I used my segment on “Getting Down to Business” to further explore the topic of relationship marketing. In this eight-minute segment, I explain how developing relationships with your customers can lead to higher profitability, increased loyalty and more referrals.
How relationships can turn your customers into your best friends (or worst enemies).
You’ve probably heard about relationship marketing. Maybe you’ve even taken some steps to create more customer loyalty by being more “friendly” with your customers. Indeed, developing customer relationships can be a great way to grow your business and profits. Steve Yastrow wrote a book about the topic, We: The Ideal Customer Relationship.
In Yastrow’s first chapter, he provides compelling evidence for developing customer relationships, stating: “Relationships have become powerful differentiators. Customers can’t tell if your product is better than your competitor’s product, but they can tell if they have a better relationship with you than with your competitor.”
Even better, the profit potential for developing relationships with your customers is high. In Yastrow’s research, he found that 89% of people prefer to buy from a business they have a relationship with; 86% would prefer to buy from a business that they have regular conversations with, and 90% prefer to buy from a business that talks with them about future decisions they might make. Here’s the real revelation, though: 79% of people are more likely to buy from a business they have a relationship with rather than the business with the best prices. Similarly, 86% would be more likely to refer a business they have a relationship with than to refer a business with the best prices.
“Wow!” you say, “Sounds amazing, but what’s the catch?” It turns out developing good relationships with your customers isn’t easy (but it’s still worthwhile).
The reason customer relationships are hard is explained in Dan Ariely’s bookPredictably Irrational. In chapter 4, “The Cost of Social Norms,” he explains that we live in two different worlds: one governed by social norms, and one governed by market norms. Ariely writes:
“Social norms are wrapped up in our social nature and our need for community. They are usually warm and fuzzy. Instant paybacks are not required: you may help move your neighbor’s couch, but this doesn’t mean he has to come right over and move yours.”
There’s nothing “warm and fuzzy” about the world ruled by market norms, however:
“The exchanges are sharp-edged: wages, prices, rents, interest and cost-and-benefits….When you are in the domain of market norms, you get what you pay for—that’s just the way it is.”
What happens when we develop customer relationships, and those worlds collide?
Ariely reports on an experiment in a day care center that tested the interchangeability of social norms and market norms. Parents usually viewed their relationship with the day care center as social, but when there arose a problem of parents picking up their children late, the center imposed a fine on latecomers (thereby introducing a market rule). The instance of late parents actually increased, because parents now felt they were paying to be late and no longer felt any social obligation to arrive on time.
When the day care center reversed the fine, Ariely saw that something interesting happened. Even more parents started picking up their children late. Because introducing the market norm violated the social norm, parents no longer felt a social connection with the center. When the fine was removed, both motivators—guilt and the fine—vanished, so there was no compelling reason to arrive on time. Ariely sums this up by asserting, “When a social norm collides with a market norm, the social norm goes away for a long time. Social relationships are not easy to reestablish.”
How does this relate to business? Let me tell you a story about a normally reasonable person who got caught in the crosshairs of social norms vs. market norms, resulting in slightly deranged behavior. (Okay, I’ll admit it. I am that person.)
Two years ago, my husband and I were planning a trip to Maine. We chose to vacation there primarily because Maine is full of natural beauty and wildlife, specifically puffins. I had heard you could take a puffin-watching cruise, and I was enamored at once. We sorted through all the puffin-watching websites to choose the best-sounding one: it took you right to the main puffin island, where you would disembark and likely be only four feet away from the puffins. The website even had a charming story about the boat, company and captain. All of the warm, fuzzy feelings and my active imagination had put me solidly into relationship, social-norm territory with this company. And I hadn’t even called them yet.
When I did call them, I had to leave multiple messages on their voicemail. Each message assured me someone would take my reservation, so I wasn’t too upset. I felt like I was already their friend, so what’s a few missed calls between friends?
Finally, someone answered my call. She was rude, abrasive and crushed my hopes of seeing puffins up close and personal: The boat was full. They don’t keep waiting lists. Then, she hung up on me.
After I got over my grief, I became furious. I signed up for a yelp.com account and wrote a scathing review. To give my review clout, I even reviewed animal-related attractions I had been to in other cities. How dare they promise to show me puffins then take it all away? I seethed over this betrayal for weeks (just ask my unfortunate husband).
To me, our relationship was based on social norms. To the puffin-watching company, we didn’t have a relationship. I was just a person they forgot to call back…for months. They thought they made a simple customer service mistake that didn’t affect their business. After all, they filled up the boat, right? Maybe, but my yelp.com review remains immortal.
Referring again to Steve Yastrow’s book, We, he advocates creating special kinds of relationships that he calls We Relationships. It involves learning about your customer and using the information you glean to develop a relationship that feels unique, fresh and equally valuable to both customer and company. To learn more about creating these relationships, I recommend you read his book.
Developing relationships with your customers is the surest route to earning their loyalty, continued business and enthusiastic referrals. However, unless you tend the relationship with care, you risk creating a jilted customer. And we all know the adage: Hell hath no fury like a customer scorned.
Every day, you make business decisions based on analysis, research and rational thought. On this day before Halloween, what if I told you a scary thing? Your customers aren’t rational. They don’t make decisions based on rational thought and logic, even when they say they do. Which means all of your careful, rational planning doesn’t necessarily influence your customers to buy more, refer more or rave more.
This article isn’t a horror story, though. There’s good news. According to author Dan Ariely, your customers (and everyone else, too) are Predictably Irrational. In his 2008 book, Ariely explores the field of behavioral economics, what motivates us, what influences our decisions and how this fits into our marketplace and world.
In the very first chapter, Ariely provides real, solid business advice that you can start using today. I’ll give you a teaser: You can increase sales of your high-margin products by offering a similar product that is clearly a worse choice. Ariely’s research shows that people are compelled to compare and prefer to compare similar choices.
For example, let’s say you are picking out a family dog, and you want a King Charles Cavalier Spaniel. You don’t know if you want a boy or girl, though. There are three puppies to choose from, two male and one female. One of the males and the female are friendly with your kids, healthy and romp around playfully. The other male growls and has a runny nose. Probability says you’ll choose the healthy, friendly male puppy. Ariely posits this choice is because it’s easier to compare two male dogs than a male dog and a female dog. Since the healthy, friendly male puppy is clearly better for your family than the grumpy, sick male puppy, the first male puppy starts to look like the overall superior choice. (Don’t worry. No puppies were harmed in the making of this example. The sick puppy went to the vet and is all better now.)
For the full research behind the tip and to gain an interesting, entertaining and better understanding of how economics works and affects your life, go buy–and read!– Predictably Irrational. Your business will thank you.