Why we expect companies and brands to commit to us first
Pretend for a moment that you work in the procurement department of a large hospital. Over your morning coffee, you notice a Wall Street Journal story about the company that sells you dressings and bandages. Profits at the company doubled in the previous quarter, and the stock price rose by 8 percent to $39 per share.
You might consider this nice news, because this same medical supply company is one of the vendors you use. But you also know first-hand what’s really behind that glowing profit report. For the past two years, this company has been trimming its payrolls to please Wall Street, and your service has suffered as a result. Billing mistakes have popped up frequently, and they have taken a lot of effort to rectify. Frank, your harried and overworked sales rep, has become increasingly hard to reach. You try to use their web portal to investigate and resolve your billing issues, but the interface is slow and balky. In fact, if you didn’t feel just a little sorry for Frank, you likely would have switched your account to another medical products supplier long ago. And that’s why you don’t feel particularly happy for Frank’s company. If anything, you feel a little resentful and exploited, as if the company had beat its Wall Street expectations partly at your expense, and without so much as a word of thanks for your loyalty through tough times.
Large, publicly traded companies often choose to make favorable impressions on the investment community by behaving toward customers, to put it in relationship terms, like classic gold-diggers. Gold-diggers pretend to be interested in you, but all they really want is your money. Yes, we expect the companies we buy from to make profits and look out for themselves. We want them to stay healthy, so they’ll be there for us tomorrow. But we expect them to look out for us, too, if only to preserve our goodwill and patronage. When they seem to shortchange us for their own benefit, we feel they are cold and exploitative.
“Warmth,” as we’ve seen, is a word that can be used to describe a wide array of admirable qualities, but they all add up to a reliable, trustworthy concern for others. Social psychologists note that warmth benefits others, while competence benefits the self.1 A person who is honest, reliable, and agreeable demonstrates warmth by demonstrating concern for other people’s interests and needs, even if the person might gain more in the short term from doing otherwise.
The same goes for companies. Companies that exercise genuine warmth exhibit a willingness to respond sincerely to their customers’ needs, even at their own short-term expense. The most-admired ones tend to be those that establish trusting, long-term relationships with their customers by making it a point to put customers first and themselves second. For instance, the Nordstrom’s department store chain offers such legendary customer service that it has been known to take back a dress that no longer fits because the owner has gained weight. That’s an extreme example of a commitment to the needs of others. That’s authentic warmth—and loyalty to the customer.
If that also seems like a foolhardy and unprofitable way to run a business, consider how costly it is to operate with a more transactional orientation, with a sharp focus on short-term sales and profits. Companies and brands that seek quick and impersonal transactions with us tempt us to leave them every day. They may be highly competent and efficient, but by acting in direct defiance of our need for warmth, they trigger our natural feelings of suspicion and distrust. If they lack warmth and offer little sense of their loyalty to us, these companies naturally leave us cold. Having failed to earn our loyalty, they are forced to go on endless and expensive hunts for new customers to replace the ones they keep frustrating and losing. They are like the regulars at a monthly speed-dating event. Eventually, word gets around about what they’re really interested in.
Social psychologists recognize this distinction, too, as a “communal” versus an “exchange” relationship.2 The rules in an exchange relationship are tit-for-tat; you scratch my back, and I’ll scratch yours. People in exchange relationships keep track of what they are giving and getting. Your officemate borrows money and then returns it. The sandwich shop gives you what you ordered for the agreed price. You get back according to what you put in.
By contrast, the rules in a communal relationship rely on responsiveness to each other’s needs; we take care of each other. We are in it together, so people in communal relationships keep track of each other’s wishes, not their input. If your neighbor borrows a cup of sugar, you would be more pleased to get back some of the resulting cookies than a precisely calibrated cup of sugar. A lunch date that ends with “Let me buy you the exact same lunch here tomorrow” seems weird and less friendly that one that ends, “That was fun! I know this great place for a drink after work; I think you’d like it, if you are free later this week.” Communal relationships consider the other’s needs and interests, rather than trying to even the score.
