Companies around the world have been working very hard to adapt their businesses to a new market reality that has quickly taken shape over the past four months. The impact of the recession and the abrupt changes in the economy are forcing companies to streamline their operations to manage cost and control cash. At the same time there is increased pressure to accelerate sales and revenue through new and redesigned products and services - supported by highly competitive pricing and discount scenarios. Surrounding all this is the consumer. Companies are fighting to retain and extend relationships with their most loyal customers - where in many cases they derive 80% or more of their revenue from. It is a struggle on all fronts.
Given that I am among the many affected by the economic storm - I have been thinking a lot about the consumer challenge.
Current economic factors have reduced ‘wallet size’ for many consumers (corporate and individual) forcing trade-offs when it comes to how and where they spend their precious dollars. This has disrupted the business models of many companies that manage their businesses based on predictable buying behaviors derived from historical demographic models and customer profiles. In today’s economic environment, all rules have changed as consumers are defining new criteria when it comes to their views on ‘must haves’, ‘nice to haves’ and ‘can do withouts.’
As a personal example, I get my hair cut every 5-6 weeks and have been loyal to the same stylist for the past four years. Her rates have nearly doubled in the last year and although I can’t do without a haircut on a regular basis – I am faced with a conflict of loyalty vs. a new sensibility in how I spend my money and the value that I receive in return. After all, it is just a haircut, right? Now I guess I could go longer without a haircut and see the same stylists (just less often) but vanity and a crazy calic suggests that would not be a good thing. So I am making a trade-off on loyalty - and will start seeing a new and less expensive stylist.
Another personal example is how often my wife and I frequent our favorite restaurants and how often we use other services (gardening, house cleaning, etc.). In these cases, we have decided to maintain loyalty to our favorite restaurants and service providers BUT have cut our number of visits and frequency of service. This means loyalty wins…but they still get less share of our wallet (for the time being).
What I am experiencing as a consumer is a shift in priorities that will indefinitely affect my status as part of a ‘purchasing demographic’ that eight months ago would have suggested different behaviors. Nothing has changed in our month-to-month financial situation (knock on wood). However the conditions in the market around us and the ‘hit’ to our long-term financial plan (retirement and investments) require short-term changes to compensate for.
Now back to me. Is there anything that the businesses that I have been loyal to for so long can do to affect my new purchasing sensibilities? Sure. It’s all about the fundamentals, baby! In order to secure my loyalty in the first place, you need to establish trust and value in the quality, consistency, and reliability of your service/products. Pretty basic, huh? With high trust and value I will continue to spend money on products and services and in some cases spend even more money to support the health of your business. It is completely understandable that businesses must also make trade-offs as they manage their costs. As long as those tradeoff’s don’t compromise the quality, consistency and reliability that I have grown accustomed to, I will remain a loyal customer. This requires that businesses establish relationships with their customer(s) and understand what is important to them (as a loyal customers) so when trade-offs need to be made (to operations, service, materials/ingredients, price, etc.) the boundaries of trust and value in the social contract that made them loyal in the first place – are not tested. It also requires good communication and engagement. Show appreciation and empathy. As an example, the manager and head chef of our favorite restaurant visits with their patrons twice a night to hello, thank them for the business and sometimes offer a free desert or a drink. Every consumer has basic needs that can be addressed by any number of vendors and services providers. Maintaining customer loyalty may be the most important thing to surviving this current economic storm.
In times like this, many products and services are rapidly commoditized as competition drives down price in a world where there is an abundance of choice. In some cases even loyalty (a primary virtue of customer relationship management) can become a commodity. As a business, if you operate in a world where you have no price-to-value differentiation and you are loosing loyal customers - chances are good that you have become commoditized!
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