The Customer Loyalty Loop Read online

  In this book, I look at some concepts in behavioral science and psychology as they relate to the customer experience. More so, I draw connections to the experiences of my clients and the stories that have made me stop in my tracks and think, “there’s got to be something more interesting going on here!”

  At the end of the day, the goal is simple. I want to help companies better understand the minds of the customers through each step of the customer life cycle and, most important of all, to create a loop that keeps people coming back again, and again, and again—and telling others at the same time. Wait—not just telling others, but shouting from the rooftops.

  You can tweak every step of your business and look for the minor areas of improvement that might increase profits slightly or create a small in bump conversion rates, or you can understand and control the customer’s mind (not in the evil way, of course!) and create a cult-like obsession with your business.

  In the early chapters of the book, we’ll discuss the science and why the loyalty loop works as well as it does. You’ll read the bulk of the “heavy” science over the next few pages.

  After that, we’ll delve deep into the Customer Loyalty Loop and then spend the rest of the pages in the book giving you the right tools to generate results. Throughout the book, you’ll find various action steps, exercises, challenges, tools, questions, and workshops that will allow you to harness the power of the loop. Even if you pick just one area of focus, like Impactful and Meaningful Follow-Up, or The Psychology of Guarantees, it will have a drastic impact on your business. You’ll learn from examples like Casper.com, where a single risk-reversal guarantee was the difference between selling a couple hundred mattresses per year and selling $75 million worth of them. It’s not that they did anything special, it’s just that they understand and embraced the various concepts of the Customer Loyalty Loop.

  My clients often pay me $10,000 to $25,000 for a single day of speaking or workshops, and consulting engagements range from $30,000 to north of six figures. And they’re always incredibly thrilled with the minimum 10-times return on investment. Many of the workshops and action steps found within this book have been derived from the work with my coaching and consulting clients.

  What I have learned is that there are only a handful of things that can make any company, or any sales, marketing, and customer service department, infinitely more powerful. The companies tapping into these powerful concepts can be almost counted on a handful of hands and feet, but the principles themselves are more applicable and accessible than ever before. Let’s get to it!

  1. The Science of Experience

  Marketers, perhaps more than others, know about the remarkable power of the story. After all, they are in the business of storytelling but, on the other hand, my story is very telling about business. While business knows about the power of the great story, it has neglected a critical part of the equation. And that’s this: It’s one thing to create an experience, but it’s yet another to create a memorable experience. It turns out that a good experience isn’t nearly enough. Marketing strategists typically have a good understanding that the experience is essential, but they have very little recognition of the fact that it’s how those experiences are interpreted and remembered that is critical. There are a dozen books on the shelves all which claim to hold the keys to a remarkable customer experience! They say things like “wow” the customer by providing exceptional customer service, but that’s only part of the equation.

  To understand the core of the Customer Loyalty Loop that I’m going to outline in this book, you need to come on a brief journey with me into the mind. It’s not complicated, and it probably won’t be a surprise to you, but the implications of what I am about to tell you are pretty profound.

  Human beings like to think they are rational, but very often they are not. While we have the capacity to be rational, the latest scientific research shows that by and large, we are more intuitive than rational. We make decisions more often with our hearts and minds than we do with our brains. There are a variety of reasons for this.

  First, the brain’s primary goal is survival and the first step in that process is recognizing threats. To function efficiently in this regard, we have to take what is going on around us and make sense of it—and to do that quickly. Without an understanding of what is happening, we can’t anticipate threats or defend ourselves. So, we take in information through our senses and interpret it.

  In other words, we create a story—and we do it very, very quickly, often without thinking. The idea or story just pops into our minds without any awareness of considered analysis. We, meaning you (who is reading this) and I, are customers, and we think this way. It apparently makes sense that your customers feel this way too.

  Most of the time, the story we create is not based on a critical, reasoned analysis of the situation. Rather, it is an almost instantaneous, seemingly reflexive response to what we sense is happening all around us. Our stories are colored by many factors about which we are unaware. Subconscious experiences, intuition, instinctive reflexes, and the vast tapestry of our past experiences all quickly shape “the narrative” or our stories. The story quickly forms in our minds and for the most part, we accept it without too much, if any, analysis. Daniel Kahneman, the Israeli psychologist who perhaps has done more than anyone in articulating and explaining the relevant cognitive neuroscience research, calls this processing “fast and frugal.” We create the story, and unless there is something that is obviously irrational about it, we accept it and move on. Kahneman, who won the Nobel Prize in Economics, brilliantly describes our mental process in his book Thinking, Fast and Slow.1 He describes two ways of thinking based on two separate systems. System 1 is fast and frugal, as described above. System 2 requires critical, rational analysis.

  Several biases influence the narratives we create. These are important factors that help us create those fast and frugal stories. Here’s an example. Tell me, does this sound familiar?