No business can afford to operate on strictly communal basis, but by introducing a healthy mix of communality to its regular exchange transactions, a company can create relationships that pay off for both the company and its customers in the long term. Also, rational self-interest and generous other-interest need not be a trade-off. Psychologists show that these two qualities function independently of each other, so people and companies can rank high on both self-interest and other-interest in their relationships.3
If we do relate to businesses the way we relate to other people, then demonstrating the warmth of communality creates more trust in the long term than the cold calculation of exchange transactions. In essence, we unconsciously conduct a loyalty test as we assess the warmth and competence of a person, a company, or a brand. We make a series of fast calculations (which are demonstrated at LoyaltyTest.com) in relation to the categories of warmth and competence that heavily influence our willingness to extend our loyalty.
For much of the early 2000s, Nextel enjoyed the highest customer satisfaction rankings and highest rates of customer loyalty among all its U.S. wireless competitors. In many industries, including the building trades, Nextel was the must-have carrier, thanks to a unique push-to-talk feature in its network, which allowed users to connect with each other instantly, using their phones as walkie-talkies. The telltale chirp of Nextel push-to-talk ringers led one business writer to observe in 2005 that “lots of construction sites sound like bird sanctuaries.”4
That year, Nextel was bought out by its rival Sprint for $35 billion. The move was greeted as good news by shareholders, because the purchase allowed the merged “Sprint Nextel” to step up as the nation’s third-largest wireless company. For Nextel subscribers, though, the news was not so good. Sprint and Nextel phones operated on separate, incompatible networks, and as soon as Nextel was absorbed into Sprint, Nextel’s network began to suffer.
One Nextel subscriber complained, “On my twenty-minute drive to and from work every day, I’d lose a call up to five times . . . This never happened before the Sprint-Nextel merger.” In less than a year, a full-blown exodus had begun, with hundreds of thousands of traditionally loyal Nextel subscribers fleeing the newly merged Sprint Nextel. Those locked in to long-term wireless contracts flooded support lines with complaints. How did the company respond? Some frequent callers to support lines had their contracts canceled, with CNET.com reporting: “Sprint breaks up with high-maintenance customers: Wireless carrier sends Dear John letters to customers who it says call the customer support line too often.”5
By the time Dan Hesse took over as CEO of Sprint in late 2007, losses were running in the billions of dollars each quarter. Sprint had the lowest customer service rating in the industry and one of the highest customer churn rates, nearly double that of AT&T and Verizon. If Sprint customers were unhappy, Hesse determined, it was because within Sprint’s management structure there was no accountability for keeping them happy. The New York Times reported that in Hesse’s first meeting with top executives, “he demanded to know who was responsible for appeasing disgruntled customers. No one raised a hand.”6
Many of Hesse’s first steps to right the ship involved making explicit commitments of loyalty to Sprint’s customers. Hesse appeared in television ads inviting current customers to email him directly with their comments and complaints. He asked former customers to give Sprint another chance. Every meeting he headed began with a presentation by his chief service officer. And although Sprint was still facing enormous financial losses, Hesse increased the number of call center employees until there were enough to guarantee that 80 percent of calls were being handled within thirty seconds.
The training and procedures for call center personnel were also reoriented. Previously, when call centers had been understaffed and overwhelmed, managers pressed employees to keep calls short, in order to cut down on waiting time for other callers. There was no pressure, though, to actually resolve the customers’ complaints, so customers frequently had to call more than once just to have their problems handled effectively. Under the new regime, Sprint started measuring the rates of “first-call resolution,” and for the first time, compensation was tied to customer satisfaction. More calls were steered toward call centers that excelled at first-call resolutions, while Sprint phased out the centers with poorer results.
Harley Manning of Forrester Research said of Sprint in 2010: “There aren’t many companies that say they don’t care about their customers . . . But actually doing the tactical work to change the organization and culture, such as changing compensation and making one executive accountable for the customer experience, is something different. And Sprint is doing it.”7 That year Forrester named Sprint among the three most-improved companies in its annual Customer Experience survey ranking. Other independent survey groups put Sprint at the top of the wireless industry for customer satisfaction, after it had been at the bottom just two years earlier. Most important, the volume of calls to support centers and the churn rate of fleeing customers both dropped back to industry averages.
“It’s not rocket science,” Bob Johnson, Sprint’s chief service officer, told the Kansas City Star, in reference to his call center operations. “When they call us, I am going to do a better job of taking care of them. I am going to take care of your problem. I am going to make you feel good. It will be hard for you to leave.” By May 2012, Sprint was again ranked first in customer satisfaction among major wireless carriers by both J.D. Power & Associates and the American Customer Satisfaction Index.8
Perhaps the best evidence of Sprint’s change of heart on taking care of customers was expressed by one of its frontline employees. “What I preach to all of my team is to treat customers like they’re family members,” said Alex Alum, a store manager in South Miami Beach. “The better a customer feels when they leave the store, the more referral business they’re going to bring to us. And long-lasting relationships come from great customer service.”9 Communal warmth motivates more loyalty than does cold calculation.
