Or why it pays to care.
By Peter Dorrington, Chief Strategy Officer at Anthrolytics
Nearly a decade ago I was asked the following question by a global business-to-consumer (B2C) organisation: “If we do something we know our customers don’t like, can you do a better job of predicting which of them will leave?”. This is not an unusual request; millions are spent every year trying to predict customer loyalty and churn. However, it is fundamentally a question about loyalty – when a customer or employee chooses you over another, possibly better competitor.
So, I am honoured to have been asked to present to the European Loyalty Association London Hub event on the 5th March 2024, where I will talk about harnessing the power of understanding customer drivers of loyalty in the digital age – why customers do what they do, and what to do about it. In a whistlestop tour of the subject, I will cover the world of customer loyalty today, the role of emotions and empathy, understanding how people make decisions, and how to use that knowledge to drive business results, and a lot more.
But today I want to focus on one specific area – the economic argument for empathy and its effect on customer and employee loyalty.
background
In modern business, success is often attributed to factors such as strategic decision making, financial acumen, and establishing market dominance. However, amidst these tangible elements, there lies an intangible yet indispensable force that has the power to transform organisations and propel them towards extraordinary performance: empathy.
Empathy, defined as the ability to understand and share the feelings of another, is often overlooked as a mere soft skill (although I prefer to think of these as ‘human skills’) or a feel-good concept – difficult to quantify in both cost and bottom-line impact.
However, a growing body of research and real-world examples is demonstrating that empathy is not just a nice-to-have, but rather a critical driver of business success in an increasingly competitive marketplace. That said, quantifying those benefits can be hard, because linking the cause-and-effect of human relationships has been extraordinarily difficult – until now.
Advances in combining behavioural science with data science is finally giving us the tools leaders need to understand the measurable drivers of human behaviour, especially the ‘moments that matter’ that drive an emotional response, if not a direct behavioural one.
For example, a bad interaction between an employee and a customer can affect the emotional state of both and, if those emotions reach a critical threshold, may prompt a response – often a negative one.
However, knowing the cause, and even predicting the effect is not enough; insights such as these require action – minimising or limiting the damage of a negative relationship and leveraging the opportunity presented by a positive one.
Empathy in customer interactions: building lasting relationships and loyalty
Research by the Journal of Consumer Psychology revealed that the emotional rapport fostered through empathetic interactions generated enduring loyalty. This has been confirmed by my own research that shows that:
“When other factors are broadly equal, empathy is the biggest driver of loyalty”.
Customer behaviour, like all human behaviour is subject to a range of factors, not least of which is the interactions they have with a brand and its employees. Businesses demonstrate empathy when they actively listen to their customers’ needs, concerns, and aspirations; even using tools like Artificial Intelligence or Predictive Behavioural Analytics to predict how customers feel about the brand on any day.
This empathetic approach allows businesses to understand their customers on a deeper level, enabling them to tailor products, services, and experiences to anticipate and meet their specific needs. Empathetic businesses experience higher customer satisfaction and loyalty, leading to increased retention rates and increased spending, what I like to call ‘Active Loyalty’. Sadly, too many businesses confuse lifetime tenure with lifetime value:
A ‘loyal’ customer who never buys anything negatively impacts the bottom line.
All that said, many business gurus proclaim that the secret to delivering an effective customer experience is to offer a great employee experience. So, let us examine than in a little more detail.
Empathy in the workplace: fuelling employee engagement and productivity
Even as we evolve the where, when, and how work is done, it is still the case that where employees feel valued, respected, and engaged, they are more ready, willing, and able to go ‘above and beyond’ to deliver excellence in their role.
When businesses consistently demonstrate empathy towards employees, they acknowledge the human element of work, recognising that employees are not just cogs in a machine but individuals with unique perspectives, emotions, and experiences.
An empathetic leadership style fosters a sense of belonging and psychological safety, allowing employees to bring their whole selves to work without fear of judgment or reprisal.
The impact of empathy in the workplace is often evident in employee engagement and productivity metrics. Studies have shown that empathetic organisations have more engaged and productive teams, with lower turnover rates and higher levels of job satisfaction. Employees who feel understood and supported by their leaders are more likely to go the extra mile, innovate, and contribute to the organisation’s overall success.
It is now possible to predict the emotional state of every employee, every day; identifying who is feeling negative, who is engaged, who needs a proactive intervention and who is ready to take on more responsibility.
Much of this can automated, leaving managers and leaders more time to develop their emotional intelligence and use it to ensure that employees have an enjoyable, as well as productive place of work.
Harnessing empathy for organisational excellence
Empathy is not just a buzzword or a fleeting trend; it is a fundamental human connection that has the power to transform organisations from the inside out. By displaying empathy at all levels, and across all channels, businesses can release the full potential of their employees, build enduring customer relationships, and achieve sustainable success in the ever-evolving marketplace.
But one of the biggest obstacles to businesses adopting empathy as a corporate strategy has always been the difficulty in demonstrating a quantifiable RoI – it ‘feels’ like the right thing to do but is it the logical and cost-effective thing to do?
