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How to Cement Customer Loyalty

When the economy is working against you, and you want to survive and succeed as a business manager, you need to work really hard to continually exceed your customers’ expectations, on both a functional and emotional level.

Greg Fisher

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The global economy is caught in the wrath of an economic downturn and South Africa has not been excluded. In times of economic slowdown businesses and consumers buy less and spend more time and effort making buying decisions. When people spend time pondering their buying decisions, any previous experience with your company becomes the single most important factor influencing whether they choose to buy from you again.

If your customers’ expectations have previously been exceeded, they will be significantly more inclined to buy from you again. If their expectations were not met, you can bank on them looking at other alternatives.

Therefore, if you wish to retain and grow your customer base in spite of the economic downturn, it is critical that you pay close attention to the experiences your customers have every time they interact with your business.

Customers have expectations on both a functional and emotional level. At a functional level, they expect a product or service to adequately fulfil the purpose for which it was purchased, to be easy to use, to meet quality requirements and to be worth what they paid for it. If your product or service does not do what a customer thinks it will when they purchase it, if it is complicated to use and is not as durable as they expect, or they feel ripped off after buying it, then your chances of receiving future business from that person or customer are probably doomed.

On an emotional level, customers subconsciously process how they feel about an interaction with a company. A customer’s emotional experience can be influenced by both sensing and behavioural factors. Sensing factors are the things that the customer sees, smells, tastes, hears and touches in his or her interaction with the business.

If you have ever sat on a plane with a horrible smell pumping through the air conditioner, or engaged with a salesperson who has something stuck in their teeth, or sat in a restaurant where loud invasive music interferes with your conversation, then you know that these things significantly influence the likelihood of your ever returning to that provider for future business.

The behavioural factors are the interactions that the customer has with people in the business. An upbeat, positive sales person, consultant or receptionist can leave a customer feeling energised. A dull, negative employee can leave a customer feeling dejected and downbeat. Which employee do you think is more likely to positively influence a customer’s decision to do future business with the company?

When the economy is working against you, and you want to survive and succeed as a business manager, you need to work really hard to continually exceed your customers’ expectations, on both a functional and emotional level. Subconsciously each customer has a “delight account” – similar to a traditional bank account. When your company exceeds a customer’s expectation on either a functional or emotional level, then it is the equivalent of making a deposit into that delight account. Similarly when a product or service does not meet a customer’s expectations, you cause a withdrawal from that customer’s account. In most cases customers won’t tolerate an account in deficit – in other words, no overdraft facility exists on the customer delight account.

Since customers generally have a great deal of choice when making buying decisions, previous disappointment with your company and a delight account in the red, will mean that they will take their business elsewhere.

Successful businesses are therefore the ones that are depositing far more into their customers’ delight accounts than they are withdrawing.

Nothing in the table is surprising. It’s all common sense, but the reality for most companies is that it is NOT common practice. Bain and Company’s recent survey of customers of 362 companies highlights that only 8% of customers described their experience as “superior”, yet 80% of the companies surveyed believed that the experience they had been providing was superior. A quick visit to the South African website hellopeter.com, which provides an opportunity for consumers to report good and bad customer service, illustrates how prolific this problem is in South Africa. The website is littered with reports of horrid experiences at well-known South African companies. But the good news is that poor service, bad experiences and unmet expectations in South Africa offer a great opportunity to any business owner. By putting the right processes and practices in place to effectively serve customers, you can distinguish yourself in a crowded market place.

So, what can a business manager do to effectively implement the common sense aspects of managing the delight account as a source of competitive advantage? There are nine tools and practices that can be used to positively influence the experience that customers have when transacting with your business. These nine tools force you, the manager, to focus on the future, engage in the present, and learn from the past in crafting superb customer experiences. They also ensure that you focus on customer experiences at a business, customer and employee level.