A lot of public companies never pull out of the kind of death spiral that Sprint had entered in 2007. Once a recession takes a bite out of a company’s revenue, Wall Street wants to see layoffs and cost-cutting that will prop up the share price. From the perspective of management, layoffs and spending cuts are survival tactics necessary to remain in the good graces of the investment community. There is little consideration that if staffing is cut and customer relationships get shredded, the company will have less to build on when better economic conditions return a few years down the road.
Pretend again that you’re working in that hospital procurement office described at the opening of the chapter. You don’t really know what’s going on at Frank’s company. You just know Frank is harder to reach than he used to be, and that he’s not very helpful when you reach him. You spend $2 million a year with Frank’s company, and you don’t appreciate how you’re being treated. There’s something very transactional about Frank’s attitude, something you’ve never seen in him before.
The fact is that Frank is now doing his job and the job of two other people who have been laid off. So he’s had to do the absolute minimum for you, strictly to the letter of his contract. The supplies keep coming, and you keep paying Frank’s bills. But there is a limit to the power of mere competence to maintain bonds of loyalty in such a relationship. When a company treats us competently but coldly, we don’t feel particularly grateful, even if the service or product provides us with excellent value for the dollar. Instead, as the research shows, we see a cold and competent company acting in a transactional exchange for its own benefit first, with little thought given to our needs or desires. We feel used.
Competence without warmth is likely to leave us feeling suspicious. It makes us worry that our competent partner might cast aside our needs the minute that it’s in that partner’s interest to do so. And you would be right to worry. That’s what happened to the customers that Sprint “fired” for complaining about Sprint’s terrible service.
Unfortunately, the tactic of slashing costs and service levels to preserve cash flow has become commonplace for large corporations struggling through hard times. It’s very easy to for management to discount or overlook the extent to which such short-term cuts can alienate customers, increase customer churn, and inevitably reduce long-term profitability. That’s because, for the management of most public companies, there is no community more important than the investment community.
By May 2012, Sprint CEO Dan Hesse was able to boast in an investor conference call how the decision to invest in customer loyalty, besides being the right thing to do, was also proving to be extremely profitable. For two years, Sprint had extended loyalty to its customers in any number of ways throughout its operations, from simplified billing to better call center experiences. The customers responded with loyalty of their own. They stayed, and many paid more for the privilege. Customers showed that if Sprint was willing to improve, they’d be willing to spend a little more to stick with the company.
“Good customer service costs less,” Hesse told investors, “and customers will pay more for good service. So it is the ultimate win-win.” Hesse estimated that Sprint was able to reduce expenses by $5 billion thanks to the combination of simpler billing and better service. Sprint closed twenty-nine call centers because call volume had dropped. Sprint also saved a lot of money by not having to placate disgruntled customers with credits to their accounts. “We give customers far fewer credits,” Hesse explained, “because when a customer is quite frankly ticked off and about to leave, very often you give the customer a credit, satisfy them, or what have you. If you provide good service, you don’t need to do that.”
The most remarkable news, though, was that once Sprint began to improve its service, the company felt it could at long last raise some prices. The company’s average revenue per user went up $4 in the first quarter of 2012, which was, in Hesse’s words, “more than any US company has ever done year-over-year in the history of the industry.”10
Plenty of research shows that companies with high levels of customer retention enjoy higher-than-average profits,11 but traditionally, companies and brands have wrongly interpreted this to mean that if they can just keep customers, even by bribing them with discounts and perks, then they have loyal long-term customers. Rewarding repeat patronage, however, is not the same thing as offering loyalty first and engendering loyalty in return. Systems of rewards and benefits are really just price cuts and discounts in disguise. And price cuts and discounts, nice as they are, do not inspire loyalty because they have no effect on our enduring, human triggers for warmth.
