A Deep Dive into the Value of Customer Service - 7investing 7investing
Stock Tips Mobile Menu Dropdown Icon

A Deep Dive into the Value of Customer Service

Barry Kirk, principal at Chapman & Co sat down with 7investing Lead Advisor Dan Kline to discuss what drives customer loyalty and why so many companies get it wrong.

May 27, 2021 – By Samantha Bailey

Barry Kirk helps companies build customer loyalty programs,. In his position as a principal at Chapman & Co. he helps businesses deliver growth by showing them how to build a strong customer connection. He’s a strong advocate of the idea that “consumers are human beings first,” and that idea helps him work with companies to deliver “customer experiences that leverage behavior science, behavioral data analysis, persuasive design, and gamification,” according to his company bio.

Kirk works with not just company leadership, but also employees, and customers. His efforts focus not just on building relationships with existing customers but also on building bonds with high potential customers — people who should be loyal customers who are too focused on competitors.

In a freewheeling discussion that looks at what many companies are wrong when it comes to how they treat consumers, Kirk sat down 7investing Lead Advisor Dan Kline. Kirk breaks down what drives customer loyalty and why so many companies get it wrong. He also explains how building a strong customer loyalty program can disrupt industries and details why it’s so hard for many businesses to fix their customer service problem.

[su_button url=”https://7investing.com/subscribe/?marketing_id=18024″ target=”blank” style=”flat” background=”#96C832″ color=”#000000″ size=”6″ center=”yes” radius=”0″ icon=”https://7investing.com/wp-content/uploads/2021/04/7Investing-3.png” icon_color=”#000000″]Sign up with 7investing today to get access to our 7 top stock market recommendations every month![/su_button]


1:33 Why do companies not see their customer service problems?

3:30 Do former monopolies struggle the most with fixing these issues?

6:27 How important are loyalty programs?

8:01 What is the first step when you work with a company?

9:40 Is some of the problem executives not understanding the customer experience?

11:25 Do companies view customer service in the wrong way?

14:11 Is it hard to get employee buy-in when changing customer service culture?

15:40 Do companies struggle to see the link between delivering good experiences and audience growth?

18:03 Is part of the problem that big companies don’t empower local managers?

19:00 Has the pandemic brought some permanent changes in how companies treat customers?

21:20 Where are companies missing low-hanging fruit?

25:15 Is low-cost, no-frills another way to engender loyalty?

27:30 Is all loyalty negotiable?

28:50 How do you measure loyalty?

32:15 What role should artificial intelligence and technology play in customer loyalty?

34:50 What’s the secret sauce for loyalty?


Dan Kline  0:01

Welcome to the 7investing Podcast. I am Dan Kline, and I’m I’m honored today to be joined by Barry Kirk. Barry is a principal for Chapman and company Leadership Institute. He leads the customer experience practice, he’s been doing this for 15 years. He calls it the art of loyalty marketing. Basically, he helps organizations achieve growth by building deep and authentic customer connections. I took that from your website, Barry. So I hope it’s accurate.

Barry Kirk  0:29

Well, that must be true that if it’s on our website.

Dan Kline  0:31

I was gonna say I hope you wrote it. That’s just not I didn’t just repeat some marketing spiel. Why don’t you explain a little bit sort of what you do and what you bring to the companies you work with?

Barry Kirk  0:41

Yeah, so so Chapman Co. specifically, as a consulting agency works with companies particularly with three different audience intentions, which is with leaders, with employees, and with customers. And helping companies become more effective and engaging those audiences and delivering the kind of results they want to have it but also helping those audiences feel as if they’ve been cared for, and that they’re growing in an effective way. And my particular focus there is around customer experience. In particular, we are a customer experience practice that focuses on customer loyalty, that is really our expertise. And mostly would define that as retaining and growing your best customers, and maybe more importantly, your high potential customers. So the customers who really shouldn’t be best customers, but for some reason, are still paying too much attention to your competitor, that’s really the sweet spot, that’d be perfect.

Dan Kline  1:31

So I’m an insanely loyal customer, if you treat me well, if you do what I want, if you give me some nice perks, I am probably going to be as loyal to you as any customer out there. But that’s not where I tend to see problems. And we talked a little bit before the show about Southwest Airlines, I fly Southwest, because one, they’re the most customer friendly anyway. And as a high volume customer, I don’t fly as much as you but I do probably 1520 round trips per year, they value me and give me meaningful perks.

That’s not where I see customer service problems. I see customer service problems in the let’s call them former monopolies, the cable companies, the phone companies where there’s very limited choice ISP is, is it fair to say that those companies actively don’t care about customer service, because they have that long term mindset of like, well, where your cable company, not much you can do

Barry Kirk  2:23

At very least say they take it for granted. So there’s a kind of loyalty that’s that you could say is happening there, which is what I’ve often in my career referred to is inertia loyalty, which is essentially you look at it and say, well, that customer must be loyal, they’ve been our customer for a long time they buy our product. But if you really dig under the surface, what you realize is they feel trapped in that relationship. So what appears to be intentional loyalty is really somebody saying, If I had an option to get out of this, I would. And so it’s a really dangerous place to be I mean that to say that you can be safe playing in that because you have a monopoly is to assume you will never have a competitor.

