Customer Loyalty Starts with Providing Value

This week I'm talking about customer loyalty and how to create it. My earlier posts centered around the concepts in "The Loyalty Effect" by Fred Reichheld, one of my all time favorite books. Today I want to talk about how customer loyalty and high Net Recurring Revenue (NRR) comes from creating value for your customers. I thought that I would tell you two contrasting stories here about how to create, or destroy, customer loyalty by not putting value first.

In Company A, we had an NRR problem. We were well below 90% NRR and our customers were beginning to complain heavily about the cost of our solution. This launched several discussion within the business. We looked at how we could pull the solution apart to break it into smaller modules where the customer could only contract for part of the solution and potentially grow. We looked at other ways to charge customers for capabilities that we offered. In one case, we decided to start charging for a solution that was offered for free for over a decade. What struck me, though, is that not one conversation put the customer at the center. No one asked, how do we create more value for our customers.

As for the core platform, they never really got to splitting it out because they could not figure out the internal cost accounting for the split. The rollout of the paid version of the "free" solution was a complete disaster. It not only created a ton of negative sentiment in the market, it did not generate much revenue at all. So we ended up with a larger attrition issue than we started with.

The center of customer loyalty comes from the value that provide to your customers. If you provide a high value product or service, you will get loyal customers who are willing to spend more money with you. While we always need to keep our eyes on profitability within a business, sacrificing service for profit is never a long term winner, and usually will result in a dip in NRR longer term.

Let me contrast that with another company I was involved in. In this company, we had an amazing customer centric culture. When a client had an issue with our software, many people would converge on it to solve the issue immediately. Our clients would send their support teams gifts becuase our relationships ran so deeply with them. And the retention rate was extremely high. Like 98% high. This was pre-SaaS, so we didn't actually measure things like NRR, but if we did I'm sure it would have been over 100%.

But one day, we screwed up in a very large way. This was installed software, and we sent out an update to our customer base. When the first clients installed the update, it completely corrupted their databases. The system became unusable. It was an Epic crisis.

The company jumped into action. We proactively called all of our customers and told them not to install the update and throw away the installation disks we sent them. Luckily, we build the database for our clients at that time, so we kept backups. We immediately packaged up the backups and got them out to our clients. In some cases, we hand delivered the backup to them. The crisis lasted about a week, and we spoke to every customer we had almost every day. The whole company was putting in long days to solve the problem.

In the end, we did not lose 1 customer over the issue. Because we had provided value to these customers for years prior to this mistake. Our goal never centered on the revenue first, it centered on creating value for our clients first. The revenue just flowed in naturally. That company made a number of people millionaires, by the way.

The differences between those two approaches is as stark as the differences between their customer retention and NRR numbers. One asks, "What else can we charge our customers for?" and the other states, "How do we create more value for our customer?"

If you want to build a great company, focus on creating customer value.