In 2006, by one estimate, the U.S. dollar was quietly replaced as the world’s leading circulating currency. The dollar wasn’t toppled by the euro or the yen, though. Instead, the number-one global currency was airline frequent-flyer miles. The total stock of unredeemed frequent-flyer miles was estimated at the time to be worth more than $700 billion, which would exceed the value of all the dollar notes and U.S. coins on earth.12
What are we getting for this massive investment of resources in the name of customer “loyalty”? Not very much. These so-called loyalty programs suffer from two major flaws that likely cause them to do more harm than good. First, as we all know, they are easily copied and offered by every company and brand in a given category. The differences among competitor programs tend to not be very significant, nor do they last long. So while we may lose a little by spreading our purchases across multiple companies or brands, we can pretty easily switch between them as we like. Because all competitors offer rebates of some kind, we earn rebates from those we choose to, and not much changes in our loyalty to those companies and brands.
Consider, for instance, the basic premise of all the airline, hotel, credit card, and even retailer loyalty programs we join. For every purchase we make, we are given reward points that can be redeemed for free products, services, or cash. And this is reasonably appealing to most of us, because who wouldn’t want a rebate or discount on things that we were planning to buy anyway? But let’s be clear. This is certainly not relationship-based loyalty to a company or brand that we trust and prefer to patronize. It’s a financial rebate or discount for making repeated purchases, whether or not we like and trust the seller.
The worst thing about loyalty and reward programs is that they absolutely, positively result in higher costs for companies—costs passed along to all of us in the form of higher prices. A 2009 study of credit card reward programs by the Federal Reserve Bank of Kansas City concluded that both customers and card issuers are most likely worse off from the proliferation of these programs.13
The management of a typical reward program can represent an enormous portion of a company’s annual marketing spend. In the hotel industry, once a customer has enrolled in a reward program, a portion of every subsequent purchase (typically about 5 percent) is set aside in an account to fund reward redemptions and other program expenses. From an accounting standpoint, these reward funds are treated a bit like retail bank deposits. A certain reserve level must be maintained at all times to ensure that all rewards redeemed can be paid. An outside actuarial review each year determines the reserve level for the coming year, based on recent activity. This review takes into account the assumption that substantial portions of all reward points will expire before they can be redeemed.
So in addition to the costs of program rewards, lots of additional expenses go into managing, monitoring, and promoting enrollment in these programs. That’s where the Kansas City Fed study saw losses to both the provider and the customer. The main beneficiaries seem to be the vast network of service providers that profit from selling and managing these reward programs for companies and brands.
At the root of the problem, again, has been a fundamental misunderstanding of the nature of loyalty, with the belief that genuine, relationship-based customer loyalty can be bought with rebates and rewards. As anyone who has been frustrated with the service provided by their wireless carrier, cable company, or the dominant airline at their nearest airport can attest, our continued purchases are typically not a sign of our loyalty. Rather, they are more often a sign that we are essentially being held hostage, unable to switch to a better alternative without significant negative consequences of some kind.
From the opposite perspective, Wharton professor Stephen Hoch notes that we often feel high levels of loyalty to retailers who have no loyalty or reward programs at all—Trader Joe’s being the most prominent example. That observation alone puts the credibility of loyalty and reward programs in doubt.
“A lot of these loyalty programs are just a lame way of giving a heavy user a discount,” Hoch said in a 2007 interview. “That’s not necessarily bad, because heavy users are more price-sensitive. You want to give them discounts, but the question is, does it create loyalty if everybody is doing the same thing for that heavy user?”14 Hoch seems to ask, just how thin can our so-called “loyalty” be spread? Many of us, for instance, have loyalty cards for three or four different supermarkets, which suggests that we’re not loyal to any of them. We use loyalty cards just to qualify for discounts wherever we happen to be shopping.
As a general rule, reward programs in the travel industry are designed to maximize customer participation while limiting actual reward redemptions. This frequently involves a promotional advertising campaign that says “earn a free X after just Y” purchases, which generally sounds pretty reasonable and attractive. However, customers often don’t realize that there are special requirements and limitations in the fine print of the offer. For instance, there may be extra steps required to become eligible for the offer or limitations on when or where the reward can be redeemed. These all are designed to keep redemptions to a manageable level, because the reserve held for rewards would be quickly overspent if every eligible customer were compensated for every eligible purchase.
Though it may sound odd that these programs are designed to ensure that a significant proportion of earned rewards are never actually delivered to customers. This “slippage,” as it is called, is a central component of every reward program in every industry. In fact, when companies and brands implement changes in the terms and conditions of their reward programs, it’s often to enable them to better manage the slippage on reward redemption and reduce the liability of earned but unredeemed rewards from their balance sheet. The problem with all of this financial risk management is that lots of customers don’t discover the fine-print requirements and limitations until after the purchase. As you can imagine, this does not make for happy and loyal customers.
