Frank Pallini was nervous.
Liberty Mutual insured his car and home. But his auto insurance policy was getting expensive.
“Liberty Mutual can insure my home, but I’ll save $1,000 right now if someone else insures my car.” He wanted to save money, so he did what most would do. He made the switch.
Liberty Mutual wasn’t happy.
They expected, no, demanded loyalty from their customers. And they felt Frank wasn’t being loyal.
So, a month later, and without telling him, Liberty Mutual cancelled Frank’s homeowners policy.
Sounds like urban legend, does it? But it’s true. And there’s a lesson to be learned.
Loyal customers convert better
Liberty Mutual knew this. Obviously, they were unclear how to go about getting the kind of conversion-boosting loyalty they were looking for. Dumping Frank because he chose to switch providers for his auto insurance makes it pretty likely that any remaining or future loyalty he might have had towards Liberty Mutual is off the table.
Loyal customers make repeat purchases, spending more and more money each time. There’s already a trust relationship in place so these customers are much easier to convert.
You probably already know customer loyalty increases conversion
But many of us aren’t sure how to go about creating an environment that will induce the kind of loyalty that boosts conversion rates.
Even worse, “conventional wisdom” says customer loyalty is a myth. That there’s no way to induce customer loyalty and no reason to try. So we spend our time and attention focused on technical optimization – tweaking copy, adding bigger buttons, modifying site structure, etc.
The dangerous part? These tactical conversion tweaks work
A/B split testing, technical tweaks and copy changes—these tactics work really well. So well in fact, it’s easy to be lulled into a false sense of security.
But tactics are only half of the equation. It’s a common mistake for conversion optimizers to ignore strategy. Strategy requires more time and more work, after all.
A clearly defined conversion strategy works better…
…When it’s combined with a tactical plan.
What kind of strategy do you use? How do you know it’s the right one? What if you can’t get loyalty from your customers?
Loyalty, at first glance, seems like a thorny issue. It’s common for businesses to treat customer loyalty like winning the lottery. Wonderful if it happens, but incredibly rare and completely based on chance.
The reality is the exact opposite. Loyalty depends on a single factor: Relationship.
Loyalty boosts conversions, but relationship is the foundation
When it comes to conversions, there are two types of customer relationships.
- Constrained relationships: “I have to stay in this relationship”
- Dedicated relationships: “I want to stay in this relationship”
1. Constrained relationships: “I have to stay”
Customers in a constrained relationship often feel they have to stay with a particular company or provider to avoid the downsides and risks that come with switching.
So what sort of constraints keep customers tethered to your business, even when they’re not emotionally bonded to your business? Psychological commitment.
There are 3 main factors that impact your customer’s psychological commitment to your business.
- Sunk costs A recent study found that customers tend to maintain the status quo if they’ve already invested time and money with a provider. Customers also chose to maintain the status quo when they were in a relationship with their current vendor.
- Regret avoidance & loss aversion Customers feel more regret from bad outcomes that come as a result of trying something new. So when customers are satisfied, they tend to avoid doing things they feel they may regret; they stick with what they know and stay with the status quo to limit risk.
- A desire or effort to feel in control Customers want to maintain control over their situation and the outcome. Doing that helps them avoid the psychological pain that comes with uncertainty and a new experience. Customers stay with the status quo to avoid losing control.
2. Dedicated relationships: “I want to stay”
These customer relationships last longer and they’re self sustaining. Dedicated relationships create an environment that nurtures emotional bonds and relationship development. It’s no surprise that loyalty flows naturally from these customer relationships.
But which relationship factors are most important?
- Benevolence: Customers notice you’ll protect their interests and treat them with respect; they feel a general sense of goodwill from you. It’s an obvious expectation; however, it’s incredibly uncommon. It’s almost routine for businesses to approach customers with the mindset that they’re going to war, which as you might have guessed, is not what you want.
- Integrity: Your business can be counted on to be honest, ethical and morally sound, whether or not your customer is watching.
- Competence: There’s the obvious—your product works, your service does what you’ve promised, you deliver on time, etc. Then there’s the obscure parts of competence—going above and beyond for your customers, showing them you have the understanding and foresight to suggest improvements that will help their business.
Okay, so using constrained and dedicated relationships together means you’ll enjoy higher conversion rates. There’s just one problem.
You’re (probably) unsure about where to start
You may already know a little bit about constrained and dedicated relationships. (Some use different words to describe the same topic.)
But things get tough when it’s time to apply all of this. Let’s take a look at constrained relationships and see how they can be used to boost conversion rates.
Customers in a constrained relationship feel they have to stick around. There are some negative aspects (sunk cost bias, regret avoidance, control issues) that come with that. Let’s look at the positive side of things. What do positive constraining factors look like? Are there positive things customers feel they have to stick around for?
