The Secret to Keeping Customers: Let them Participate!
Dr Omar Merlo, Assistant Professor in Marketing, Imperial College Business School
Imagine you are in Rome, and it is 175BC. You are attending this year’s gladiator exhibition, involving some of the Roman Empire’s most feared fighters. People have come from near and far to witness the bravery of gladiators in the face of death. The Emperor, who acts as the Editor of the game, hands out some final instructions to his entourage, while the people of Rome take their seats. Tonight, they are his customers. The first fight begins with a loud cheer from the audience, and after a few violent minutes it ends with the domination of one gladiator by the hand of the other. As the latter places his sward on the shoulder of the wounded rival, he turns to the Emperor, and awaits instructions. The Emperor makes the final decision about the fate of the gladiators in the arena, but since the games are to carry public favour, he pays very close attention to the wishes of the audience. In the arena, it is ultimately the spectators that decide over life and death of the gladiators. And the audience’s decision (thumbs up or down) is binding. The Emperor does not dare to go against the audience’s preference. His customers are treated like active participants, and their views are of great consequence for the outcome of the event. If the Emperor wants to fill the arena year in and year out, he realises that customer participation is paramount.
Whilst customer participation in modern times may be less sinister than in Roman times, it is certainly no less important. Businesses have much to gain by actively seeking and encouraging participation through constructive suggestions, ideas and feedback. Yet, while the idea that listening carefully to one’s customers’ ideas and suggestions is as old as business itself, many companies only pay lip service to the idea, and their actions reflect a different reality. In a study published in MIT Sloan Management Review, we found that many organisations systematically fail to let customers participate, or are even fearful of the very idea of customer participation. In contrast, they are keen to foster other forms of customer activity, and in particular, word of mouth activity. This is perhaps symptomatic of an obsession by many managers with new customer acquisition at the expense of customer retention. Yet, our study shows that encouraging customers to provide direct feedback helps tie them more closely to the business than word-of-mouth activity. Inviting customers’ input and feedback creates a strong sense of participation that keeps customers coming back and spending more. Managers should think of customer participation as a glue that sticks customers to their brand. And it is a very strong glue with desirable business outcomes. Fostering customer participation, our findings reveal, is better for the bottom line than focusing on word-of-mouth activity alone.
For example, in a sample of 327 customers of a global financial institution, the most profitable customers were those who engaged in positive word of mouth and also provided suggestions and recommendations directly to the company. The average size of those customers’ portfolio was significantly larger than that of customers who did not participate.
Companies are advised to let go of the assumption that they always know best, and should understand that customer participation does not have to be complex. Whilst over time participation should evolve into something more embedded in the strategic fabric of the organisation, it can be begin with the simplest of ideas, like a thumb up or a thumb down. Nowadays social media also represents a very low-cost and effective way of getting started. But managers should also remember that customers want participation to feel voluntary rather than forced, and they also want to see how the company is using their information. In the same way as the Romans in the arena want their thumbs up or down to count, managers must make every effort to ensure that their customers are aware of how their participation affects, or doesn’t affect, the company and its products.