Despite the heavy investments made in these programs to build and reward loyalty, they often leave customers jaded and indifferent at best or angry and resentful at worst. However, the especially painful truth for companies and brands in industries like airlines, hotels, and credit cards is that the reward programs have become so ubiquitous, expected, and taken for granted by customers, it’s no longer possible for them to compete without one—not because they are especially effective, but rather because the most valuable customers won’t even consider doing business with them without this industry-standard perk. As a result, they’ve become a price-of-entry commodity for customers, like the ante to participate in a round of poker. Overall, reward programs do a poor job of maintaining the kind of customer loyalty that is possible naturally when two people get to know and appreciate each other.
Considering how merchants built loyalty with their customers before the Middle Ages of Marketing, we can see some interesting parallels to what reward programs are trying but failing to accomplish today. In a small community, merchants soon noticed which customers they were seeing on a regular basis. They would recognize faces, get to know names, remember shopping habits, and appreciate patronage. Commonly, the merchant might offer a volume discount or throw in a few tokens of that appreciation. Our human nature compels us to reciprocate acts of kindness,15 and gifts signal the wish for communal relationships. These long-ago merchants were certainly no different from the rest of us in this regard. So although it wasn’t until 1896 that the Sperry & Hutchinson Company began offering their S&H Green Stamps program to retailers, the concept of rewarding loyal customers had been employed by merchants for centuries as a gesture of human warmth and appreciation.16
Another key aspect of the loyalty that developed between merchants and customers was recognition. Because merchants historically knew customers on a personal basis, they could expect to be greeted by name and perhaps receive a little extra attention as well. This kind of recognition required genuine interest on the merchant’s part to remember important customers and then treat them differently when they arrived. Warm behavior of this sort alerts us to another person’s caring for us and deserving our loyalty. Worthy intentions also have much greater influence on our loyalty than rewards or discounts do.
Of course, today’s reward programs attempt to accomplish something similar by creating multiple status levels to recognize differing levels of patronage. Silver, gold, platinum, or diamond status each offer different privileges, rewards, or service. However, the hotels, airlines, banks, and retailers granting us these privileges don’t really recognize us at all. They register only an account number, its associated transactions, and its corresponding rewards. We are often only a number to them. This automated system tries to compensate for our becoming, during the Middle Ages of Marketing, merely nameless, faceless “consumers” with whom they have no actual relationship.
What’s more, any special recognition promised with such reward status frequently goes undelivered. Having been assured of special attention, we end up feeling more annoyed and disappointed than if they had offered no reward program in the first place. An executive in the hotel industry tells of his frustration in attempting to deliver rewards recognition and benefits through his chain’s network of franchise owners. His chain had instituted a set of new recognition benefits for its “elite status” members, including a complimentary room upgrade, but on his first trip out of town he saw the reality—an uninterested desk clerk ignoring his “elite status” card at check-in, failing to offer a room upgrade, and even showing mildly insulting indifference when the executive pointed out that he was an elite status member. “He couldn’t have been more relationship-destroying if he tried,” the executive recalls. His chain began investigating how to automate elite status recognition, bypassing the front desk entirely with electronic communications, such as sending welcoming mobile texts at check-in.
More often, reward programs bombard us with email offers roughly based on our prior behavior, with no real knowledge of why we bought or what we did. They push us and overwhelm us with deals and irrelevant suggestions, often alienating us by demonstrating that their main interest is their own sales objectives, not us. Early merchants knew customers well enough to know what they liked, talked about things that were relevant to them, and made them offers based on that knowledge. They kept an eye out for things that might be of interest to their loyal customers, and even when they failed to provide superior service, they at least knew their customers well enough to recognize when they owed appropriate apologies.
Customers who complain about a company but then experience promptness and respect often become more loyal to the company than customers who have had no complaints.17 The reason goes right to the importance of warmth and loyalty. A complaint sparks an interaction, which in turn provides the opportunity to demonstrate loyalty to the customer. On the other hand, if any number of faceless monoliths favor us with points, miles, and tenth-coffee-free offers, we’re happy to have the discounts, but we’re not going to feel much in the way of true loyalty.
