces are examples of technical circumstances that can impact this perception. The same goes for showing lack of knowledge or missing an agreed deadline. Those are common human variables that can impact most, if not all the elements mentioned so far. Customer and consumer satisfaction are carried by these four perceptions. They lead to continued behavioral intention, captured in the Advocacy, Purchasing and Retention Loyalty Indexes.



Figure 2 – Conceptual Framework of Determinants and Consequences of Customer Satisfaction by Michael Chih-Hung Wang


Measuring loyalty

Advocacy, purchasing and retention are the three loyalty indexes that measure the likelihood of a customer recommending a provider, purchasing more services in quantity/variety or staying loyal to a certain provider. These indexes are often captured in NPS scores and eXperience Level Agreements (XLA). Metrics like these are one-stop value prompters for a future-proof and worthy businesses (see Figure 3).


Figure 3 – ServiceNow CSM by the numbers


Now you will understand too, why I believe that rich is the one who needs the least. The least time to solve customer issues or accelerate a solution or process, or the least legacy systems to support his business. These are some of many reasons why I believe every customer of Plat4mation and ServiceNow is off to a richer Customer Experience and value.

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