And if you want to look at an environment where that was a bad assumption, just look at what Uber did to the yellow cab companies over the last three, four years, right? They came in and just disrupted that entire environment, removed all the inertia and experience and began to capture a huge part of the market share. So it’s it’s a pretty dangerous assumption to make that you you just have somebody’s loyalty trap.

Dan Kline  3:18

Yeah. And I think we’re seeing it across a variety of fields. I’m a newspaper journalist by by background. And one of the things that was very obvious to me working in that space, is there was an arrogance of “We Are the news” we’ll deliver it, how we want to deliver it. And I was kind of a pretty big proponent of why don’t we deliver it the way people want to consume it. And we’ve seen, you know, those giant problems. But so let’s go back to some of these legacy companies is it just kind of hard to turn around a giant ship, because if I’m my cable company, which is happens to be Comcast, but I think they’re mostly all pretty terrible. They have a legacy of sort of you can’t go anywhere.

So maybe they don’t know they’re providing bad customer service. But once they start to see pretty significant erosion, we’ve seen about a 20 ish percent decline in the overall cable market. And that doesn’t count another like 5 or 6% that have downgraded to sort of digital streaming, I might be getting those numbers a little bit wrong. I haven’t looked at the last quarter, but it’s roughly that range. At some point, shouldn’t they go oh, wait a minute, we have a big problem. There’s lots of choices now, like you might have to stay with us for internet, but you can get it elsewhere, or is it just so institutionally baked in that they don’t even know to call you?

Barry Kirk  4:29

Well, I think they probably do pay attention to that the point you’re saying the inflection point where companies usually wake up if they aren’t paying attention is when there is some shift that causes them to start to lose customers at a significant precipitous rate. Right. So definitely cable companies have been disrupted by the ability for people to sort of unplugged from cable, have a more of a menu based option to do that. So the wrong time to be paying attention to this is when you’re losing customers.

Companies that are smart about are going to get ahead of that And you know, I think a good example that was Chipotle. Several years ago, the the CEO famously said, like, we don’t need a loyalty program, because people just love us so much. And they’re so absorbed into our ethos as a company. And then they had all those issues with the the food quality being Washington, and they lost a lot of customers, they lost a lot of transactions.

And frankly, I think if at that point in their existence, they’d had a loyalty program in place, which really meant the mechanism to reach out and communicate with those hardcore customers and reassure them, they would have been in a way better place. So waiting until your market gets interrupted, waiting until you start to see customers walking out the door. And then thinking about loyalty is a huge mistake.

Dan Kline  5:40

We’re going to come back to this but I want to seize on that Chipotle example, because it is the most outsize response to a very minor 137, people got the stomach owies, like, like this was not widespread death, and they closed all their store is a few days later, to do training, they hired experts, they had an outsized response. But because they’ve held themselves up as this paragon of virtue, they fell a lot harder than if like a rat head is found in your chicken McNugget. Like, that’s just not that surprising. If you’re eating at McDonald’s, I apologize, McDonald’s,

Barry Kirk  6:10

I think it makes sense because it was one of the key components of their brand identity was the quality of the food. And so when that was the thing that was being questioned. Now you’re in trouble, right. And so having some mechanism in place to reassure those customers other than just running commercials, is pretty critical. At that point, they just didn’t have it.

Dan Kline  6:28

That’s where I wanted to go. So, when the former CEO, and I’ll put out, it’s the former CEO said that there’s a part of me that went, Oh, my God, I love Starbucks. And Starbucks can manipulate my behavior. I also love to play, don’t they understand that loyalty isn’t about that. So I assume when you work on loyalty programs, one of the goals is, okay, Starbucks is really busy. This isn’t true at the moment, but under normal non-pandemic times really busy in the morning, not so busy in the afternoon and evening. So they could send me a buy-one, get-one Frappuccino that kicks in at four o’clock, and that might help them change their sales patterns. How does a company like Chipotle they miss the value of doing that?

Barry Kirk  7:06

I think it’s just an assumption at some point that your market share is so huge, that you’re what you’re continuing to think about is how do I make the market share bigger by acquiring more customers. And if there’s one mistake I see companies making over and over, they’re focused way too much on acquisition, and not enough on retention. acquisition is critical.

Obviously, you want more customers. But if you’re losing them as fast as you’re acquiring them, then you really don’t have a great model in place. But there’s a reason companies missed that. It’s just so much easier to look at acquisition numbers and say, are we hitting the mark? Yeah, look how many more customers we acquired, we signed up or even enrolled in our loyalty program.