Wharton marketing professor Erik Clemons points to his own personal example. Almost twenty years ago, he had a miserable stay at the InterContinental Hotel in London. He wrote out a detailed list of everything that had gone wrong during his visit, and then as he was checking out, the guest relations manager went over his complaints with him. She asked him to come back again and give the hotel another chance. From then on, the InterContinental had Clemons’ profile down. For example, when he was traveling with his young daughter, the hotel made sure he didn’t get a room with a balcony, which could be dangerous. Clemons has stayed in the InterContinental chain dozens of nights a year ever since.
The InterContinental manager who followed up with Clemons says that she flags complainers because “if they care enough to bring it to your attention, then it is important to turn things around for them and turn that to strength. I’ve followed up on quite a few regular guests who have had problems. They can end up being your most loyal customers.”18 This seeming quirk in human behavior only helps bear out the idea that we are loyal to the people behind companies and brands, not their products, prices, or loyalty programs. As Loyalty Testers, we are usually glad to forgive a failing grade and dispense “extra credit” where it’s due.
Dr. Kelly Faddis operates one of the most unusual dental practices in the United States. Out of a $1.2 million office in the Salt Lake City area, he serves a clientele that includes people who fly in from as far away as Texas and Bermuda. Many of these clients come to him even though he doesn’t take their insurance. He doesn’t give discounts or run promotions. He doesn’t advertise.
You might suspect that Dr. Faddis is an exceptionally competent dentist. He did graduate seventh in his dental class, but he’d say that’s not what sets him apart. Rather, Faddis is first and foremost a practitioner of loyalty to his patients. They all have his cell phone number. He books only one patient at a time, so no one ever waits. And he takes a lot of time to educate patients about how they can take of their teeth themselves, increasing what he calls “their dental IQ.” His aim is for them to understand their treatment well enough that they could explain it in plain English to a neighbor. He finds that by his doing so, his patients take better care of their teeth and take ownership of their mouth, thus having fewer problems in the future.
All of these reasons explain why Dr. Faddis doesn’t need to advertise or run discount promotions. Nearly all his new patients have been referred to him by his other patients. By building lasting relationships with patients, he has developed a fanatically loyal following. He turns new clients into advocates for his practice who proactively encourage friends and family to go see him. Faddis started out practicing in a crowded dental office for a while. He was told that dentistry involves getting people numb, treating them, and moving on. The other doctors in the office would each have three chairs going at once, inevitably falling hours behind schedule, turning the treatment room into a small waiting room. The emphasis was on “never letting money walk out the door” if they can be treated today. “It didn’t seem right to me,” he recalls. The office wasn’t putting its patients’ interests first, and he was uncomfortable about that. “I thought, this doesn’t seem to be working for me.” He left the group practice after just six months.
At the time, he was twenty-nine and living in an apartment with his wife, who was expecting their third child. Despite a heavy student loan burden, he started out on his own, very much the underdog, with just one or two patients a week. “I did it the old-fashioned way, just hoping that if I built it they would come,” he said. “In doing so, it allowed me to sit with patients. I could spend as much time as needed and never rushed a checkup with anyone, visit with them . . . answer any question they wanted. I thought, you know what? This isn’t going to make me a lot of money, but I like it.”
Today Faddis practices in surroundings that are deliberately designed not to look or even smell like a dentist’s office. The décor is up-to-date, with high-end art on the walls, and the setting is scented in a way to take patients’ mind off what they are about to undergo. Sight and smell are important to Faddis, since at most practices, he says, “These two things are very off-putting for dental patients. First impressions of that kind are critical, because by the time I meet a patient, the patient’s emotions have already been primed by what they’ve experienced—the referring source, the act of making the appointment, and the time spent waiting. If all those experiences have been positive, my job is much easier, because my patient is more at ease.”
The treatment experience itself is also far removed from the way dentistry is typically practiced. “You walk in, and I’m on time all the time,” he says. “We never double or triple book appointments. We see one patient at a time, and because I’m not running room to room, it’s actually more efficient. We have a small staff, focused on one patient, and I do quality work fast, which the patients appreciate. The patient and I are both seated at the same time, and I don’t stand up until the treatment is finished. No phone calls, no distractions. Just focused treatment.” What’s more, he adds, “Patients have been conditioned to think dental treatment and the numbing process take a long time. Wrong! This is a ploy to allow the dentist to leave the first patient and start treatment on a second or third patient. This is inefficient and wastes everyone’s time.”
