They can be a source of competitive advantage and growth.
Based on the article by Scott Magids, Alan Zorfas, and Daniel Leemon
Companies seeking growth are increasingly focusing on the customer, making major investments to improve satisfaction at each stage of their experience. But research shows it's not enough to have customers who are merely satisfied. The payoff is much greater when companies connect with people emotionally. In terms of their impact on revenue and profitability, customers who form an emotional attachment to a brand are 52% more valuable than those who are just highly satisfied.
Authors Scott Magids, Alan Zorfas and Daniel Leemon researched hundreds of brands in dozens of categories to demonstrate why emotionally connected customers are so valuable. They buy more of your products and services, visit more often, are less price-sensitive, pay more attention to your communications, follow your advice, and recommend you to others.
Emotionally connected hotel customers, for example, had 41% more stays. Casino gaming customers spent 23% more than those who are merely satisfied. And household cleaner customers made 103% more purchases.
But for companies that want to build those emotional connections, understanding what really motivates their customers is more guesswork than science. So the author's used data analytics to create a lexicon of nearly 300 emotional motivators. These are people's deep, often unspoken emotional needs, such as the desire to succeed in life, to feel secure, or to feel a sense of belonging. By tapping into them, companies can reap the benefits of emotional connection.
For example, a company whose customers share a desire to stand out from the crowd should look for ways to help them project a unique social identity or be seen as special. Firms whose customers are motivated by the desire to protect the environment should make sure their brands support customers’ beliefs and encourage them to take action. Companies should strive to link these motivators to specific purchasing behaviors to figure out which needs are the most valuable. But first, let's look more closely at the research on how emotional connections may vary between
Emotional motivators differ from category to category. For example, the sense that a home furnishings store “helps me be creative” inspires consumers to shop there more often, but different motivators may drive loyalty to fast-food restaurants. Each brand may need to start with a different motivator in its effort to strengthen emotional connections. Motivators also differ by customer segment. Take credit cards. Research shows that for Millennials, the desires to “protect the environment” and “be the person I want to be” are important in the banking category.
For older groups, however, the needs to “feel secure” and “succeed in life” create greater emotional connections. Motivators may even shift within a segment, depending on where people are in their customer journey. In the banking example, the desire to feel secure is a critical motivator when attracting and retaining these consumers early on. But when it comes to cross-selling products, the wish to succeed in life becomes more important. How do you build these emotional connections? Let's look at a real world company that the author's worked with.
A U.S. fashion retailer was struggling in the face of common industry challenges. It had a well-known brand and a strong market presence, but same-store sales were stagnating, and margins were shrinking. Traditional levers to get back on track – such as cost management and logistics -- had fallen short. So the retailer changed course, setting out to improve profitability and growth by building emotional connections with its customers. The cornerstone of this process is figuring out who's already connected and why.
Closely examine the top quartile of your customer base (according to annual purchases, engagement, and so on) and look for traits that set it apart. How are these customers different demographically? Do they buy in person or online? How much do they buy from your competitors? Our retailer’s analysis revealed a set of especially valuable customers, who the company labeled Fashion Flourishers. Buying apparel connected to their deep desire for excitement, social acceptance, and self-expression. They had a high lifetime value, visiting stores more frequently and spending about twice as much per year as other shoppers on average.
They were much more willing to pay a premium for the best products, and they were more digital engaged than other segments. The next step is to dig into those connected customers’ key motivators. You probably already have basic information about what they value most and what they aspire to, but see how much detail you can add to that picture.
Use online surveys, for example, to ask questions such as: Are you more driven by life in the moment or by future goals? Do you place greater value on social acceptance or an individuality?
The reasons people give for their brand choices typically don't match what truly motivates them, so don’t cloud your understanding by asking customers how they feel about your brand. Instead, look at their motivations separate from your brand. Avoid making assumptions on the basis of demographics. Young parents, for example, may be motivated by a desire to provide security for their families -- or by an urge to escape and have some fun. You might find both types in your customer base.
The fashion retailer used financial analysis and computer modeling to examine more than 40 motivators for Flourishers and identify the ones that had the strongest relationship to purchases. Results showed that appealing to three key desires – feeling a sense of belonging, a sense of thrill, and a sense of freedom -- would probably yield the highest ROI for that valuable group of customers. An analysis of customer data estimated that moving people in this group from “satisfied” to “emotionally connected” could increase sales by up to 5%.
When the retailer looked for ways to move Flourishers from “satisfied” to “emotionally connected,” four major investment areas came into focus: stores, online and omnichannel experiences, merchandising, and message targeting. Let's look at stores. The retailer identified which of its more than 700 locations had the most Flourisher customers. That analysis led to a new strategy: siding stores near Florishers and near other retailers they frequent. The change paid off.
First-year sales at the new stores were 20% higher than historical averages, leading to shorter break-even times and higher returns on capital. To free up capital for the new locations, the retailer began closing stores in low-Flourisher areas. Focusing on the “sense of belonging” motivator, the retailer also expanded its social media presence and encourage customers to submit selfies showing their favorite outfits and styles. Test stores then displayed selfie slide shows on large screens, reinforcing that sense of belonging.
Data from the test stores suggested that the experiment increased customers’ intent to purchase. Finally, use the language of emotional connection everywhere you talk about your customers -- not just in the marketing department but across the firm.
For instance, building on its success, the retailer developed a scorecard that gave the CEO and the executive team a one-page view of customers’ emotional connection levels, along with the increase or decrease in connected customers. It also show the correlation in of customer's emotional- connection scores with lifetime value measures such as annual spending, churn, and tenure.
The retailer's results speak for themselves. For stores serving Flourishers, sales grew 3.5%, compared with the annual average of just 1%. Inventory turns increased more than 25%. Market share and customer advocacy also grew, contributing to record-high customer lifetime values. Of course, achieving what the retailer did is not easy. Some of the best known brands mistakenly believe that their work is done simply because they have a large percentage of customers who consider them a good brand.
But here's where these same brands fall short in emotionally connecting with their customers. The gaps represent a big opportunity for these companies. The same pattern holds across many types of companies, from coffee chains to carmakers. There's a lot of value being left on the table -- and a huge opportunity to transform satisfied customers into emotionally connected ones. When companies discover that, they’ll find a new source of growth just waiting to be tapped.