Future

Creating a good customer experience begins when a company plans to please customers, and makes it a priority. If you don’t make it your intention to provide customers with a good experience then the likelihood of you doing so is minimal. Deep down most people have a desire to please others but that desire can only be exercised by your employees if they have access to the right information, if they have adequate resources and if they are provided with an incentive to do so. By building customer service into your business plan, you are forced to consider how each aspect of your business is orientated toward providing the right customer experience. This includes making strategic decisions about what, how, when and where you plan to deliver your product or service, about what expectations you plan to create in the mind of your customers and about how you plan to motivate employees to serve customers effectively.

1. Strategy

Decide what you plan to deliver in terms of function, emotion and price

No business can be everything to everyone. Making strategic choices is about making clear choices about what you plan to do, what market you plan to serve, at what price point you will deliver your offering, and what experience you will deliver to customers. These decisions imply trade-offs. It is usually impossible to be the lowest cost provider, with the most innovative product and the highest levels of intimate customer service, for the broadest market possible. That kind of approach pulls a business in too many directions. It is important to decide how you plan to balance price of product, innovation, service levels and target market to ensure that you are able to deliver the customer experience that aligns with your positioning. Customers buying the lowest price option don’t expect high levels of intimate service; they just want the product to do what you say it is going to do. Customers buying the most innovative product don’t expect to pay a minimal amount for the product – they often want to pay more in the belief that they are getting more. Your role as the leader of a business is to get this balance right and to make sure that you are creating and delivering the customer experience that aligns with the other strategic factors. Not all businesses get this right immediately; sometimes it takes some tweaking and experimentation to get your business recipe right.

2. Expectations

Establish clear expectations with customers

Once you are clear on your strategy, it is critical that your customers know what to expect. One of the major issues at the heart of poor customer service is expectation differences between customer and service provider – the customer expects to receive one thing and the service provider expects to deliver another. Your most powerful tool for managing a customer’s experience is to manage their expectations. Many smaller business owners and start-up entrepreneurs are so focused on just winning a deal that they over-promise – committing to deliver more, sooner, at a higher quality than what is reasonable or possible. This is a sure way to send your business into rapid decline as one missed deadline leads to another and then another and before you know it you are in continuous crisis management mode. A much better strategy is to hold back on promises, tell prospective customers what you know you can do and then try to deliver a little more, a little quicker with a little extra zest. By delivering a little extra, over and above client expectation, you will retain customers and create powerful word of mouth marketing as your customers speak to others in their network. You can only do this effectively, though, if you are conservative in your original promises to clients.

3. Empowerment

Hire employees with the right attitude. Empower & incentivise them to deliver great experiences.

Every time your employees interact with an external stakeholder they either facilitate a withdrawal or a deposit into your customer’s delight account. Are your employees motivated and incentivised to create deposits? Building a motivated workforce starts the minute you hire someone. Some people just naturally want to please; it is built into the way that they operate and it is people like this that you want in frontline jobs. The first thing to do is to assess a person’s inclination to give good service before hiring them: ask previous employers about their service orientation and consider how good their turnaround times and demeanour are. Once you have the right people in frontline jobs, give them the motivation, latitude and information they need to really wow customers. Frontline employees will go to greater lengths to please customers if they know they are going to be recognised and rewarded for it. Put incentives in place to recognise those who make a difference in the lives of your customers. Customer service is very often related to access to information. Employees need access to information to be able to answer questions and deliver to customers. Be sure that your employees are empowered with the information they need – that they fully understand the lengths they may go to in assisting a customer, so that whatever they promise remains within the company’s ambit and capacity to deliver.

Customer service in an organisation is like a plague, both in a positive and negative sense. If you establish a culture of positive service in an organisation, it will be self-reinforcing and spread throughout the employee base. Individuals will pick up on behavioural clues from others and positive feedback will inspire all to go the extra mile. But negative service orientation spreads similarly through organisations. A new employee can start at an organisation with all the best intentions to serve customers and make a difference, but if others in the organisation don’t care, they will quickly pick up on this, lose motivation, and eventually develop a ‘don’t care’ attitude themselves.

