Happy Companies Make Happy Customers/It Pays to be Nice

NextStage has recently completed a year-long study of factors affecting customer loyalty and retention. The results are fascinating.

How many readers think internal corporate culture plays a role? How many readers would believe that internal corporate culture is the single most contributing factor to customer loyalty and retention? I not only proposed the study, I took an active role in the research and have been analyzing the data for the past month. Frankly, I wouldn't have believed it myself.

The study was conducted with companies based in Mass., Fla., Ill., Calif., Ore., and Colo. They were mostly small to mid-size businesses, and all had active employee lists of over 200 people, not including consultants, outsourced service staff, and employees who worked remotely more than 80 percent of the time. Our investigations involved vice presidents up to C-level officers.

Employee population was a critical factor, because NextStage wanted populations where group, clan, tribal, and similar anthrosocial elements could make themselves known. The appearance of social classes and how they communicate set a company's internal tone just as much as strong leadership does.

NextStage implemented a Stevens' scale for interactions with executives and used its proprietary technology to analyze customer-generated content (CGC) directed at the company. The Stevens scale is probably best known in the field of psychophysics; it demonstrates a link between people's sensation of something versus their perception of that same thing. For example, a person's guess about how hot something is (perception) follows a mathematical rule that accurately predicts how hot it really is.

How Happy Is Your Company?

Figure 1 shows a measure of corporate culture health as psychological health. What you're looking at is a metric indicating how people are happy in their jobs, whether they feel respected and honored, and whether they believe the company treats them well.

Think of Figure 1 as an indicator of how psychologically stable and fulfilled a given company is. The higher the number, the more stable and happy a company is, at least as far as its workers are concerned. Several executives balked at what I shared next.

How Loyal Are Your Customers?

Figure 2 shows a measure of CGC showing how loyal customers are to the companies shown in figure 1. Do you notice that these two figures look a lot a like? Yes, they do, and what is indicated by the similarities between the two fascinates me.

Across the board, what NextStage discovered was this: Companies with poor -- or what one might call "dysfunctional" in a psychotherapeutic paradigm -- corporate cultures also had the highest number of clients and customers either demonstrating extreme disfavor with the company or openly planning to abandon ship in the new year. Not only that, but often, the customers' online manifestos strongly encouraged others to jump ship, as well.

Loyalty and Retention Are Two Different Things

One SVP of a Denver-based firm asked me, "What difference does loyalty make if customers keep coming back? If they keep coming back, they're loyal."

This was a scary thing to hear. One of the standard concepts NextStage provides clients is the difference between loyalty and retention. I explain the difference this way:

My family shops at the same grocery store week after week, so there's good retention. However, we also investigate new stores that open in our area and will modify our shopping habits accordingly. In fact, while it used to handle the bulk of our needs, we now buy only ancillary items at this grocery store. It's lost probably 85 percent of our grocery budget. So, it retains our business, but we're not loyal to it. If one of those other stores picks up those one or two brands, we're out of there. Thus we're not loyal to that grocery, we're loyal to the brands no one else in our area carries.

Figure 3 shows the differences between corporate health and customer loyalty. Companies with dysfunctional cultures are the ones without loyal customers. Customers and clients may return, but these same customers and clients are shopping for something better.

Companies with stable and healthy corporate cultures have customers that keep coming back, yes, and the difference is that these clients and customers aren't looking for something better. They're happy where they are. More important, they won't leave just because something "better" appears in the market; and they will actively evangelize others (including those using competitive products and services).

It Pays to Be Nice

The end point of this post is a simple one -- and one that some companies (can you pick them out in the charts?) in our study refused to accept. Happy employees -- employees who feel valued, honored, and respected -- communicate their satisfaction with their job and position when interacting with prospects, clients, customers, during service calls, help-desk calls, tech-support calls -- any time they interact with the public.

These employees aren't going out and singing their company's praises; they're acting out their personal satisfaction by helping others become satisfied. This occurs in commercial interactions and also in community and neighborhood interactions in which the employees engage.

The moral is simple: The psychologically healthier a business is, the better its profits will be.

Upcoming Conferences:

• Society for New Communications Research Annual Research Symposium & Awards Gala on 5-6 Dec 07 in Boston
• New Communications Forum 2008, April 22 to 25, 2008, at The Vineyard Creek Inn & Spa, Sonoma County, Calif.