CASE ONE: I continue to book and fly with Qantas but I would not recommend them to others. My desire to accumulate frequent flyer points is stronger than my need for a more customer-focused airline.
CASE TWO: One of my clients has lots of raving fans but is struggling financially. He gets great feedback, but for various reasons, his customers are not spending more with him.
These two case studies support Don Peppers’ argument that there’s an important distinction to be made between attitudinal loyalty and behavioural loyalty. Client recommendation or advocacy, as measured by the Net Promoter Score (NPS) is really just an ‘attitude’, it is not really an indicator as to whether the client will give you more of their business. My loyalty to Qantas is behavioural but it’s not backed up by a positive attitude towards them. Put simply, there are two sides to the client loyalty coin. The goal in your firm is to have clients that give you BOTH a good rap and a good Dollar.
The New Client Loyalty Matrix
Plotting attitudinal loyalty and behavioural loyalty yields a New Client Loyalty Matrix:
So what are the strategic implications of this new Matrix? Here’s my initial list, but I’d welcome your thoughts and comments.
At a minimum, you should measure both dimensions of loyalty for all key clients. I think most firms will have reasonably good data on attitudinal loyalty, but many will just use historical financial performance at the indicator of behavioural loyalty. I’d argue that getting deeper insights into future behaviour and the true nature, degree and predictors of client commitment is a frontier few have forged.
Just measuring and focusing on NPS drives clients towards Quadrant VII. The goal should be to get your key clients towards Quadrant IX.
Most new clients start out in and around Quadrant V. It would be an interesting piece of analysis to track the progression of all new clients with say the first 18 months of being with the firm and see where they land up, AND WHY?
Most of your best referrers would be in Quadrant VII. It’s worth having another look at these and other fans with closed wallets and seeing whether there’s something the firm can offer them that would be of value. In other words, move them right on the Matrix. To illustrate this, one mid-tier accounting firm found that its traditional referrers were a happy hunting ground for the firm’s personal wealth management and SMSF services.
Your most vulnerable clients are those in Quadrants III and VI. They may be giving you most of their business at the moment but their heart’s not quite in it. Their spend with you might be as a result of a long-term contract or a company-wide directive such as global panel alignment. Relying on these type of arrangements for your client’s loyalty might have short-term benefits, but in my experience, it usually ends badly.
One needs to understand the specific drivers to get a client that’s in Quadrant V or VII and shift them over time to Quadrant IX. Providing great service, good value and being nice guys might get to Quadrant VIII but more structural or deeper strategic interventions would get you to IX. For example, negotiating some type of an incentivised retainer arrangement could get you there.
The best opportunities for growth will most likely will come from your competitors’ clients that are in Quadrants III and VI. Their behavioural loyalty to your competitor might be more to do with perceived switching costs than any other factor. If your offer includes paying for these switching costs then suddenly you’re in the game. As an example of this, one law firm got a prospect to switch by offering discounted “getting to know you rates” for the first three months of a relationship as recognition of these switching costs and to symbolise their willingness to invest in the relationship.
True commitment
In some industries, it is almost impossible to create truly committed clients. For example, servicing public sector organisations that are bound by strict probity requirements might make “Consider” the highest level of behavioural loyalty. I think the implications from the Matrix still hold up, you just need to adjust the scale to what’s possible.
Your call to action
Your immediate call to action is to take a fresh look at the questionnaires and discussion guides you are using to solicit feedback from your clients. Are they asking the right questions to adequately measure both attitudinal and behavioural loyalty? Are they providing insight into the things your firm needs to do to, the actions to be taken to get the client in or around Quadrant IX?
My other challenge to you is to plot all your firm’s top clients on the Matrix and stress test your whole client portfolio. Is it sustainable? Where are the points of vulnerability? What broader capabilities do you need to develop to get better at driving both types of client loyalty? What does your overall relationship capital base look like and what could you do to make it more valuable?