  Normally this product sells for $99, but in this special offer you can buy this amazing product for just $39! That’s a saving of $60! But wait! There’s more! Order now and we will give you a second one free! That’s a $200 value for just $39!

  This is an example of what is called the anchoring bias. The first number (or fact) anchors the context to a specific point, in this case $99. Everything else is seen relative to that, so the offers do indeed sound like an awesome deal. Now, here’s an important point. This tactic works even though most people understand that the initial number is likely to have been inflated! You have to make a concerted effort to override the bias. A vague awareness that the initial number is probably inflated isn’t enough to counter its powerful effect. In other words, you have to make a very conscious effort not to be misled, and as we shall see shortly, most of the time we don’t want to make that effort. We all know someone who has purchased the latest and greatest set of knives, the pan where absolutely nothing will stick to it, ever, or the latest and greatest piece of exercise equipment.

  Another bias is the availability bias. This one means that if we can remember relevant examples, they will significantly influence our narrative. Here’s an example. When there is a plane crash, and it’s all over the news for days, many people will vow never to fly again. Or, they’ll seriously consider alternative forms of travel. They do all this even though that as horrible as a plane crash is, that one plane crash hasn’t significantly altered the safety of flying or the probability of being in an aircraft accident. If anything, that single crash is usually likely to make flying even safer. But because the accident is in the forefront of our minds due to the extensive media coverage, and the disaster is available to us, it significantly influences our perceptions of flying.

  Now, here’s a very critical point: It doesn’t matter how accurate the remembered information is, it’s the fact that we remember it that’s important. Again, our thought process is not deep, critical analysis; it’s fast and frugal. For example, you may have
been hearing that coconut oil prevents dementia and cognitive decline. You have seen the research several times, so the repeated exposure makes it more available to you. Wow, so it must be true then, right? People rush to the stores and get a giant tub of coconut oil only to hardly ever use this stuff. I’ve got one in my kitchen.

  However, if you take the time to do the critical analysis and look at the research, you’ll find there is absolutely no scientific evidence for coconut oil as a preventive measure against cognitive decline. But who’s got time to do the research on the research? It reminds me a lot of my father-in-law. One week he’s eating eggs because the research shows the health benefits of eating eggs. Next week he’s off them. New research shows how horribly unhealthy they are. Hardly anyone has the time or the skill set to do the research themselves.

  It’s much easier to go with what is available, that is, what we have seen in the media or what we think we saw in the media—and usually what’s available at the present moment, hence the eggs. This availability bias will become critical later when we consider what factors influence the formation of memories, and how those memories influence decisions, including purchasing decisions, or the willingness to make a second purchase after the first one.

  Another cognitive bias is risk aversion. Fear of loss is a powerful motivator, and most of us will overvalue risk because we’re more afraid of getting hurt than anything else. It’s a classic marketing hack known as “while stocks last” or “hurry, supplies are limited!” Some years ago, Beanie Babies were incredibly popular because the company making them was always implying that it was going to discontinue certain models. Amongst collectors, this fear of loss of missing out on one or more of the collection fueled the buying mania. You had to have them all.

  There are numerous other biases. For example, I’m sure you have heard of the halo effect through which we exaggerate the qualities of someone we like by over-generalizing and assuming that they can do no wrong. Another bias is the social environment or what is called social proof. Dr. Cialdini argued that social proof was one of the six most powerful tools of influence. In a classic experiment, subjects had to say which of two lines was shorter than the other. It was relatively easy to see that line B was shorter than line A. But if you observe numerous people choosing line A rather than line B, there is a good chance you’ll change your answer, even though B is indeed still fairly obviously the shorter line. What we see others doing influences our perceptions and our stories more than we care to admit.

  All of these and many other biases serve the minds tendency to be “fast and frugal.” We live in a complex world, so to minimize the effort of making sense of this complexity, people simplify wherever possible. This drive for simplicity is the default mechanism of the brain. As a result, the brain is binary, reducing the complexity of our world to simple either–or alternatives: right or wrong, Republican or Democrat, Conservative or Liberal (for my Canadian friends and family), and so on. As soon as we get away from the convenience and comfort of the binary brain, thinking becomes more difficult.

  For example, what if someone proposed a three-party political system or even a four-party system? It’s hard to wrap our heads around ideas when they are not presented as two opposites, or mutually exclusive choices.

  The fact of the matter is that fast and frugal thinking is not only more natural, but it’s also much, much easier. Critical, rational, logical thinking requires a lot of effort. Ask someone to do a mental arithmetic calculation while they are walking along, and they will almost certainly stop because rational thinking takes an inordinate amount of effort, and it’s hard to walk and think critically at the same time. Even asking someone to do a small, less mentally exhausting task and the result is the same. For example, ask someone to text and drive, and you’ll see why it’s been proven to be almost more distracting than driving drunk. It seems every few days we hear about someone else who has walked into a fountain, fell down a manhole, or walked off a cliff while texting.

