Our report The ROI of Customer Experience shows that customer experience is highly correlated to loyalty. The research analyzed the relationship between Temkin Loyalty Ratings and Temkin Experience Ratings (TER) for 206 U.S. companies.
After analyzing the connection between these ratings, we found that some companies seem to have higher loyalty levels than they seem to deserve based on their customer experience while others have lower loyalty levels.
Using that dataset, I compared actual loyalty levels with projected loyalty levels. How? By plugging each company’s experience rating into our regression model to identify what their loyalty rating should be (normalized to their industry average) based on its TER and compared that projected rating with its actual loyalty rating. In the chart below you can see the companies with the largest positive and negative variances from the model’s projections.
The companies with loyalty levels the most above the projections are USAA, Highmark, Medicaid, credit unions, and TriCare. The companies that fall the most below the projections are T-Mobile, BMW, Bosch, AT&T, and Alamo.
Let’s examine USAA as an example. Since it has very high experience ratings compared with its industry peers, our model projects that its loyalty ratings should be at the high end of banks, credit card issuers, and insurance carriers. This analysis shows that USAA’s actual loyalty levels are higher than expected, even after factoring in its wonderful customer experience.
So what?!? There’s nothing inherently good or bad with being above or below the projected loyalty level. There’s no reason to expect companies to fall directly on their projected loyalty levels.
What’s interesting about this analysis is not what’s good or bad, but WHY are some companies so far away from the projected levels. This is where I’ll leave the data behind and offer my interpretation about WHY some companies have higher than projected loyalty while others have lower than projected loyalty:
- Product fit. CX is not the only component of customer value. Companies that have tailored their products and services to better meet customers’needs (like USAA and TriCare) have an even better loyalty level than their CX would suggest. If companies have a poor product offering, then their loyalty may be lower than projected (this may explain Sears and DHL).
- Product quality. If companies have quality problems with their offerings, then they would have lower loyalty levels than their CX deserve (this may explain AT&T, T-Mobile, and Alamo).
- Service expectations. Companies that have premium status (BMW cars and Bosch appliances) often elicit higher expectations from customers, so they don’t earn the loyalty that their CX would suggest and have to work harder.
- Trapped customers. In industries where customers have a hard time switching, a bad experience may not lead to the loyalty decline anticipated by the model; the same type of situation would occur if a company is harder to move away from than it’s competitors (this may explain Medicaid, Medicare, MSN, and EarthLink).
- Commoditization. In industries that have a lot of pricing comparisons, customers may overly focus on price and not award good customer experience with the level of loyalty that the model projects (this may explain Alamo). It can also push consumers that have poor experience to more quickly leave a company for its competitor (this may explain DHL).
- Substitutions. In sitations where customers don’t have a lot of clear alternatives, they will be more loyal to a company than the model suggests (this may explain eBay). A company that relies on self-service may be seen as easier to move from than a company that forms more personal connections with customers (this may explain E*TRADE).
- Emotionality. Sometimes customers develop a strong affinity for a brand that increases loyalty and dampens the negative effect of any poor experiences (this may explain Southwest Airlines and Apple).
These items cover three broad topics: offerings, competitive environment and customer expectations. What do you think causes companies to earn more or less loyalty than their customer experience seems to deserve?
The bottom line: CX is correlated to loyalty, but other things matter as well