Present

Great service companies don’t only think about the future, they also need to operate in the here and now. Leaders take cognisance of the overall customer experience that their clients are currently exposed to. They get involved on the frontline, interacting with customers and modeling behaviour to set an example for others in the company.

4. Audit

Conduct an experience audit within your business

A customer’s interaction with an organisation can involve many touch points – telephone conversations, web visits, email contact, person-to-person interaction. A customer experience audit entails understanding what customers experience at each touch point linked to your business. The principle is to capture and analyse a typical customer experience. Experience audits range in their complexity. A simple experience audit may involve hiring someone to try to buy from your organisation and asking them to record all the details of their experience to share with you. A more complex audit can entail capturing a typical customer’s experience on video and with digital photographs for comprehensive study and categorisation of all the elements that impact the customer’s experience. The important thing is to regularly take stock of what customers are experiencing – what people see, hear, smell, taste and feel – when they interact with your organisation.

5. Listen

Engage and listen to customers as they interact with your business

A customer experience audit is a deliberate and well thought through exercise to ensure that the organisation is delivering what you wish it to deliver. It is particularly important for the senior people in your organisation to spend so-called “time on the ground” listening to customers, making sales calls, taking calls in the call centre or following up on customer complaints. So much can be learnt by just engaging with customers and listening to what they are saying. As a student, I worked in many different service orientated jobs from waiting tables, coaching sport, hosting events to selling products. One of the things I learned working as a customer interfacing employee in all these jobs, was the impact of a senior person’s presence on the ground. The bosses or supervisors who locked themselves away and were far removed from the frontline were ineffective managers, oblivious to what was going on. The bosses or supervisors who casually made themselves available to frontline employees and spent time interacting with customers were more effective in ensuring seamless service to customers and high levels of motivation among employees.

6. Model

Display and model the behaviour and approach that you expect from employees

Imagine if you, as an employee, hear your boss being rude to a customer, or if you’ve experienced being unfairly treated by your boss. How are you likely to treat the next customer who walks through your doors? The leader of an organisation has a big influence on the culture of that organisation. If you wish to have a service culture, you need to live it – you need to set the tone for your organisation by being service orientated yourself. This means treating customers and employees the way you want your employees to treat your customers. It may be tough, but if you as a leader treat others well and model the behaviour you expect, others in the organisation will be much more inclined to live up to those same standards.

Past

In order to move towards a place where you are consistently delivering great customer experiences, you also need to learn from the past. This can mean changing systems and processes in the business, rewarding people differently, or fixing a previous mistake in a way that will have the customer raving about how you solved their problem. The past provides valuable information and ushers in opportunities to correct and improve things. Unless you take that information seriously and take action in solving problems, nothing will change.

7. Realignment

Realign the business practices when they are not delivering the experience you desire

After auditing the customer experience, or as a result of spending time on the ground interacting with customers, you are likely to find things that you don’t like. This should spur you on to take action. One of the major problems with most customer survey data, or other information about customers’ experiences, is that it is never acted upon. There is a break in the link between data and action and therefore, even though many organisations collect reams of data, they seldom make use of it to make changes. Think about all those surveys you fill out at the bank or when you get your car serviced that never seem to make any difference – you feel like your time has been wasted, and that is a certain deduction from your delight account. If you are serious about service you need to use data about customer experience to realign your business to focus more strongly on addressing customer service needs. This could mean providing employees with more information as mentioned, hiring more people, shifting people around in the organisation, or adjusting your strategy to get better alignment between price, product, service and market.

8. React

Right a wrong when an expectation has not been delivered on

Learning about a bad customer experience is a great opportunity to fix a mistake and send a customer away feeling even better about the company than they would have had everything been right in the first place. The companies whose service I value most are the ones that have made a mistake but been happy to resolve it quickly and seamlessly – with as little inconvenience to me as possible. They are also the companies that have given me the benefit of the doubt when I have first approached them with a problem or complaint – that have not immediately been on the defensive.