But the metric for loyalty for retention is it’s just more nuanced. It’s like, how much longer did we hang on to somebody? How many customers actually do more than three transactions more than 10 transactions? It’s more complex. And I think, frankly, it’s just easier for marketing departments to focus on reporting a big acquisition number than to get into the nuance of retention.

Dan Kline  8:02

So when you work with a company is the first step fixing the customer experience, and then you move toward actually building loyalty. Because if I go to a store, and it’s not a great experience, it doesn’t matter what their loyalty program offers, I’m probably not going to join it.

Barry Kirk  8:17

Yeah, I mean, honestly, the first step is, is identifying do you actually know who your customers are? And many companies don’t. I mean, you think that seems odd that, frankly, if you’re selling through a channel, or if your customers can buy anonymously, which is most retail environments, actually don’t know who my customers are? If I do know who they are, the second question I have for companies is what are you doing with that data?

And I would say that over and over and over again, and what I see is companies who have a tremendous amount of data on customers, and they’re literally doing nothing with it to change the experience. So if you and I are the customer, the same business, and I’ve been transacting a year, and you’ve been transacting a week, they should know way more about me but oftentimes with those businesses, you see no difference. I’ll just give a quick example I

I’m a pretty big fan of Blue Apron, the the one of the companies that send you in your box of food a week with recipes and make your own food. But I got a little disenchanted with them after a year or two because I realized this is the same experience that was 12 months or 18 months ago. Like they have all this data now and what kind of recipes I didn’t want the ones I did want. When did I seem to stop recipes because I seem to go on vacation at the same time area, that kind of thing. And yet the experience was not changing. And so I think that’s the other piece that they miss most often it’s just taking the data they have and starting to put it into action.

Dan Kline  9:34

So some of this is to me seems like executives don’t understand the the experience and we talked about this before the show on food delivery across all of the major food delivery apps when a piece of your order or your whole order doesn’t show up. It is a very difficult to find a phone number like you have to Google someone who is who is like written a news story about that phone number that you don’t think that’s intentional is that it’s 1,000% intention, I cannot tell you how many times I’ve given up the $5 Uber penalty when my driver said I wasn’t there because the driver didn’t want to do a short trip, because it isn’t worth dealing with with their their help.

But with food delivery, as a human being who orders food, the goal of me ordering is to get dinner. I don’t care when they don’t deliver, that they refunded my money that that seems to me like as an executive, is it just like a head in the cloud thing where like, they’re not using their own service, so they don’t understand the problem?

Barry Kirk  10:33

I think it’s it’s a breakdown, probably not at the top level, the company is at the level of who owns increments of the customer experience. And what you have is nobody owns the whole experience. And so you end up with these pieces that don’t fit together. It’s systemic. I had experience one time in an airline where they woke up one morning in a hotel room with a message saying your flights been canceled, do you want to you want to rebook your flight, and I’m like, of course I want to rebook it, I’m not at home. Like I’m not where I live, your database must know that like, but so the idea of sort of, like just notifying me that the flight got canceled was not making me whole. But I think so often, what you see is the the customer experiences broke down into so many pieces. And people own different pieces of it. nobody’s looking at that holistically. And you’re right, I think the executives of a company should be the ones looking at that. But it’s just too easy to lose sight of

Dan Kline  11:21

is some of that that customer customer service, customer experience is viewed as an expense, but it’s actually probably a revenue producer. And I’ll give a quick example, Walmart when they shifted to two day delivery, it was obviously a pretty Herculean task. And the first few times I used it as a test, you might order five items, and three of them would show up in separate boxes. One, you’d get an email saying to go to the store, like it was bad, they figured that out a little bit. So I ordered a 65 inch television delivered to our second home not where we live, something Walmart probably knew, based on previous ordering habits, it showed up a day late, meaning I had to stay a night longer.

That was problematic. Then it showed up smashed, and I called Walmart. And they said, no problem, we’ll send FedEx out to pick it up. But it was like four days later. I’m like, I can’t leave a television outside for four days. Like even though, even though no one’s gonna steal a broken television, or probably none of my neighbors would have stolen in any way it could have rained it could have. And I said, can’t you just send someone from the local store? Or I know at the time they were having employees do some deliveries? Can you just send someone to pick it up and bring me another one? And they couldn’t do it? is some of it that just it’s so big, that they don’t see the value of spending that extra money like it? As someone who ran a store? I look at it and go like I would have been at that guy’s house in 10 minutes, like with the TV? Like, it just seems obvious to me?

Barry Kirk  12:41

Yeah, well, I think it’s something that you don’t miss if you’re like the proprietor of a single store or a few stores, right? Because you’re much more personally connected to your customers. When we start to see businesses get to scale, unfortunately, customers really just become, you know, numbers in the database. And so we lose sight of that. And I think that’s actually where it all falls apart.

