Chuck Terry’s Blog

Circuit City is the most recent example of a large company that has ceased doing business.  They were once the largest retailer of their kind in the country, so surely they must have had some loyal customers, right?  There were still people buying electronics, but just not enough of them had chosen to purchase from Circuit City.  Was a lack of customer loyalty their downfall?

 In his book, “The Ultimate Sales Machine,” Chet Holmes cited some frightening statistics.  74% of consumers buy outside their favorite brand and 16% to 30% of consumers change brand loyalty in one evening of watching television!  With over 26,000 new products and brands introduced every YEAR, it is no wonder that this increased competition for every dollar spent is forcing the perceived commoditization of even the most seemingly differentiated products.  Add in a shaky economy with fewer dollars to spread around and, well, you get the picture.

I recently observed an incident involving a friend of mind in retail which illustrates what is happening with customer loyalty.  The owner of a product that he sold in his store brought in that same type of product for repair even though they had not purchased it at his store.  The retailer cheerfully made the minor repair at no charge because that is how he builds customer loyalty to his establishment.  His quite reasonable thought was that when the customer purchased again, they would buy from him.  The interesting part of this story is that I also know the consumer who had brought the item in for repair.  They ended up replacing the product my friend repaired for free.  In fact, they bought the exact same new product on the internet, even though they had come back to shop for it at my friend’s store.  Since I knew both parties involved, I had to ask the buyer why they weren’t willing to spend the extra 15% to buy that product in my friend’s store.  Not unsurprisingly, the answer I got back was, had they not found it cheaper on the internet, they would have purchased from the store.  But every dollar counts.

In this particular situation, by the time you add in the cost of shipping and handling, the customer probably saved somewhere around 12%!  As I talked to my retail friend about why he lost the business to the internet, the reason for the dilemma seemed pretty clear.  While he was placing high value on performing free service to anyone regardless of where the items may have been purchased, clearly the consumer’s value of that offering was not significant enough to overcome even a 12% price difference. On the approximately $330 item in question, the savings were around $40.  One problem with two solutions: First, my friend needs to stop repairing items for free and create a new profit center if his consumers aren’t going to give him enough “credit” for the free service.  The second part is a bit trickier because he needs to look for opportunities where his business could provide additional value for his customers and build in at least 12% more value someplace that consumers will value appropriately. Easy to say, harder to do!

The real culprit in this scenario isn’t so much the internet as it is a failure of companies to continue to raise the bar of value as experienced by their customers. The proliferation of a phenomenon called “Me Too for Less” is causing businesses to undercut each other’s pricing because they feel they have no other way to gain the differentiation required to command a few extra dollars and still get the business. The only real requirement for the “Me Too for Less” business strategy is an ever sharper pencil.

To circle back to the Circuit City story, their collapse was obviously due to the fact that they just couldn’t keep their pencil sharp enough to offset the fact that there wasn’t enough perceived value to offset ANY price differential with their competitors.  Minneapolis based Best Buy received that message loud and clear as referenced in a recent Wall Street Journal article. Best Buy is putting a full court press to raise the expertise level of their “blue shirts” (in store sales team) to try and create a much higher overall customer “experience.”  Their goal?  Attract the former customers of Circuit City and give them a reason to become loyal future customers of Best Buy.

To answer my original question… customer loyalty is NOT DEAD.  It is very much alive, but more demanding.  We need to ask our sales and service teams a VERY simple question. How much more could our competitors discount their prices before our loyal customers would start to switch allegiance?  Secondly, are you bringing enough value to the equation to offset whatever that number is?  Now that you have a better handle on the edge of the loyalty envelope, it is critical that when you need to defend your price, you have built in enough additional value to consistently get it.

It is either that or go out and buy a sharper pencil!

Chuck Terry is the Executive Vice President and CSO of Carew International and is regular contributor to Carew’s blog – Executive Insights

Carew International is a leader in sales training and leadership development; specializing in comprehensive, proven training programs for sales, sales management and customer service excellence. For over 30 years, Carew has earned its reputation of delivering increased productivity and profitability to our valued clients world wide.