Fixing a problem creates loyalty and positive word of mouth marketing. Hampton Inn succeeded in the upscale discount segment of the motel market in the USA with an innovative unconditional service guarantee. They said that if a guest encountered a service failure during a visit – a plumbing, air conditioning, or noise problem, for example – and the problem wasn’t rectified to the guest’s satisfaction, the night’s stay would be free. It was, and is, a powerful value proposition signifying the company’s confidence in its core service and its willingness to stand behind that service. Research revealed that 84% of guests who had a problem and invoked the guarantee indicated they would definitely return to Hampton Inn. Of guests who had a problem but did not invoke the guarantee, 32% planned to return.

The company’s chief financial officer has concluded that Hampton Inn makes $7 for every $1 of payout, proving that it is financially worth fixing people’s problems seamlessly if you are given the chance to do so. But beware – don’t make the mistake of thinking that it is worth allowing mistakes to happen so that you can rectify them. Fixing mistakes is a labour intensive and costly exercise. Every time you focus on fixing a mistake you draw resources, time and energy away from other aspects of the business and if people are spending most of their time fixing mistakes, general service levels will rapidly decline. Set up your systems to avoid mistakes but when you do make them, fix them quickly and fix them well.

9. Reward

Celebrate good feedback and reward employees who provide great experiences

At an employee level, one of the most positive things that you can do for the service orientation in your organisation is to catch people doing things well. Little things make a big difference in this regard: making a big deal when a customer provides positive feedback, complimenting someone on the way they handled a sales call and displaying all positive customer feedback in a visible location. People naturally like to please, and if they know that they are succeeding and are being recognised for it, they will want to do more.

Conclusion

Companies that are serious about delivering positive customer experiences see it as an holistic process in which you plan for the future, embrace the present and learn from the past; and which gets embedded at a strategic, customer and employee level within an enterprise. As a manager you need to decide how serious you are about managing your customers’ delight accounts. Do you really want your customers’ expectations to be exceeded so that they remain loyal to your business and spread a good word, or are you going to leave that to random chance. If you are serious about having a base of customers with massive deposits in their delight account, consider the nine clear tools that this article provides for keeping customers happy, loyal and positive.

Greg Fisher, PhD, is an Assistant Professor in the Management & Entrepreneurship Department at the Kelley School of Business, Indiana University. He teaches courses on Strategy, Entrepreneurship, and Turnaround Management. He has a PhD in Strategy and Entrepreneurship from the Foster School of Business at the University of Washington in Seattle and an MBA from the Gordon Institute of Business Science (GIBS). He is also a visiting lecturer at GIBS.

How to Guides

When Do You Know It’s Time To Sell Your Business

Five telling signs.

Andrew Bahlmann

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Even though running your own business gives you many freedoms, everyone still has those days or even weeks of wondering, “Shall I stay or shall I go?” Sometimes this thought becomes persistent instead of a passing phase – and for your own financial future and that of your business, you need to be able to recognise signals that mean the right moment has come to consider selling your business.

This is never an easy decision, especially as the amount of stress and constant pressure that a business owner contends with will play havoc with the decision-making process.

Having engaged with hundreds of business owners over the years, we see the five most solid signals that prompt them to sell are:

1. Retirement

This is the single most common factor influencing the decision to sell a business. Whatever age you have chosen as your retirement goal, if you are approaching this then give yourself an opportunity to assess both the benefits and challenges of having your own business.

Have you considered an exit strategy, such as hiring someone else to run the business instead of you? Or, as in many cases, does your business represents your most valuable asset? In this case, it would need to be cashed out at some stage as this would represent your pension. Selling your business successfully and fetching maximum value could well be critical to ensure that your retirement is well supported by financial surplus.

Related: Selling Your Business To Your Business Partner

2. Lifestyle Change

Growing a business can be an infinite journey. Have you reached your goals with this business and do you have the appetite for the ‘next chapter’?  Or do you want to move off into a completely new business direction? Perhaps you would prefer to follow a passion of yours or spend extra time with your family, investing more time in yourself and them to counter the massive investment of time and energy that you have made over the years.