The CEO of our company, Bob Chapman wrote a book called “Everybody Matters.” In internet book and focusing on companies employees, he says that it would be better and companies have managers didn’t think about people reporting to them, but thought about people being in their span of care. Because that rewires the whole way you think about your team?

Well, I think that onset applies, maybe even better to customers. If I said, like, I don’t have people who buy from me, but I have customers who are in my span of care, then you aren’t going to respond. The way you’re, you have that experience of being responded to with the television set, right? Because you’re gonna say like, Well, that wasn’t caring for him that wasn’t caring for Dan, that was some other thing we were doing.

And so I think it is that shift. And you even if you’re working at scale, if you’ve got millions of customers, you have to think about the fact that you’ve got to effectively care for those customers, if you want their loyalty. If all you want is a single transaction, you could probably have mediocre customer service, and it’d be fine. But if you want to see that customer return over and over again, you definitely have to shift into a different way of thinking.

Dan Kline  14:10

Obviously, don’t speak about any specific clients. But in a broad sense, when a company comes to you, do you find it hard to get internal buy in? Or is this something that employees really want to be empowered to deal with?

Barry Kirk  14:23

I think please do management is probably a little more problematic. Sometimes you definitely have, generally speaking, and I think people listening to podcasts are going to fall in one or two categories. You’re either the champion for loyalty in your company. And you’re saying, look, there’s tremendous potential in really delivering for our best customers. I mean, if you’re thinking about loyalty, right, I think you mentioned earlier, sometimes it’s thought of as an expense, but it really is a growth engine. It’s the people who already love you or like you, loving you more and doing more with you.

So there’s always that category of people who are really the advocates. But there’s another category we often see which I think is a reasonable place for a person to start to thinking Which is why why do I want to invest in people who are already buying my product? Right? Like they’re already buying it? Why am I putting more money into that? 30 doing that? And I think that might be a reasonable question to ask, as long as you have no competitors, you’re better to pre market and good for you. If you are, I don’t know of any, but maybe there are some, then you don’t have to worry about that.

But oftentimes, that’s the thinking that I think has to be pushed back in some companies, which is, hey, I’ve already got this customer on the hook. I’ve already got them on contract, they’ve already bought three products they’re going to buy for that is a dangerous assumption to have about any customer,

Dan Kline  15:36

is some of it also, just the next step, I’ll give an example. Ali’s bargain outlet does very little marketing, because when they open up in a new market, their existing customer base does the marketing for them. That’s a really extreme example, because it’s a it’s a great loyalty program. It’s a very loyal customer base. But to companies not see that link where like, if I have a good experience at wherever Starbucks, Chipotle, a PDQ McDonald’s, it doesn’t matter if I have a good experience, I might then tell someone else and become kind of a brand ambassador, like, I feel like that should be more obvious than it is.

Barry Kirk  16:09

Well, interestingly, I actually think companies have a pretty good sense of referral as a way to drive transactions or new customers, where I’ve seen them actually making the mistake with referral is they ask brand new customers to refer sometimes you’ll sign up for a new loyalty program, or have your first transaction with a business. And they’ll basically say, hey, we’ll give you a benefit if you give us a name and email address if somebody who might become a customer. And I think that’s a huge mistake. That’s like saying, I sit down at a restaurant that I’ve never been to before. I haven’t ever had the food. But the waiter comes over and said, by the way, who would you like to call right now to to recommend our restaurant to like, Well, let me eat my meal first, and then decide afterward.

So I generally recommend the companies, if they understand the power of referral, wait until a customer really seems to be invested in the experience. That’s a customer who is going to give you a really strong referral, but they also know what they’re referring about. They can speak to the experience and intimacy of it. So I think they get advocacy, they get referral, they just often place it at the wrong inflection point of the customer experience.

Dan Kline  17:12

Should some of this be customer driven? I’ve often wondered, I know there’s focus groups and all sorts of, but it always felt to me like I don’t know, if I talked to the CEO of like, 10 companies, I like a lot. I could fix, like a lot of problems and obviously have a background in retailing in that area. But it doesn’t seem to me like too many executives are out in the field. I mean, we’ve all watched “Undercover Boss,” and they learn these like shocking things that would be pretty obvious to anyone who works in the company, like Have they not learned those lessons that maybe maybe you do have to spend some time in the field and maybe some time not as the CEO

Barry Kirk  17:45

will think they do. But maybe I might turn the question back to you because I know you have experience at retail at a more localized level. I think where they get lost is in the scale of it. It’s like, well, even if I could speak to 10 customers, what does that matter if I’ve got 500,000 customers as opposed to say a sole proprietorship and might have like 100 customers knows them all by name, knows their families that sir, I think maybe that’s where it falls apart. They just don’t believe that there’s value in having that experience.

