Number 35: Summer 2006
Customer Trust & Loyalty
by John Todor
Editor's comment: Trust has become an increasingly crucial issue in consumers' eyes. Major companies are more often viewed with distrust and this has a major impact on buying decisions. This article argues that companies have to establish a deliberate strategy to build consumer trust.
Customer trust is a precondition for prosperity. Yet, most businesses…
act as if customer trust develops because the business believes it is honest.
build only a shallow type of trust that does not lead to profitable relationships and loyalty.
have no strategy to build the type of trust where customers increasingly value the relationship.
Now is an excellent time to aggressively and systematically work at building customer trust. Virtually all businesses have been tainted by the general rise in societal distrust of companies.
A recent Datamonitor study of consumers in the USA and Europe found that 86% are less trusting of companies than they were five years ago.
80% of people stop buying products or services from companies when their trustworthiness comes into question (Edelman 2005 Trust Barometer)
People spread distrust to friends and associates, the people we trust most.
Over 33% who lose trust in a company, openly campaign against that company on the Internet.
The Datamonitor and Edelman research demonstrates that it goes beyond a few isolated cases. Furthermore, according to a Yankelovich study, more than two-thirds of people don’t believe advertisers and marketing. They see it as self-serving distortions.
Customers want to do business with companies they trust but, don’t know who to trust. Therefore, companies that proactively demonstrate trustworthiness stand to gain a tremendous source of competitive differentiation.
What is trust and why is it important to customer relationships? Webster gives two definitions of trust that help separate the wheat from the chaff.
firm belief or confidence in the honesty, integrity, reliability, justice of another person or thing.
confident expectation, anticipation, or hope; as in trust in the future.
Most companies believe they are trustworthy but only measure up to the first definition. They want to be known as a company that is honest, reliable and fair. They expect their products live up to expectations and when they don’t they think they treat customers equitably.
Do you think your company measures up? If you say yes, ask yourself what you proactively do to build this trust. Many companies have no deliberate strategy.
If you have a deliberate strategy, now might be a good time to question how well it is working. As mentioned above, Yankelovich’s research shows that most customers don’t believe your marketing and advertising. And, the Edelman Trust Barometer concluded that when looking for a credible source of information on a company or product, CEOs, employees, public relations people and celebrities rank in the bottom half.
Measuring up to the first definition of trust is essential to sustainable and profitable customer relationships. However, even if customers believe your company is honest, reliable and fair, this is no guarantee they will be loyal and profitable. To garner commitment, profitability and high lifetime value, a company must measure up to Webster’s second definition as well.
Businesses that meet the first definition but not the second, run into the Satisficing Trust Barrier. Satisficing trust is the trust that allows a customer to feel comfortable in buying products or services from a company. It is a sense of confidence that the company will stand behind the product. It is sufficient trust to purchase a well-defined product, a commodity. In a world of abundance and overwhelming choice, satisficing trust does not insure repeat business. Customers buy commodities that offer the best trade-off between satisficing trust, price and convenience. Some companies become complacent because they feel they offer the best combination of the three. Unfortunately for them, all it takes to lose customers is for a competitor to create the perception of a better deal. No real relationship value has been accrued by the company who wins business this way.
The operative words in the second definition of trust are “hope” and “trust in the future.” Many purchases these days are not commodities; they are not well defined and may not have a track record. To make these types of purchases the customer must take a “leap-of-faith,” and this requires trust. In this type of trust the customer must believe that the vendor company is truly interested in a win-win relationship. That is, they are interested a long-term relationship where both parties benefit. This type of trust grows out of experience with a company demonstrating a real commitment to win-win. Since virtually all customers have been “burned,” companies often have to subjugate their short-term interests to stimulate the development of faithful trust.
Customer want to build relationships that help them more confidently make “leap-of-faith” decisions. Being able to rely on this trust helps them simplify things in an increasingly complex world. When this happens, trust in the relationship becomes more important to customers than price and convenience. It starts with “hopeful trust.” Customers want the best for themselves. They want to adapt and to embrace change, and they will place extremely high value in relationships that help. Customers are on the lookout for signs from companies that their “hopeful trust” will be well placed. But this “hopeful trust” is just a test. If experience demonstrates that trust in the relationships is justified, faithful trust will emerge.
When trust morphs from “hopeful” to “faithful,” a very significant twist occurs. The main concern of customers shifts from price and utility to the seeking of advice and guidance. When price is an issue, customers withhold information. When they seek guidance, they openly share. “Faithful trust” enables this openness. It also enables both parties to prosper and builds a basis for co-adaptation, now and in the future.
The trustworthy company gets the immediate sale, but they get much more. Snafus or mistakes that might have once terminated a relationship are now overlooked for the sake of the relationship. Customers become turbocharged advocates. They don’t merely tell others what you sell; they vouch for you and the relationship value you deliver. They come to depend on your business and, as a consequence, they want you to thrive.
The real-life story of Billy Blue, a men’s clothier in San Francisco illustrates the power of fully trusting relationships. Billy Blue’s thriving business took a nose dive during the dot.com crash. The downturn was so severe its owner, Billy Bragman, considered closing his doors. Instead, he wrote his customers a letter explaining the situation and asked them to buy more clothes. Even though many of his customers had their own business “trial and tribulations,” they increased their clothes purchases. One guy sent a check for $2,500 with a note saying, “You know what I like; just send me some new clothes.” Billy Blue customers could easily have turned to other men’s stores but they chose to support Billy Blue. They valued their relationship with Billy Blue and didn’t want it to go out of business.
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© John Todor / Through the Loop Consulting Ltd 1998-2006