3. You are ‘gatvol’

We often underestimate what it takes to live life as an entrepreneur and the amount of compounded pressure we ‘on-board’ over the years. Whether it is customers, suppliers, staff or the banks, you know this stress has reached a decisive, even destructive level if you can’t shrug it off and instead you find yourself repeatedly saying, ‘Enough is enough!’

4. Building a business versus running a business

Go back to the beginning of when you started your business. Do you remember the passion, fire and motivation that drove you to achieving your first sale? How about that sense of achievement as you hit the subsequent milestones? All that represented the very DNA that you have as an entrepreneur – but as your business grew, so did everyone and everything you need manage on a daily basis. Do you find yourself being more of a human resources manager than that entrepreneur with that fire in your belly? Is running a business enough to motivate you and drive your core DNA?

Perhaps this is the signal for you to sell the larger business that you have developed to someone with the skills and interest in the administration it requires. Selling your business would free you up to apply your entrepreneurial skills in a new context.

Related: When Is The Right Time To Sell Your Business?

5. You can’t do it on your own

In many cases you may still have time and energy to keep growing your business – but you may recognise that you are not willing and able to do this yourself. Sometimes you would appreciate a ‘big brother’ who can share the load. This could equate to a partner injecting money into your business, taking on some of your risk or opening up new opportunities for you and your business. This has become more and more prevalent in South Africa with the BEE codes and pressure on certain industries. Bringing on the right strategic partner to help you navigate uncharted waters is a critical step to take in your eventual exit strategy.

Decoding the signals that suggest it might be time to sell all or part of your business means that you will make the right decisions to stay or go based on sound reasoning.  Remember that this is one of the few times in your life that you truly get ‘one shot’ to get it right.

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How to Guides

Selling Your Business? How To Exit In Style

Gary Palmer, CEO of Paragon Lending Solutions runs through some practical requirements to realise the best value possible when selling all, or part of your business.

Gary Palmer

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Preparing to sell a business you have put years of work into, or even built from scratch, can a be a daunting prospect. Aligning the disconnect between what you think it’s worth versus what a buyer is prepared to pay is just one of the challenges. 

Act like you’re on the market – all the time

Like the Scout’s motto says: Be Prepared. A business owner needs to make sure their business is sale-ready at all times. Not only will this save a heap of administration when you do want to sell, but also means that, should an excellent offer land on your desk, your business financials and compliance issues are well in hand.

Related: Looking to sell your business? What do I need to know?

A business must be able to show a clean set of audited financials as well as up-to-date management accounts. Your accountant will be able to help get these in order if they aren’t already.

Make sure you aren’t running personal expenses through your business. This can be a challenge for some small businesses. Despite the allure of minimising taxes by running private expenses through the company books, it poses significant risk when preparing clean financials.

Prepare a due diligence pack. This can be provided by your auditor or financier and will include a list of your current contracts, VAT and SARS clearance certificates and defendable cashflow projections. Having all the documents required for a due diligence in one place that is easily accessible will go a long way to cutting down on the time it will take your prospective buyer to assess the company’s value and future potential.

It’s also important to remember that assembling all the necessary documentation takes time. It’s better to begin the process well ahead of when it will be needed. It’s also quite possible that a potential buyer may put a premium on the buying price if they know they are walking into a business which is clean, up to date and has no unexpected auditing or compliance skeletons in the closet.

Consider all the angles

Business owners opt to sell their business, or part of their business, for any number of reasons. This could be in order to retire and live off the proceeds, or because they want to raise money for another business opportunity. It’s important for owners to remember that there are associated expenses and even delays that they should plan for.

Before any negotiation begins, a business owner will need to find the right buyer. There are a number of brokers and financial service companies who can help source qualified potential buyers and, unless you have an offer on the table, it is a good idea to work with a third party to get line up a few credible potential buyers.