Take for example the adage that ‘by treating our employees right, they will treat our customers right, and that is good for business’. This may be true, but can you prove it and measure the costs and results? Well, now you can.
It is now possible to quantify the costs and benefits of the whole human value creation chain; from recruiting employees who will be great contributors to the business, their impact on customers and the effect that has on revenues and cost-to-serve, all the way to the bottom line. Here are a couple of examples:
Almost all businesses have some degree of unplanned employee absence or attrition. When you add up all the costs associated with coping with this, it is not uncommon for staff absence or attrition to account for the equivalent of 5% of revenue (as costs). There are numerous ways we can reduce staff loss (if we know where to look and why), and if we can reduce that cost by 20%, we can put 1% straight back on the bottom line.
But what about the impact on customers? Well, any business with high staff turnover is also going to have a high percentage of workers still learning their job. It often takes these workers longer to serve a customer, they may make more mistakes, or need more interactions to complete a task. All of which has a negative impact on the customer experience and potentially some of that customer’s future revenue.
That said, it is easy to focus on what is simple to measure (like average time taken to resolve a customer complaint) and lose sight of the human impact on the customer (who may feel rushed, or pushed into making a snap decision). We need an approach which can balance the practical and psychological value of an interaction and the evidence is clear; it is the latter that has the biggest impact on loyalty.
The role of loyalty incentives
Incentives are one way to promote a behaviour we want or mitigate the impact of a negative experience, but many companies use a blunt ‘one size fits all’ approach to using incentives. I prefer to focus on the financial ‘Goldilocks zone’:
For example, let’s say I have a budget of £6 to incentivise three potential customers to make a purchase. Customer A was going to buy anyway, so sees a £2 incentive as a nice gift, for Customer B, £2 is just the right amount of incentive, but Customer C will not buy without getting at least £3, so the incentive doesn’t work for them: so, for my £6, I get 2 sales and 1 miss.
But what if I knew how much it would take to promote a sale to each of my customers and adjusted my offers; accordingly, Customer A gets nothing but buys anyway, Customer B gets the £2 they need and buys, and Customer C is offered £3 and they too now also purchase. Now I have three sales, but for only a £5 total incentives budget, saving £1 for use with a different campaign.
It is now possible to make this calculation based on behavioural drivers, not just economic ones, and especially the role of empathy, for which many customers will pay a premium.
In conclusionv
The economics of empathy is a business value calculation that highlights the untapped potential of empathy as a driving force for economic success. By demonstrating empathy as a core value and embedding it into their practices, organisations can foster a vibrant workplace, cultivate loyal customers, and achieve remarkable financial outcomes that far exceed mere business metrics.
In a world increasingly driven by human connections and understanding, empathy is not just a nice-to-have, but a strategic imperative for businesses that aspire to excel and make a lasting impact.
If you would like to talk to me about how Predictive Behavioural Economics works, or to see if it is right for your organisation, please email me at peter@anthrolytics.io
6. Key takeaways in summary
The running theme, and therefore biggest takeaway, through every single session across both days was to have a focus on data. As a technology-led industry, where providing a seamless experience should be the number one priority, it’s fundamental to actively track, analyse and use the data points that your customer-base are willing to provide.
Customer centricity is vital to the growth and success of any programme, directly impacted by the strength of emotion that customers feel toward your brand. Balanced personalisation and taking an omni-channel approach are both huge factors in this, which again come back to the need for well-placed data collection and analysis.
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In general, the event was extremely well received, and we’re pleased that more than 85% of those who completed our feedback form have said that they will definitely attend our future events.
We’d like to extend our thanks once again to our incredible line up of sponsors, speakers, and moderators, with a special thanks to our headline sponsors, The Marketing Lounge Partnership and Marigold.
“The best loyalty event I’ve attended.” – Bruna Mikan, Global Loyalty Lead, ECCO Shoes
In addition to the sessions we’ve highlighted above, we explored the simplification of loyalty, the creation of a great culture, and how to master loyalty persuasion. To close the seminar aspect of the conference, we held a fireside chat with Women in Loyalty that celebrated female leadership whilst highlighting the need for further effort in achieving gender balance in the industry.
Of course, no event is complete without a chance to network over a glass of something nice, and our 140 attendees spent both evenings making the most of the chance to forge new connections and catch up with old friends.
“Great opportunity to connect with loyalty leaders across several industries.” – Romina Tzempatzia, CRM and Loyalty Specialist, ASICS
You can check out the full photo album for this year’s The BIG Handshake – Loyalty on our website.
Join The European Loyalty Association
An exclusive membership association that provides exclusive regional and international content and networking opportunities for brands and their loyalty, CRM and customer engagement teams.
Across four, regional, European HUBs (UK, Benelux, Nordics and DACH), members will regularly meet online and offline to discuss ways to improve loyalty and engagement programmes, learn, network, exchange ideas, develop, and benchmark their progress.