Dan Kline  18:12

I think there’s a level of empowerment that large corporations are not willing to do, I had a lot more leeway running a, you know, multimillion dollar toy store for a single owner than a Target general manager with 20 years of experience. And I found that to be a problem, because a lot of your job as a manager is problem solving. And I understand that there’s people that are going to try to take advantage of a system. But a lot of times, it just feels like you know you’re talking to a robot, I will get to talk about technology later.

One of my biggest pet peeves is scripts in customer service when something unique happens. And I’m getting a we are so very sorry for it’s like no, you’re not like if you were sorry for it, you’d actually try to fix it. But let’s I want to talk a little bit about the pandemic. Because we both mentioned Southwest Airlines a couple of times before the show. And on the show.

Southwest Airlines was always an incredibly customer friendly company, you could change your flights, there are no baggage fees. The flight attendants are trained to be nice to you. Like there’s just a lot going on there that other during the pandemic, every airline had to become Southwest, they had to offer flexible cancellation they had to become, you know, much more customer friendly. Do you think those legacy companies will have learned any lessons from this?

Barry Kirk  19:30

I hope they have. I hope they’ve seen that taking a more human approach to your customer is the right approach. I definitely I have a soft spot my heart for Southwest as well. I mostly fly Southwest. My business right now has relationships with other airlines. So I think other airlines do good jobs in certain ways, too. But I think Southwest has always intentionally taken a more human approach with how they connect as an airline and I think you’re right I think a good way of describing that is during the pandemic, the other airlines had to adopt some of those same practices, they’re really issued, all the airlines had, of course on the pandemic is you could not transact with them.

So here you have a business that you have some level of loyalty to. And you can transact. So if your connection to let’s say, an airline, or maybe a retailer, is purely economic is purely rational, and now I can’t transact with you, what happens to my loyalty, it probably if it doesn’t completely go away, it certainly is lessened significantly.

But if you have a more emotional or personal connection with even an airline, which I think is very possible, even if you can’t fly, you might be somebody who wants to continue to engage and be part of the experience of that airline. So I think that’s what we’re going to have to see happening other ciders, does that continue on, it’d be really interesting one,

Dan Kline  20:50

I think that was very challenging in the travel space. I am a very frequent traveler. So Southwest communicated enough, not too much. But they told you the status and their their loyalty program, they made very early decisions to give you extended status. Some other industries didn’t know I’m a Disney World pass holder, they didn’t know what they get when they can open what the rules would look like. They didn’t communicate as much, you know, but um, that’s a brand where there’s probably really intense customer loyalty.

Where are you seeing companies just missed the low-hanging fruit? You know, and I’ll give the example that some companies just don’t seem to understand the nature of the transaction, like, Sure, I want to be in a loyalty program that requires me downloading an app for Starbucks, maybe I don’t want to at the gas station, like, and I know that’s different if I’m going to a Wawa or someplace that engender loyalty but for the most part, I think a lot of companies are just trying to do the same thing. What What would you, you know, see is like the biggest thing that brought him out of companies could do that would just have the biggest impact?

Barry Kirk  21:54

Well, I think one of the things that you’re I think you’re hitting on there is you have to fundamentally understand what is the attachment between you and customers. And, and I always say to people, like the one mistake companies often make about loyalty, or just people in general, maybe loyalty is loyalty is not binary, it’s not just on or off. loyal to one business for one kind of reason. And loyal to another business for another kind of reason, we actually have a model that we use, in our practice, called the truly human loyalty model that looks at sort of five characteristics people have, like, for instance, one of those is functional.

So you have functional loyalty, which is on a loyalty because I needed a hammer, you have a hammer, it works great, I better know that that’s the kind of loyalty. But another type of loyalty is social identity. Like I think of who I am, as a person, the kind of people I like to be with, and you align to that. So that might be like an Rei, which is really into you know, the environment. And I might connect with people who like to be outdoors, and have that lifestyle, and the values of that company. In either case, whichever type of connection you’re having with customers, you need to know what that is, if you’re the company who mostly driven through functional connection, then you probably shouldn’t be talking about the emotional stuff a lot, it’s just not going to register, that people are connecting more in emotion, and then you’re just throwing discount offers at them, then you’re absolutely missing where the real power is in relationship. So I’d say fundamentally, just understanding that, and then building on it is really the probably the best place to start.

Dan Kline  23:25

So if it’s functional connection is the answer just to become more functional, aka, I have a hammer, and I surveyed my customers who buy a hammer and boy, would they like to be able to buy a two liter of soda While they’re doing that, or whatever it is. that some of it right. And in that situation?

Barry Kirk  23:42

It is I think the thing you have to recognize there is there’s always a weakness in there, which is it’s pretty easy for a competitor to say, well, what’s your function? And how do I just tweak that to be a little better? It’s the same reason that an economic driver is not the strongest one, although it’s the one most companies use for loyalty, including points and miles programs. Because it’s really also very easy there for your competitor to say, well, what’s the better offer, like I know what your offer is, you make it obvious to everybody, I’ll just add half a percentage point to that and I’ll take your customes.

