Why Customer Engagement Matters So Much Now
Business Journal

Why Customer Engagement Matters So Much Now

Wary consumers will give more money to the businesses they feel emotionally connected to -- while ignoring others

When customers believe they are getting more out of a business, they give more to it.

Gallup's daily tracking of the U.S. economy points to significant, albeit slow, progress in the years since the financial crash of 2008 and the ensuing Great Recession. Consumers today have more confidence in the economy than they've had in the past six years, and they're also more relaxed with their money, inching closer to pre-recession spending levels. Yet they remain cautious, carrying with them many of the hard-learned lessons from the recession as they decide how to spend -- or not spend -- their paychecks.

When American consumers do spend, they're vigilant in making sure they get the best value for their hard-earned money. They research, compare, seek out recommendations, ask questions, and carefully consider their options. Buying just about anything, whether it's a $20 shirt or a $20,000 car, is more of an emotional act for customers than ever before. They expect businesses to earn their money; they won't just hand it over.

The upshot is that consumers are spending money, but they're more inclined to spend it only with businesses they feel good about. And this mindset isn't likely to disappear even if spending continues to increase -- and even if it returns to pre-recession levels. Simply put, consumers will give more money to the businesses they feel emotionally connected to, and they will continue to ignore, or even oppose, those that provide them no value.State of the American Consumer

Americans' attitudes toward their money have changed in recent years. As a result, businesses must work harder to develop and retain a profitable customer base. Often, they believe that their bottom line is suffering because customers aren't buying like they used to. They try to attract customers with aggressive advertising campaigns, mega sales, and the latest technology. Though those tactics may work initially to get people through the physical or virtual door, they don't create the types of meaningful connections that engage customers. Customer engagement -- which Gallup describes as a customer's emotional or psychological attachment to a brand, product, or company -- is the definitive predictor of business growth.

Measuring emotion

Gallup's customer engagement approach is based on the emerging science of behavioral economics, which holds that the vast majority of customer loyalty and buying decisions are influenced by emotional as well as rational factors. While the prevailing classical economics mindset puts reason at the center of people's fiscal actions, behavioral economists believe that rational considerations actually account for less than one-third of human decisions and behaviors. This means that the majority of a customer's buying decisions are made from the heart rather than from the head.

For customers, feelings are facts. And any metric that does not account for this aspect of human nature is fundamentally flawed. Gallup's customer engagement instrument is a concise metric comprising actionable question items with proven links to customer behavior. (See graphic "Measuring Customer Engagement.")

Measuring Customer Engagement

Based on their responses to these items, Gallup categorizes customers into three distinct groups: fully engaged, indifferent, and actively disengaged.

The Three Types of Customers

FULLY ENGAGED customers are emotionally attached and rationally loyal. They'll go out of their way to locate a favored product or service, and they won't accept substitutes. True brand ambassadors, they are a company's most valuable and profitable customers.

INDIFFERENT customers are emotionally and rationally neutral. They have a take-it-or-leave-it attitude toward a company's product or service.

ACTIVELY DISENGAGED customers are emotionally detached from a company and its products or services. They will readily switch brands. If switching is difficult or impossible, they may become virulently antagonistic toward the company. Either way, they are always eager to tell others exactly how they feel.

Linking customer engagement to crucial business outcomes

Gallup's analysis has found that fully engaged customers are more loyal and profitable than average customers in good economic times and in bad. Across a variety of industries and target audiences, including business-to-consumer and business-to-business, Gallup's research has consistently shown a powerful link between customer engagement and key business outcomes.

Our data reveal that a customer who is fully engaged represents an average 23% premium in terms of share of wallet, profitability, revenue, and relationship growth compared with the average customer. In stark contrast, an actively disengaged customer represents a 13% discount in those same measures. In short, when customers believe they are getting more out of a business, they give more to it. For example, Gallup research has found that:

  • In the retail banking industry, customers who are fully engaged bring 37% more annual revenue to their primary bank than do customers who are actively disengaged. Fully engaged banking customers also have more products with their bank, from checking and savings accounts to mortgages and auto loans. Plus, they have higher deposit balances in their accounts than less engaged customers with the same products do.
  • In the consumer electronics industry, fully engaged shoppers make 44% more visits per year to their preferred retailer than do actively disengaged shoppers. And when they do visit their preferred electronics retailer, these fully engaged shoppers purchase more items than they originally intended to. On average, they spend $373 per shopping trip, while actively disengaged customers spend $289 per trip.

Gallup found similar results in other industries, including the restaurant, hospitality, and insurance industries:

  • Restaurant -- casual dining: Fully engaged customers make 56% more visits per month than actively disengaged customers do.
  • Restaurant -- fast food: Fully engaged customers make 28% more visits per month than actively disengaged customers do.
  • Hospitality: Fully engaged hotel guests spend 46% more per year than actively disengaged guests spend.
  • Insurance: Fully engaged policy owners purchase 22% more types of insurance products than actively disengaged policy owners do.

When businesses can provide the meaningful experience their customers want, they realize greater rewards in terms of loyalty and profits. Though it can be difficult for businesses to connect with their customers on an emotional level, many of the companies Gallup has worked with have proven that it can be done. A greater percentage of customers in Gallup's database was fully engaged in 2013 than at any other point in the last five years.

Taking customer engagement to the next level

For businesses that are serious about engaging customers, simply measuring customer engagement is not enough. Leaders must take action to achieve the outcomes that are important to their business. They have to move customer engagement to the center of their growth strategy by accounting for the rational and emotional aspects of their customer relationships, focusing on sustainable change management tactics, and blending customer and employee strategies for optimal performance.

After all, measurement without targeted action is useless. By consistently tracking customer engagement results from year to year and developing the right data-based interventions, companies will ensure that they are maximizing their customer relationships and reaping the benefits of higher sales, growth, and profitability.

Susan Sorenson is a writer and editor at Gallup.
Amy Adkins is a writer and editor at Gallup.
Gallup http://www.gallup.com/businessjournal/172637/why-customer-engagement-matters.aspx Gallup World Headquarters, 901 F Street, Washington, D.C., 20001, U.S.A +1 202.715.3030