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The two sides of the client loyalty coin
In Articles, Commentary on 29 November 2013 at 12:32 pmCASE ONE: I continue to book and fly with Qantas but I would not recommend them to others. My desire to accumulate frequent flyer points is stronger than my need for a more customer-focused airline.
CASE TWO: One of my clients has lots of raving fans but is struggling financially. He gets great feedback, but for various reasons, his customers are not spending more with him.
These two case studies support Don Peppers’ argument that there’s an important distinction to be made between attitudinal loyalty and behavioural loyalty. Client recommendation or advocacy, as measured by the Net Promoter Score (NPS) is really just an ‘attitude’, it is not really an indicator as to whether the client will give you more of their business. My loyalty to Qantas is behavioural but it’s not backed up by a positive attitude towards them. Put simply, there are two sides to the client loyalty coin. The goal in your firm is to have clients that give you BOTH a good rap and a good Dollar.
The New Client Loyalty Matrix
Plotting attitudinal loyalty and behavioural loyalty yields a New Client Loyalty Matrix:
So what are the strategic implications of this new Matrix? Here’s my initial list, but I’d welcome your thoughts and comments.
At a minimum, you should measure both dimensions of loyalty for all key clients. I think most firms will have reasonably good data on attitudinal loyalty, but many will just use historical financial performance at the indicator of behavioural loyalty. I’d argue that getting deeper insights into future behaviour and the true nature, degree and predictors of client commitment is a frontier few have forged.
Just measuring and focusing on NPS drives clients towards Quadrant VII. The goal should be to get your key clients towards Quadrant IX.
Most new clients start out in and around Quadrant V. It would be an interesting piece of analysis to track the progression of all new clients with say the first 18 months of being with the firm and see where they land up, AND WHY?
Most of your best referrers would be in Quadrant VII. It’s worth having another look at these and other fans with closed wallets and seeing whether there’s something the firm can offer them that would be of value. In other words, move them right on the Matrix. To illustrate this, one mid-tier accounting firm found that its traditional referrers were a happy hunting ground for the firm’s personal wealth management and SMSF services.
Your most vulnerable clients are those in Quadrants III and VI. They may be giving you most of their business at the moment but their heart’s not quite in it. Their spend with you might be as a result of a long-term contract or a company-wide directive such as global panel alignment. Relying on these type of arrangements for your client’s loyalty might have short-term benefits, but in my experience, it usually ends badly.
One needs to understand the specific drivers to get a client that’s in Quadrant V or VII and shift them over time to Quadrant IX. Providing great service, good value and being nice guys might get to Quadrant VIII but more structural or deeper strategic interventions would get you to IX. For example, negotiating some type of an incentivised retainer arrangement could get you there.
The best opportunities for growth will most likely will come from your competitors’ clients that are in Quadrants III and VI. Their behavioural loyalty to your competitor might be more to do with perceived switching costs than any other factor. If your offer includes paying for these switching costs then suddenly you’re in the game. As an example of this, one law firm got a prospect to switch by offering discounted “getting to know you rates” for the first three months of a relationship as recognition of these switching costs and to symbolise their willingness to invest in the relationship.
True commitment
In some industries, it is almost impossible to create truly committed clients. For example, servicing public sector organisations that are bound by strict probity requirements might make “Consider” the highest level of behavioural loyalty. I think the implications from the Matrix still hold up, you just need to adjust the scale to what’s possible.
Your call to action
Your immediate call to action is to take a fresh look at the questionnaires and discussion guides you are using to solicit feedback from your clients. Are they asking the right questions to adequately measure both attitudinal and behavioural loyalty? Are they providing insight into the things your firm needs to do to, the actions to be taken to get the client in or around Quadrant IX?
My other challenge to you is to plot all your firm’s top clients on the Matrix and stress test your whole client portfolio. Is it sustainable? Where are the points of vulnerability? What broader capabilities do you need to develop to get better at driving both types of client loyalty? What does your overall relationship capital base look like and what could you do to make it more valuable?
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