It’s when the drivers are more emotional or relational, it becomes much more difficult for customers to disrupt it because it’s, it’s a different nature. And it’s also much harder to just pinpoint exactly what that is. What you and I love about Southwest is a little difficult to pinpoint. Right, versus what’s the price of the flight, right? That’s where they can compete. They can’t compete at the level of just like what’s that irrational emotional connection somebody has to

Dan Kline  24:37

Right. And there’s also a point like, Look, 98% of the flights I’ve taken in the last three years are on Southwest, but occasionally you’ll look at the flight you’d be like, Look, West Palm to Vegas has two stops and it’s $300 I could drive to Fort Lauderdale. It’s one stop and $600 or I could drive to Miami and fly frontier a company that hates you that literally makes a point of telling you their seats are uncovered. Because it makes the plane way less. But it’s $139.

Yeah, you know, they don’t even give you a seat, that they’re willfully not nice to you like it’s everything bad, but at some point price is going to be a factor. So is that a strategy as well to just be the no frills, low cost? I think Costco pulls that off really well, where you’d love them. frontier does it in the other direction, where it’s like, Oh, I hate this. But it’s so cheap. Is that a strategy that something is…

Barry Kirk  25:28

It’s definitely a strategy. And it is a way to engender loyalty. And it’s a kind of loyalty that people have to serve brands, I just think you have to recognize that it’s just much easier for somebody to disrupt it, somebody else could come along and also be the low cost carrier. I think, though, it’s important to note just in your description I think tr you actually use a few minutes ago was your insanely loyal. And we call that super loyalty. So that when you’re choosing to go because somewhere else, because functionally it’s easier.

You’re still acknowledging yourself, like I’d rather fly this airline, but I guess I’ll fly this one. Right. So the loyalty is there. And one of the things I noticed, we ran a study in January, asking people like, how loyal are you to brands, and we had one category of super loyalty, which is I only go to the brands I love the most I don’t look around. That’s only 14% of consumers said that, like 58% said, I’m conditionally loyal. Yeah, I haven’t like my go-to brands, but I’m always checking out what the other options are. I’m not sure we should even call that loyalty anymore.

You know, if if my if my dog was only happy to see me every other day when I came home, I’m not sure I would say my dogs loyal. But with customers, we seem to watered the term down so much that we don’t recognize it. That really isn’t isn’t as effective as a measure of loyalty as you saying, like, hey, maybe I’m with you 98% of the time, I only deviate when I have to. That’s what we’re trying to go for.

Dan Kline  26:51

Yeah, I’ll give an example. In my life, I live in Florida, I cruise a lot. And I don’t pay for them. Because I apparently gamble a lot, or at least by those standards as well.

Barry Kirk  27:01

And you really do pay for it just in a different way

Dan Kline  27:04

You do and you have to understand the odds in that, that you’re not, you’re not getting the same odds you’re getting in Vegas, it’s not legally mandated. I have some strategies. I won’t talk about that on this episode. But I will generally because I get offers every week when that’s the thing. I will generally only cruise on Royal Caribbean. But other companies are clearly aware of that. So I will occasionally get a phone call from another cruise line.

And at some point, and these didn’t happen because of the pandemic at some point, one of them layered on enough perks, that it was like alright, like, you’re going to put me in a sweet, you’re gonna like where it was like, Well, I think if I told my friends at the other place, they’re like, Yeah, you got to do that. Like, yeah, like, so I do think there’s a there’s a balance to it.

There’s also like a familial responsibility, like, from a financial point of view, like, my wife is not going to be happy. If I’m like, Yeah, I spent $1,000 more to fly Southwest because the you know, because it gets me to more ticks on my, you know, on my on my loyalty box, when I could have been a little less comfortable and flown something else. So I didn’t think you could be really, really loyal. But it’s not a marriage, you are allowed to cheat.

Barry Kirk  28:18

Right? Right. We’re not a foxhole together, it’s not that level of loyalty. And to your point, I think there’s always this interplay of we would call rational and relational or rational and emotional. The mistake, though I think too many companies make around loyalty is they only play off of rational, they basically offer you some kind of a discount, or they offer you points, that’s probably 100% irrational. And that’s, that’s the kind of loyalty that I think is just too easy to disrupt you do want some of that emotional, relational aspect in there, because it’s just harder for somebody to come along and break them.

Dan Kline  28:48

So how do you measure the sort of ephemeral part of loyalty so you talk about loyalty programs are being a growth engine, some of that growth is that I spend more money with you. But some of it and maybe even more of it is that I’m not only and this certainly applies in travel, and maybe retail, I’m not only telling people to go to you, when I’m with you, you’re kind of a de facto brand ambassador.