Warren Buffett called these constraining factors “economic moats”
An economic moat increases conversions naturally. It makes it difficult for customers to leave, so it protects your business against competitors. It sends the implicit message that your customers need you if they want the unique and amazing benefits you offer.
So what kind of moats are we talking about here?
The brand moat
Typically a product or service you’re willing to pay more for because of the reputation or trust you have for the brand. Research shows that customers are willing to pay more for brands .
It’s common for some customers to say they’re brand agnostic until they’re faced with a choice between an established brand like this:
And a discount brand like this:
Coca Cola’s brand moat was so strong that the launch of their new formula, the New Coke, bombed. Their new formula couldn’t compete with Coke Classic.
While customers are willing to pay more for brands, there’s more to creating a conversion-boosting brand than pictures and words. Successful brands create an emotional response.
Using your brand to boost conversions
You may not be running a Fortune 500 company, but that doesn’t mean you can’t reap the same conversion benefits. Here are some branding steps you can take to increase conversions and create a brand moat of your own.
- Audit your brand’s tangible and intangible presentation factors, and make sure they match. Your brand should present a consistent message (regardless of the medium used) to get the conversion boost you’re looking for.
- Build uniqueness into your brand. Dysfunctional brands rely on taglines, logos and phrasing—almost exclusively. Often times to hide the fact that there’s nothing special or unique about those businesses. Powerful brands on the other hand, use tangible and intangible presentation factors to present a value proposition customers are drawn to.
- Repeat and reinforce your message. When we learn something for the first time, we forget bits and pieces. Sometimes we forget everything entirely. Share your message with customers when it’s relevant and share it often. Repeat it until customers start to repeat it back to you.
The secret moat
Patents, trade secrets or some kind of intellectual property you own are all secrets. These secrets make direct competition difficult or illegal. Secrets often make it difficult for customers to get what you offer anywhere else.
But what if you’re a small- or medium-sized business and you don’t have any profitable secrets?
You create them—and secrets start with problems
Every industry has at least one problem that needs solving. Secrets use a formula, process, pattern, etc., to solve that problem.
Take Moz, for example. Marketers needed to understand how Google ranks and categorizes Web pages, information that Google’s definitely not going to share. So Moz took matters in to their own hands and built their own index.
Their tools give marketers an in-depth understanding of how search engines behave (among other equally awesome things). Mozscape is something you can’t get anywhere else.
Using secrets to boost your conversions
- Look for problems to solve. Focus on problems at the customer, product or industry level. The bigger the problem, the better.
- Create a solution to that problem. Make your solution attention-grabbing, simple and exceptional.
- Create a relevant tie-in, present the next step and lace your solution into your sales funnel. Hubspot created marketing.grader.com to help small business owners with their online marketing. Then they used it as a lead-in to their premium product.
The toll moat
These are businesses with exclusive control of a market or niche. This control means you’re typically the dominant or only game in town. Customers come to you if they want “it.”
Google has a toll moat. They charge advertisers a toll for the chance to talk to you. Sure, there are other options, but nobody cares. They’re the only search engine worth using, as far as most people are concerned.
Comcast is a toll bridge company. So is your utility company.
Creating and using a toll bridge to boost conversions
Creating a toll (monopoly) at the industry level is unbelievably tough. Doing it at the product level? Still tough but not impossible.
The question is how.
You create an exclusive product that does three things well (1.) attracts attention, (2.) solves a problem and (3.) adds / introduces people to your sales funnel.
Your product can be an actual product. It can also be content, tools, games or applications. It can be free, paid or a mix of the two. Whatever you create, it needs to have three things:
- Leverage: The toll works without you having to be directly involved at each step.
- Promotion: Your toll bridge works better if people know about it. If the product you’ve developed solves a problem and gives you a competitive advantage, you have to promote it so your customers know about it.
- Exclusivity: If your competitors have the same product, you’re not a toll bridge; you’re a commodity. The product you create should be unique, and it should be yours.
The switching moat
Your business, product or service is so enmeshed in your customer’s business or way of life that switching is a huge hassle most won’t want to deal with.
When it comes to desktop computers, most people use Microsoft Windows. Lots of people hate Microsoft, but they use Windows anyway. Why?
Because switching is painful
It would be incredibly painful for most desktop users to learn how to use a new operating system and hunt for replacement software. They’d have files to convert, a new system to setup, and hardware compatibility issues to solve.
Most of us prefer to watch paint dry.
Use switching to boost conversions
- Be the point man. Become your customer’s go to source for help. When customers need what you’re offering, get them to think of you first.