Once the deal has been negotiated and you have settled on the price, you must factor in Capital Gains tax. It is sensible to have a good idea of this before negotiations begin and to work out your asking price accordingly. Other expenses may also impact what you walk away with, including professional fees for your lawyer, auditor and other consultants with whom you have worked during the sale. You should also plan for delays due to valuation debates and requests for supporting documentation which may take time.

Related: Selling Your Business To Your Business Partner

Finally, it is always a good idea to consider whether you want to walk away immediately after the sale. Many business owners choose to stay on in operations, and by doing so can negotiate a more favourable price with earn-outs attached to the sale price. After all, you are the person who knows the business best and has a relationship with your clients – and this insight comes with a value attached.

Most importantly, if you are planning to sell your business, it’s a good idea to have advisors and partners who have been through the process many times and are able to help you navigate what may be unchartered waters for the first-time seller.

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How to Guides

When Is The Right Time To Sell Your Business?

Of the 6 most common questions I get asked on a regular basis, when is the right time to sell is by far the most common. The mergers and acquisitions game is part art, part science and a whole lot of elbow grease.

Andrew Bahlmann

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Your personal context

  • How old are you?
  • How much energy do you have left in your tank?
  • Have you extracted value out of the business already?
  • Have you managed to de-risk yourself by investing in equivalent assets outside of your business?

Only you can answer these questions, but they will go a long way in providing clarity for you and your ability to take the first step to selling your business?

Is your business ready to sell?

If I had R100 for every time someone had said to me that they want to wait another twelve months before they sell, I would have accumulated a substantial amount of money. Despite what the majority of advisors say, there is very often no real need to ‘dress up’ your business for sale.

Related: Selling Your Business To Your Business Partner

Don’t get me wrong. You need a going concern that delivers solid returns to catch the eye of the right acquirer. However, who are you dressing your business up for?

If you do this properly, you will have more than one buyer at the table. Chances are, what is attractive to one buyer won’t necessarily be attractive to someone else. It is impossible to be all things to all acquirers.

You say you are just 12 months away….

12-months12 Months is a magical number. Business owners always seem to be 12 months away from being ready to sell their business. Maybe it’s that big contract you are hoping to land. Perhaps you want to put in a new IT system. There will always be something.

Speaking from experience, I had a client that was going to wait, but instead committed to the process. Had they waited 12 months they would have been hit with ‘Nene-gate’, Brexit and Trump all in a 12-month period! There is no way that anyone could have anticipated a trifecta like that. I had another client that put in a new SAP system in those 12 months and the acquirer used Oracle!

You will reach the 12 month point anyway…

With the time that it takes to complete a successful transaction there is a good chance that you will cross that threshold of that big contract that you were hoping to land, putting that succession plan in or whatever the reason was that you wanted to delay the process for.

Something else that generally ruffles a few feathers, is that selling the (proven) potential generally fetches a far greater value than the past. This in itself is a whole other topic, but in the context of when is the right time to go to market, always keep this factor front of mind.

Related: 4 Essential Steps To Take To Successfully Sell Your Business

What is happening in the economy and your industry?

We are fortunate to have seen an increased sentiment in, and around, the South African economy in 2018. There is an uptick in international interest, but you know what the reality is, it never really took a major dive. The reason being that irrespective of the economy or your industry, good businesses sell. Some of my best deals happened in 2016 when the economy was under severe pressure.

Remember that when times are tough, acquirers need to buy good businesses to grow, as their own profit and be under pressure. When the economy and your industry is doing well, acquires will buy as they have excess cash to invest and will have a more bullish outlook on taking risk in their investments.

Truth is….there is no perfect time

The one thing that I have learnt over the past few years is that one can theorise for months trying to think of endless ways to increase the value of your business. Without climbing into the market and actually determining what your reality is, you will keep delaying your decision to take your business to market.

There is only one real hurdle that needs to be overcome, and that is you. If it is any consolation you will never be 100% ready. What have you got to lose? If you go to market and, worst case scenario, you don’t sell, you still have a great business to run and grow.

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