I’ll give the example of if I’m in Disney World and I see a crying family, I stop and ask What’s wrong, like and I, and I point them to where they’re going or help them make a reservation or whatever it is, and I’m not unique in this, I think that is a, I would say a decent percentage of passholders. do that because you want it’s a terrible place to go as a tourist and a lovely place to go as a local. Is that how do you factor that in? How do you quantify that when you’re working with a company on sort of the impact of its loyalty program?

Barry Kirk  29:41

It is difficult, those parts are difficult. I think in hospitality, it’s a bit easier. I had some past experience working in loyalty with timeshare company, where, which is a bit of a challenge industry from a loyalty perspective. But this particular client did have about 15 to 20% of customers who so loved the experience that they’re having Like people who cruise, they still love the experience that they, in and of themselves just took on the role of being brand ambassadors on site on the properties.

And what this company did was overtime recognize that happen. So it occurred organically. And they realized, like, we have people here have been with us for years, who help out new families, that they actually sort of deputized those people and gave them a new status as brand ambassadors. So think about for a minute, though, what happened there, they found people who were basically working for them for free, and said,

We want to acknowledge that you’re working for us for free, acknowledge some status, but they were paying those people now to do it, because they recognize it. They’re simply embracing it and saying, that’s part of the experience. So there’s a little bit here of companies being smart enough, either, to your point, observing the actual customer experience, or looking at the data and saying we have a percentage of customers who sort of building their own experience inside the experience. How do we foster that? How do we replicate it? How do we try to grow that in some way that keeps it organic? And that’s the tricky part is how does it not seem like the brain co opted in and ruin that experience,

Dan Kline  31:05

it’s a it’s a tough thing to pull off. In the early days of the internet, I worked for a very large website that put game shows online, and we couldn’t really monitor our game shows they were hundreds of 1000s of people. And we found that the most loyal users wanted to be deputized as moderators. And they actually took it really seriously. They didn’t get any, maybe we set up a T shirt or something, they didn’t get anything significant.

And that’s a lesson I’ve always looked at, like when I ran the toy store, how did I take my most active customers and say, gaming, or trains or whatever, and have them build out clubs and activities and events and new customers. And, you know, sometimes it’s as simple as feeding people, you know, yeah, you get a grill or order some pizza. But I’m a giant fan of that type of system, I just bought a resort condo, or we close on Monday. And part of why I bought it is it had an act, we stayed there and liked it. And it has an active Facebook owners group that try to foster the community that try to get the right kind of guests and help you build. And I didn’t see that and a lot of the other, you know, sort of typical places. So I’m a big fan of that community.

But I want to talk about technology before we finish here. So I mentioned to you that I find AI very frustrating. I am a bank of america customer. It’s a very small account, but I have a bank of america customer and they have their Erika that they tout. And I just find it puts you into an infinite loop of not getting anything and I’m not picking on them because you have a different take on this.

Barry Kirk  32:33

Well, I think the frustration you feel is I’m not questioning it. Because I think there there are lots of ways it’s not being used effectively. I think there’s also a lot of things that are being called AI that aren’t actually artificial intelligence, right, there are overstated for what they are. But

Dan Kline  32:47

Now they choose your own adventure, basically.

Barry Kirk  32:55

Exactly right. And so it’s not really doing what AI should do. So what should I do? This is just my personal opinion.

But I think too often we look at things like AI and think well, that’s sort of taking the human out of the experiences reducing everybody to this algorithmic sort of approach. If AI is done, right, I actually think it’s the opposite. AI done right, it’s actually putting the human In fact, the individual right in the middle of their own experience. And the best example I can have that is I’m a big user of the GPS app Waze so much, can’t get anywhere now that attorney Waze tells me where the police are, so I can slow down, you know, it tells me where the traffic is, how long it’s going to take to get to where I live.

But when I was first using Waze, it was just sort of everyday I had to get in and say like, Where am I going. But in most days pre pandemic it was to go to work. And I had worked in there. But I noticed after about a month or so of using Waze I got in my car one day was back into my garage open ways. And it just popped up a message said, Are you on your way to work? And I just hit yes and go and I realized like, okay, I knew that was the AI. Right, the AI had seen this pattern often enough, recognized it in my data, somebody’s Waze did not pull up my record and say, hey, let’s make this easier for Barry, the AI did that. And the AI recognize if I’m at that GPS location, Monday through Friday at 8:30 in the morning, turning on the app, the likelihood is that’s where I want to go. Let’s make it easier that was programmed in for me, right?

So that’s putting me right in the middle of that experience, anticipating a need that I didn’t really even realize I had, which is like why don’t have to type this in every morning or go find it just put it there. That to me is where companies are going to significantly move the needle by using AI is really focused on figuring out what do I want before I realized I want it because you have all the data, all that behavioral data is sitting there waiting to be used. And that’s how you use it. predictively to anticipate the need that I probably sort of know I have but haven’t articulated

Dan Kline  34:48

Is the whole secret sauce here just thinking about what the customer wants. Like I I had an issue where our cable company which I’ve mentioned before, I won’t use their name again, our HOA paid for our cable. But that expired because we’re getting a new fiber service. But the fiber is not done. So we had to go month to month with the cable company, I called the cable company and set that up. And then five days after the deadline, my cable got shut off at seven o’clock at night and my internet when my wife had a meeting in a couple of hours, and I called the cable company. And it took 16 calls. And I tried to do it over their text messenger.

