This week both Virgin Media and Sky communicated their results for the last quarter. This is a service sector driven by investment analyst sentiment to be fixated by the number of "net-adds". In simple terms the number of new customers minus those customers who left.
Sky stated 80,000 new customers driven by their HD-offer as they hurtle inevitably to their stated target of 10m households with a Sky product.
Virgin's figures were more modest but far more interesting citing customer churn at an all time low of 1.1%
Once you sort involuntary churn (bad debt, etc) from voluntary churn for most service brands there is a generally held belief in the Holy Trinity of loyalty...
- Emotional engagement
- Reward schemes
- Structural entanglement
By far the most powerful loyalty factor and the one we all strive for. It is made up of all those emotional and intangible aspects of brand experience.
It takes time to build and can be re-enforced by genuine "magic moments" and can be lost in a single interaction. It is often expressed in advocacy - a customer's potential to recommend a brand and measured in terms of net promoter score (NPS).
Reward schemes
Sorry I can't bring myself to call them loyalty programs. These are a very useful tool particularly where there is a genuine value exchange between the customer and the brand. There are of course good examples and bad.
Often a key objective is to remove the anonymity of retail or third party transactions through data collection as well as to reward the right customer behaviours.
It is often overlooked that the loyalty is to the reward scheme not the brand. For example, people follow AirMiles not necessarily the specific credit card.
Whilst useful reward schemes can never overcome "structural faults" in your service proposition or customer experience.
Structural entanglement.
What is meant by this is often referred to as "locking-in" customers through a 12-month contract for example. This is often justified (not unreasonably) where equipment is needed to access the service and is given for "free" e.g. a mobile device, modem / router, set-top box, etc.
It is not common practice to use price promotion periods as a lock-in as regulators see this as anti-competitive. Other forms may include early payment clauses and depth of relationship.
A good example of the latter is current accounts where the hassle of changing direct debits / standing orders, re-setting up of internet passwords, etc are a formidable barrier. Here structural entanglement is made exponentially more powerful by the second most powerful force in the universe - apathy. (The first is serendipity).
However, whilst it was once said that you were more likely to get divorced than change your bank account this is perhaps less true these days. The opening up of utility markets to competition, the decline in trust of big-brands, the commoditisation of once intermediated services (home insurance), the transparency facilitated by the internet, aggregators and the current global financial crisis are changing customer attitudes to switching for good.
Also this week I considered changing my standard Sky wireless modem router to improve the coverage in my house. Not unsurprisingly my wife is "sick of wires everywhere". However, to my chagrin I found out that as a Sky customer I can only use their equipment on their broadband service.
They justify this by the fact that the equipment is free and they do not want people canceling within the introductory period and using their modem routers on another supplier.
After quick but not exhaustive research none of the other providers seem to have this stipulation. Now their Netgear equipment is OK but N+ standard it is not. Apparently this is in the T&C's and a quick review of the relevant blogs found examples of customers who had hacked-in to get the relevant details to use another modem router and been subsequently cut-off.
Now its about a value exchange. This T&C would be fine for the first 12-months but after that it's plain unreasonable. I was an advocate of Sky broadband but now because of this insidious piece of structural entanglement - I'm open to offers! Will I leave tomorrow? Probably not but the seed of discontent has been sown.
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