How Highly Satisfied Customers Drive Profitability, and How to Get More of Them: An Interview with “Capturing Loyalty” Author John Larson

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How Highly Satisfied Customer Drive Profitability, and How to Get More of Them: An Interview with “Capturing Loyalty” Author John Larson

By Chuck Leddy

John A. Larson is co-author of “Capturing Loyalty: How to Measure, Generate, and Profit from Highly Satisfied Customers.” It’s a terrific and a practical manual filled with actionable insights on driving higher levels of customer loyalty. Larson is a senior partner of John Larson and Company, a firm specializing in helping businesses grow through loyalty building strategies. The NCMM caught up with Larson recently to discuss how middle market companies can leverage loyalty-building strategies from “Capturing Loyalty.”

How is creating more highly satisfied customers (HSCs) a better focus for middle market companies than chasing after new, potential customers or resolving every complaint from existing, “less satisfied” customers?

Larson: Our data suggests that a highly satisfied customer is significantly more profitable for any business than one that’s just satisfied. The data shows there’s not much difference at all between a customer who is satisfied, and one who is either indifferent or dissatisfied. The real opportunity for revenue growth comes in moving a customer from satisfied to highly-satisfied. For instance, we worked with an office products retailer and showed them that a single highly satisfied customer was as profitable for them as eight-and-a-half satisfied customers.  You want to invest in customers who are highly satisfied, not ones who are just shopping around and have a transactional mindset.

What factors make the highly satisfied customer different from other customers?

Larson: You can see and feel the difference, and not just in terms of revenue generation. If we were to do two different focus groups for the same client, and the focus group on Monday is made up of highly satisfied customers. We’d see unmistakable passion and energy in the room. The HSCs will come in so pumped up to tell you all how great the client is. These HSCs perceive zero risk when they deal with our client. They trust them, depend on them, and help them drive revenues. The way to create HSCs? Find out their critical needs and then meet those needs on a consistent basis, while eliminating the risks of doing business with you.

Now if we have a different focus group on Tuesday with satisfied, but not highly satisfied, customers, there’s no energy in the room. They’ll say things like, “you can never know what you’re going to get from the client.” They’ll shop around for the best price, the best promotion -- it’s a transactional relationship without much loyalty at all.

Can you describe what the multiple positive impacts highly-satisfied customers can bring to middle market companies?

Larson: First, they have a much greater purchasing frequency. A highly satisfied customer will come back three to four times more often on average than a “just satisfied” customer. They’ll buy a wider range of products from you. You get more cross-selling and upselling going if you prove your credibility with the first product.

HSC are also cheaper to serve because they have fewer problems or complaints than other clients. And if you have to raise your prices, that “merely satisfied” customer is going to complain and maybe go someplace else next time, while the HSCs will stay with you, paying more for the chance do so. They’ll also offer you great word-of-mouth marketing, the best kind of marketing, recommending your business to their friends and family.

Why are HSCs willing to pay middle market companies a price premium?

Larson: It’s all about risk minimization in the eyes of HSCs. Every middle market company is really in the insurance business. Their job is to minimize the key risks that their customers face. Our data suggests you can get about a 5 or maybe 7% price premium with HSCs for eliminating those risks.

We worked with a consumer electronics company and found that 75% of the customers who said they were highly satisfied were also very satisfied with the prices. That number dropped to about 10% for “satisfied” customers, a huge difference. If you have 75% of your highly satisfied customers walking out the door saying, “they could’ve charged me more and I’d pay it,” you’re in a really great place to drive revenues.

How should middle market companies go about identifying perceived risks of their HSCs?

Larson: Obviously, you can ask them by doing survey research, as we do for our clients. Or you could observe your customer’s journey. Let’s look at an office supply retailer, for example. A customer might come in on their lunch hour, so will need to find the product quickly. They’ll want to check out quickly too. Those are the major risks to eliminate: finding the product and speedy check out. The perceived risks are often much less about the product itself and more about what goes around the product. So if our office supply customers buys the wrong printer cartridge by mistake, he has a perceived risk around returns, which needs to be eliminated. Know all the risks your customers perceive and move to eliminate every single one.

How can middle market companies systematically eliminate perceived customer risks?

Larson: Once they’ve identified risk-critical issues they need to improve on, middle market companies should assign responsibility for each of those issues to a key member of the management team. These individuals will be tasked with pulling together a small team in coming up with a specific plan for eliminating each perceived risk. It’s usually harder than you think because you have to align the entire organization around eliminating those risks and continue monitoring those perceived risks so they don’t re-emerge. It sounds simple, but it’s not.

What else would you like to say to middle market leaders about capturing loyalty?

Larson: There’s a wonderful business leader named Maxine Clark who was the founder of Build-A-Bear. She wrote the foreword to “Capturing Loyalty.” The point Maxine explains is that creating high levels of customer satisfaction and loyalty is not just a project. It has to be a way of life. It’s a 24/7 commitment for the entire business. But if you do it right, eliminating the perceived risks of HSCs, your highly satisfied customers will reward you and drive your business success in so many ways.