  In fact, critical thinking is stressful, activating changes in the brain and body that are part of the physical stress response. Not only is critical thinking difficult, but most people aren’t equipped in how to do it. Unless you have been trained in science and math, and even if you have been, the complexities of critical, rational thinking are likely to escape you. For example, Kahneman uses this great example in Thinking, Fast and Slow.

  Fact #1: The lowest rates of kidney cancer occur in small, rural communities.

  When you hear that statement, your mind will automatically go into a storytelling mode to make sense of the information you have just been given. Perhaps people in small rural communities eat healthier? Perhaps they have cleaner environments? Perhaps they are more active? Whatever factors you focus on, you will start to construct a story in your mind about why rural communities are healthier.

  Here’s the next piece of information.

  Fact #2: The highest rates of kidney cancer occur in small, rural communities.

  The natural reaction to this new fact is that there’s a mistake and that the person giving you this information has contradicted himself. “That can’t be!” you howl in protest.

  You’re wrong.

  The answer to this particular problem is in the phrase “small, rural communities.” In some small communities, there will be no kidney cancer, resulting in a very low/nonexistent rate. But if there’s a couple of cases in a small community, the rate will be relatively high because it’s a small community. In other words, this is a sampling problem. Small samples are going to produce a much wider range of probabilities because of the very fact that they are small.

  Now, unless you have studied statistics, the idea of sample size probably hasn’t occurred to you. Moreover, if you never got to hear the second fact, you would go on your merry way with the notion that small, rural communities are healthier firmly implanted in your memory. And that memory would then influence your behavior in the future. It would influence your discussions with others, and it would shape your worldview.

  Now, while some simple arithmetic and math is not beyond most people, numbers aren’t always what they might seem when viewed through the “fast and frugal” lens.

  What’s your first, instantaneous response to this question? You have to choose one.

  I will promise to give you $3 million at the end of the month, or alternatively, I will give you one single penny today and double the amount every day for the next month, and give you everything at the end of the money.

  Which would you choose?

  Taking the latter option of starting with one cent and then doubling the amount every day will give you more than $10 million at the end of the month but “intuitively” that doesn’t seem possible. In other words, rational analysis often results in answers that are counterintuitive.

  There’s something else that is critical in our storytelling; we need to be consistent. Our narratives, by and large, need to jive with each other. This drive for what is technically called coherence influences us in many ways. For one thing, we are always looking to reinforce and find proof for our stories. In the late 1950s, social psychologist Leon Festinger called this cognitive dissonance.2 We have a selective perception that seeks to confirm our choices. So, for example, if you had to decide between car A and car B and recently bought car B, subsequently, you will find all the evidence that suggests car B is a great car and look for (and interpret) the evidence that shows car A’s deficiencies. Today we call this tendency confirmation bias, where we overvalue information that supports our views and dismiss information or interpretations that run counter to our views. In other words, our narratives themselves are the lens through which we filter the world. What this means is that once you have a narrative about something, it is tough to change, or to quote the cliché, “you never get a second chance to make a first impression.” This is a paramount part of the Customer Loyalty Loop, with one subtle difference.

  The impression isn’t the experience; it’s t
he memory of the experience.

  The cognitive neuroscience literature tells us that our perceptions and narratives are not based on rationality. Instead, they are significantly influenced by biases, including our existing stories, as well as a drive for simplicity. Subconscious memories and emotions also influence them.

  There is some interesting research that shows that when people are asked to smile, they view (and remember) things more positively than when not smiling, even though the smile is forced. Emotions influence our perceptions and our stories, even when those emotions are artificially induced. The fact is that existing emotions color the experience and the memory of a situation or event. How would you react if you were just given a gift card immediately after learning that someone had been bad-mouthing you on social media? You’d almost certainly see the gift card as trivial and unimportant. Now how would you react if you got the same gift card after reading something flattering about you posted on social media? Chances are the gift card would be much more appreciated. In fact, you might even make a story about these two independent events. After getting the gift card and after reading the flattering social media piece you might think something like, “Wow, this is a great day! I’m getting a lot of love!” However, you might be so mad after reading the nasty social media post that it would be difficult to feel positive about anything, even the gift card, in which case you are likely to minimize it, or find a way of directing your anger toward it. For example, you might think the gift card is not appropriate, or the amount is too small, or it’s too impersonal. You get the drift; emotions dictate the narrative even about things or events that have nothing to do with why you are feeling the emotion to begin with. In this case, the gift card could be a victim of being in the wrong place at the wrong time and is perceived through the emotion of the moment. And this, again, is because our response and thoughts tend to be fast and frugal and reflect our emotional states, rather than being a function of a rational mind.