Faddis has never hired a hygienist. He does all the teeth-cleaning himself. “That’s unheard of in dentistry nowadays,” he says. “Dentists don’t want to clean teeth. You don’t make enough money cleaning teeth to justify doing it. You want to be doing an advanced procedure and not a $100 cleaning. But that’s the time to bond with patients. How are you doing? What’s going on?” The simplicity of teeth-cleaning gives him time to connect with the patient and gently educate each patient about dental hygiene. It’s time he wouldn’t have if he delegated cleaning to a hygienist and limited his contact with patients only to the time spent on higher-value procedures.
As a result, he says, “My entire practice is built on word of mouth.” By connecting with patients in this way, he hardly ever loses them to other practices, while he continues to get a steady stream of referrals. He doesn’t spend any money on advertising and has never needed to. Ultimately, he says, his practice has thrived because he’s run it according to the Golden Rule of treating others as he would want to be treated. “I don’t like to wait,” he says, “so I don’t want to see others wait.” He takes Fridays off but comes in for emergencies, because that’s what he’d want. And he doesn’t charge extra for dealing with emergencies. Instead, he’s taken care of his customers, and they have responded by becoming his advocates, his evangelists. That’s how they return the favor and take care of him.
It wasn’t Faddis’s intent to become the Mercedes Benz of dentistry, but that’s essentially what he’s done. Mercedes is a luxury brand, but that’s not what sets it apart from other carmakers in terms of customer loyalty. At 55 percent, Mercedes has the highest rate of customer loyalty among all luxury carmakers, so the company attempts to go one better and make customer referrals a business objective.
“Our goal is turn our customers into advocates,” says Steve Cannon, president and CEO of Mercedes-Benz USA. “Having a trouble-free, great experience is not enough to turn loyalty into advocacy. If they’ve had a great experience, that’s wonderful, but when we layer on top of that something that truly makes the ownership experience a little more special, a little bit more emotional, then we sort of jump over that hurdle.”
For instance, Mercedes practices what it calls “random acts of kindness” with its customers, offering them invitations to exclusive events related to the Masters golf tournament, Fashion Week in New York, or the U.S. Tennis Open. Mercedes’s alliance with fourteen exclusive hotels around the country means that when Mercedes drivers check in, they’re rewarded with a bottle of wine and a $100 spa and resort credit, presented as tokens of gratitude for Mercedes ownership. Each new buyer of a high-performance AMG Mercedes vehicle gets to schedule a day on a racetrack with a professional driver to learn how to drive the car under extreme, intense conditions.
“The driving experience turns loyalists into—not even advocates—let’s call them zealots,” Cannon says. “One customer brought his Dad and then he wrote me a letter that said, ‘I had the best day with my father that we’ve ever had in my entire lifetime’ . . . That kind of emotion associated with an experience that Mercedes-Benz provided is hard to measure, but it’s what turns those people into advocates and zealots.”
Steve Cannon is the first to acknowledge that in terms of product quality, all the luxury brands are running very close to each other. “Everyone is getting better at their game,” he says. “Quality levels are converging . . . In the car space, nobody needs to drive a $100,000 car, and $20,000 cars keep getting better. So it really boils down to experience . . . to justify a purchase at that level.” That puts special pressure on Mercedes dealerships to distinguish themselves, not only from other brands but also from each other. Many Mercedes dealers have welcoming programs for new owners, sending them flowers, birthday cards, and anniversary cards. Cannon points to a southern California dealership that offers free wash-and-vacuum service for the life of the car.
At one such dealership in the Chicago area, Loeber Motors, senior sales manager Bob Dekoy says the entire dealership runs by the founder’s credo that “if you don’t satisfy the customer, someone else will.” He adds, “Basically what I’ve done is listen to the customer, see what their needs are, and stay in touch with them.”19 He estimates that 60 to 70 percent of sales are from repeat customers, and some customers, he knows, come to Loeber from miles away, driving past other Mercedes dealers in order to give him and Loeber their loyal patronage.
Dekoy says he always assumes that the average Mercedes buyer is smarter than him, and that includes visitors to the dealership who don’t look like what might be considered stereotypical Mercedes buyers. He recalls chatting about his cars with a teenager for about half an hour one day, knowing that the young man was probably too young to drive the car, much less buy one. Six months later, the young man returned with his uncle and pointed to Bob as the salesman who had taken such good care of him. The uncle closed on a car that day.
