Sticky profitable clients are nice. Most professional service firms just love them. I’m sure you do too.
But what keeps these clients loyal to your firm and willing to come back for more?
Research evidence suggests that client satisfaction is an important driver of client loyalty, but as the chart shows it’s not the full story. There are many instances that for a given level of client satisfaction, clients of one firm are significantly more loyal than another. It would appear that there are other hooks, zippers or levers that facilitate client loyalty. These levers generally work both as a positive motivation to stay, but also as a disincentive to switch.
In my view, there are three primary loyalty levers and they relate to your client’s…
Head – the perceived financial benefits gained/foregone as well as the anticipated time, costs, hassle and risks of switching.
Heart – the emotional and social benefits gained/foregone.
Ego – the impact of staying/switching on client’s personal status, reputation and position of influence.
There has been extensive commentary on client loyalty strategies particularly around developing closer personal relationships. Rather than repeat all of this, I thought I’d share a few head, heart and ego ideas that have received less air time.
#1 Multiple services
Beaton Research and Consulting data shows that client loyalty increases as the number of services bought by the client grows. Their data shows client loyalty goes up by 10.4% when moving from 1 to 4 service lines in legal services, 12.3% in accounting and 6.6% in consulting engineering. While cross-selling is good for the revenue line, it’s also really good for the client loyalty line. Intuitively this makes sense. The more services you provide, the more you know and understand about the client’s business, the more personal connections there are and the higher the perceived switching costs.
#2 Loss of future financial benefit
Colin Jasper and I argued in an earlier post that there is much merit in exploring relationship pricing arrangements that provide incentives for both parties to commit to working together for the long-term. Client loyalty is incentivised by having a retainer arrangement in which the client foregoes significant future financial and strategic benefit if they end the relationship. Discounted hourly rates that are easily matched by competitors do not qualify as a loyalty incentive.
#3 Cultural alignment
One of my clients has scored major brownie points with his clients by actively supporting their causes and CSR projects. Every effort is made to attend client-sponsored charity events, make donations and provide people and resources for joint community development projects. Underpinning this activity is the message is that we’re like you; our values and your values are similar; culturally we’re aligned. He says this approach not only fosters client loyalty but it widens clients’ ‘zone of tolerance’ on pricing and occasional service stuff-ups.
While clients will seldom reveal this decision criterion in surveys or interviews, their actual behaviour betrays them. There are numerous instances of clients staying loyal to prestigious firms not because of superior service or advice, but just because they’re prestigious. Simply put, they like sunning themselves in the firm’s after-glow. Their status is reinforced by the company they keep. Going ‘downmarket’ is a major threat to their ego. Many clients don’t like to admit it, but they often buy in their own self-image.
Related to this point is the ‘making them look good’ phenomenon. Some firms are experts at making their clients look like superstars. Switching to an alternative provider may reveal a hidden capability flaw or risk being seen to perform at a lower level.
Clients are less likely to walk away from anything that they’ve invested a lot in. Getting clients to co-create new products, processes, projects or programs helps encourage this investment. To illustrate, one mid-tier law firm in Australia recently initiated a project to redesign the workflow process with a major insurance client. The intent was to reduce handovers, minimise errors, take out resources, speed up time and reduce cost. The end result: the client got a lower unit fee and the firm enjoyed a greater share of wallet and a commitment from the client to ‘co-act’ (their words) together into the foreseeable future.
Your call to action
Focusing on improving client satisfaction is a good thing, but if you really want to create sticky profitable clients its time to think more creatively in playing to your client’s head, heart and ego. What’s more, if you’re seeking to win a new client that appears to be wedded to a competing firm, having a deeper understanding of their relationship can help craft a winning strategy.