And the first person said, Oh, yeah, I see that you made this call, you know, six days ago, or whatever it was. And I said, “can’t you just turn it back on?” That took multiple hours? My wife missed her meeting, might, it took another 90 minutes on the phone with tech support, because my modem wouldn’t do whatever it needed to do. To me, they knew the problem. Once I alert them that, hey, this is an issue. Why doesn’t it become proactive? Like, you know, as a problem solver, like I look at it go like, okay, like if you’re on fire before I worry about anything I’m gonna put put the fire out?

Barry Kirk  36:01

Yeah, I think that the reality is that customer service rep who is not delivering what you need, is sitting inside of a machine. That’s the machine of the script. That’s the machine of the rules and what they’re allowed to do and not do. And you’re the humans sitting in other side. If that customer service agent flipped roles with you, they would immediately see what is the obvious thing that needs to be done, right. But that’s the problem. It’s the perspective taking, they’re not doing it.

I love I have a phrase that I come back to all the time in my work, which is customers are human beings first. And you I think that’s what companies lose sight of it’s the most simple concept is the most obvious. But if you’re always keeping in mind your customers are human beings. And what does that mean? It actually becomes pretty easy to understand what you need to deliver to them, what they’ll tolerate, what they want, what their needs are, it’s there.

But I feel like in that example you gave that’s a that’s a company who’s forgotten that customers are humans, and humans just need certain things were resolved for them, right. And the employee forgot that too, unfortunately. And so empowering those employees to think about customers as humans, and have some of their own ability to deliver on that is what’s really, really missing. I think oftentimes,

Dan Kline  37:10

I was not treated like a human, I think that’s fair to say, I don’t blame the customer service person, I felt bad for the customer service person, right up until in the middle of it, they started to upsell me extra channels. Yeah, I’m just like, No, no, I don’t care about the cable, you need to solve my internet right now. Because my wife has a meeting. And we don’t have great phone service where we are. So she didn’t have another option. I have a wireless hotspot, I probably could have set something up. But who thought it would take this long.

Barry Kirk  37:37

Let me – if the script says upsell, they’re going to upsell, right, that’s them in the machine, rather than just dealing with you as human beings trying to resolve a situation.

Dan Kline  37:46

So let’s ask it as a final question is that really, the secret is just like putting yourself in the shoes of the person who’s dealing with the problem. Like I don’t necessarily want 2% back from the, you know, low-end place, I get a sandwich because it’s convenient, or even a loyalty punch card. I just kind of want. I don’t know, treat me you know, if my problem is you forgot my soda. Don’t ask me to see my receipt just like get out. Give me a soda like,

Barry Kirk  38:15

Yeah, I think that’s absolutely it. I think another way of saying you said is you get the loyalty that you asked for. So the only loyalty I’m asking for you is the loyalty of a discount. That’s the loyalty you get. If I want to give you a different experience, a more human experience and emotional experience relational experience. I’m going to get back emotional, relational human loyalty from you. So companies just have to make a decision. What type of loyalty Am I after? And probably intuitively, they know which one is going to be stronger. They just have to know that they have to invest in that to make it happen.

Dan Kline  38:46

Let me ask a follow-up question here before we close is the challenge there that doing the right thing in the short-term cost money?

Barry Kirk  38:54

Yes, but every good effective loyalty program is a growth engine for a company. Every good loyalty program is actually driving incremental profit for the company. So even though I talk a lot about emotion and connection and being in sort of the human mindset, ultimately, we’re businesses, we want to make profits so that we can stay in business and do more good. And if you’re doing loyalty effectively, it is not an expense to your business. It’s an incremental profit driver. You just don’t have to know how to do it right

Dan Kline  39:23

Barry Kirk, thank you for doing this. Thank you all for watching listening to how I read it. You can even be reading the 7investing podcast because we do put out a transcript. I appreciate you doing this. I look forward to talking again.

Recent Episodes

Long-Term Investing Ideas in a Volatile Market

Simon recently spoke with a $35 billion global asset manager about how they're navigating the market volatility. The key takeaways are to think long term, tune out the noise...

Wreck or Rebound – Part 3! With Anirban Mahanti, Matt Cochrane...

Anirban and Matthew were joined by Alex Morris, creator of the TSOH Investment Research Service, to look at seven former market darlings that have taken severe dives from...

No Limit with Krzysztof and Luke – Episode 5

On episode 5 of No Limit, Krzysztof won’t let politics stand in the way of a good discussion - among many other topics!