On another occasion, Dekoy saw a young man in his early twenties who was eyeing the most expensive car on the floor. “This guy did not fit the profile of being a Mercedes customer,” he recalls. “Nobody even walked up to him, even to see if he wanted a job as a floor sweeper.” The young man told Dekoy that he wanted to buy the car, but for the time being all he needed was a brochure. The dealership was out of brochures on that model, but Dekoy offered to take down the young man’s name and number. He recognized the last name as belonging to a prominent Chicago family. “The next morning I get a phone call at 9:30,” Dekoy says with a laugh. It was the young man’s father. “[He said] ‘Okay, you’ve got a blue car in front of your desk, my son wants to buy it, and we’ll be in at one o’clock to pick it up.’ . . . In addition to that, I’ve probably sold a dozen cars to that family since then, and I’m still selling them cars now.”
Kelly Faddis and Bob Dekoy succeed by passing the loyalty tests of their customers—loyalty tests that their competitors often fail. For loyal customers to trust, commit, and support them, each of those businesses first had to demonstrate genuine warmth, concern, and commitment to those customers’ needs and interests. As you’ll see, customers handsomely reward companies and brands that exercise this simple but powerful application of warmth and competence insights, through something called the principle of worthy intentions. When a company or brand goes above and beyond normal expectations to express worthy intentions, it turns loyal customers into passionate advocates who actively recommend others to them.
Notes
1. Peeters, G. (1991). Relational information processing and the implicit personality concept. Cahiers de Psychologie Cognitive/Current Psychology of Cognition, 11(2), 259–278. Wojciszke, B. (1994). Multiple meanings of behavior: construing actions in terms of competence or morality. Journal of Personality and Social Psychology 67, 222–232.
2. Clark, M. S., & Mills, J. (1979). Interpersonal attraction in exchange and communal relationships. Journal of Personality and Social Psychology, 37(1), 12–24. Fiske, A. P. (1991). Structures of social life: The four elementary forms of human relations: Communal sharing, authority ranking, equality matching, market pricing. New York: Free Press. Fiske, A. P. (1992). The four elementary forms of sociality: Framework for a unified theory of social relations. Psychological Review, 99(4), 689–723.
3. Gerbasi, M. E., & Prentice, D. A. (in press). The self- and other-interest inventory. Journal of Personality and Social Psychology.
4. Sprint plans for end of Nextel push-to-talk network. (2012, June 18). Kansas City Star. Retrieved from http://www.kansascity.com/2012/06/18/3664694/sprint-plans-for-end-of-nextel.html#storylink=cpy
5. CNET.com. (2007, July 5). Retrieved from http://news.cnet.com/8301-10784_3-9739869-7.html
6. Bedeviled by the churn, Sprint tries to win back disgruntled customers. (2008, July 8). New York Times.
7. Sprint Nextel makes strides to improve image. (2010, June 29). CNET.com. Retrieved from http://news.cnet.com/8301-30686_3-20009100-266.html
8. Sprint news release. (2012, May 15). Retrieved from http://newsroom.sprint.com/article_display.cfm?article_id=2282
9. Ibid.
10. Fair Disclosure Wire. (2012, May 16). Sprint Nextel teleconference call, J.P. Morgan TMT Conference 2012.
11. Reicheld, F., & Teal, T. (1996). The loyalty effect: The hidden force behind growth, profits, and lasting value. Boston, MA: Harvard Business School Press.
12. Frequent-flyer miles in terminal decline? (2006, January 6). Economist.
13. Hayashi, F. (2009). Do U.S. consumers really benefit from payment card rewards? Economic Review. Retrieved from http://www.kansascityfed.org/PUBLICAT/ECONREV/PDF/09q1Hayashi.pdf
14. Love those loyalty programs: But who reaps the real rewards? (2007, April 4). Knowledge@Wharton. Retrieved from http://knowledge.wharton.upenn.edu/article.cfm?articleid=1700
15. Cialdini, R. B. (1993). Influence: Science and practice (3rd ed.). New York: HarperCollins College.
16. Whatever happened to Green Stamps? (2001, July 24). The Straight Dope. Retrieved from http://www.straightdope.com/columns/read/1940/whatever-happened-to-green-stamps
17. Strativity Group 2010 Customer Experience Management Survey.
18. Love those loyalty programs, 2007.
19. Bob Dekoy interview by Chris Malone, January 9, 2013.