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Incentives for Customer Loyalty

Posted on December 3, 2010 , by Steve Bernstein
CATEGORIES: Lessons Learned
I’ve posted some horror stories about bad service over the years but I really love to be able to focus on the good stuff. 
There’s an excellent discussion over at BNet on how best to incent the front-line to drive customer loyalty.  The CEO of Blinds.Com clearly gets it, and has created a company that not just talks about “excellent service” but actually delivers it and has been reaping the rewards.  He’s raised some good questions which can be found at
My own thoughts on “commissions” for customer loyalty:  it’s hard for me to recommend additional incentives to get people to do what they are supposed to do anyway. But that said, it’s certainly not enough to just “stand still” as it’s good to have a focus on ‘improvement’ and compensate those that contribute. So here is an approach to measure improvement that I have seen work very well.

First, know what the financial contributions of “excellent service” mean to the business. We worked with one .com company and found that a Promoter (a customer that loves them) was worth 28% more than the “average” customer, and that a “Detractor” (a very unhappy customer) was worth almost $Zero due to costs of service, negative referral impact, and low repurchase rates.
Next, know what creates Promoters and/or Detractors. If the individual call-center agent is a key driver of customer loyalty then it’s important to focus there. On the other hand, if it’s the team as a whole (e.g. meeting service levels or working with the back-office) then compensating the team may be more appropriate. Or, perhaps the front-line has little to do with loyalty at all; maybe customer expectations and resulting loyalty is more set and met by marketing, by the product, by fulfillment, or even by the competition. Knowing this should help optimize the investment in additional spend.
Third, communicate these facts to the organization and get the right actions. Then you can share the wealth when “improvement” comes into play. You may find it appropriate to bonus based on improvement in existing financial metrics (which I like to call “naturally occurring incentives”). Or, as an interim step after you determine the appropriate leading indicators of profitable growth, you may “stoke the fire” by comp’ing on other metrics such as measures of customer engagement or percent improvements in scores (with the caveat that improvement is tougher if one is already at the top of their game, and more on this is here.).
I think most companies don’t do this work because it takes time and diligence. It’s often easier to throw some money at several areas and see what works. In my experience the only thing wrong with that approach is that it can be very expensive if the wrong bets are made.  I appreciate thoughts from the community – what practices have you seen work well?