- Become entrenched. I love Amazon. We rely on Amazon for products, for entertainment, storage, you name it. Leaving them for a competitor is pretty unlikely at this point. They’re too entrenched in our day-to-day life. Your business needs to be rooted in your customer’s day-to-day life, whether it’s business or personal.
- Be indispensable; be invaluable. Begin a never-ending quest to be necessary. Study your ideal customer. What sort of problems are they dealing with? What problems are they going to have to deal with in the near future? Find and solve their problems.
The “I have to stay” response is a natural side effect to each of these moats. And the best part? When done well, these moats are sustainable.
Yet, with branding as a possible exception, most of these moats don’t really do much to develop dedicated relationships. But why does that matter?
It matters because customers should want to do business with us
Customers in dedicated relationships are loyal. These relationships last much longer than constrained relationships. And the best part? They’re self sustaining.
Loyal customers have a significant impact on your conversion rate and they do it in one of three ways.
- They attract more customers via word of mouth.
- They’re willing to pay more for the same products and services.
- They make repeat purchases.
Most loyalty programs don’t work. In fact, only 10% of customers are 100% loyal. So how do you cultivate loyal, dedicated relationships with your customers?
You increase your customer’s resistance to change
Satisfaction is all about meeting expectations. Answering your customer’s objections, treating them the way they’d expect. All of this increases satisfaction. But it’s also about setting expectations—making sure your customers have expectations you’re able to meet.
That’s important because customer satisfaction is the cause of your customer’s status quo bias later on. It’s a big part of the reason they choose to stay later (even if they’re disappointed with you).
Boost satisfaction to boost conversions
Want to boost conversions? Set, meet and exceed customer expectations. It sounds simple right? There’s just one problem.
Most businesses allow their customers to set the expectations. Customers take the wheel deciding what they want, how they want it and when. But here’s the tricky part.
They usually don’t tell you about their expectations
In fact, you usually only find out when you’ve failed to meet them. Set the expectations ahead of time and you’ll have more control over customer expectations.
Because satisfied customers want to spend more money with you.
A customer’s experience starts with chaos and ends in trustworthiness (via conversion). When they arrive at a new site, they’re disoriented. They’re unsure about where they are, what they should do, and why they should do it.
Using Trust to boost conversions
- Brand: The brand process starts with being seen and known. Businesses that seem familiar start with a higher level of trust. The more familiar your business, the more trust you start with.
- Navigation: How easy is it for visitors and customers to find what they need from you? Do you give them clear instructions or confusing directions?
- Fulfillment shares the next step. How you send me my download, how my order will be processed and what you’ll do to handle any problems. Show customers what they can expect upfront. Treat each conversion like a sample of your premium product or service.
- Presentation is a combination of tangible and intangible factors working together. Get either one wrong and customer resistance skyrockets. If your design says “customer friendly” but your conversations scream “hostile,” there’s a presentation mismatch.
3. Switching Costs
Switching costs are based almost entirely on your customer’s subjective opinion. Switching costs increase your customers resistance to change.
So let’s say your business uses Microsoft Windows. All of your employees use Windows. Your software runs on Windows. Everyone uses Microsoft Office.
Then someone recommends you switch to Linux. You’re going to pay a heavy price to make that switch. You’ll need to convert your files. You’ll have to pay to retrain your employees, pay for Linux training. You’ll have to find software to replace what you’ve lost.
Do you want to switch? Probably not. It’s not worth the headache, hassles and expense.
Build Switching costs into your business to boost conversions
- Psychological costs: the awkwardness, negative emotions or transitional pain a customer has to go through in order to walk away.
- Procedural costs: the time, effort and money your customer will have to spend to make the switch.
- Loss costs: if customers have already invested their time or money they stand to lose if they walk away. Their sunk cost bias acts as a strong motivator to keep them from walking away.
This is all about valu- driven one-upmanship. How do you look compared to competitors? What’s your customer’s perception of you? Is your offer better? Is there a better alternative?
With relative attractiveness, customers use you as the reference point. Alternative attractiveness uses competitors as the reference point.
Use attractiveness to boost conversions
One-up your competitors. Guide customer perceptions and you’ll have more control over the outcome. Customers stick with the status quo when they’re satisfied and there aren’t any better options.
Aren’t these manipulative attempts to hold customers hostage?
Shouldn’t customers decide whether they want to stay (or not) on their own?
Definitely, customers always get to choose. The methods we’ve discussed send customers a clear message that you understand them, that you know what they want. That’s important because your customer comes to you with a broad expectation. That you’ll care, guide and protect them.
You’d be a sleazy manipulator if you deceived customers to get the results you wanted. But that’s not you, is it?
Maybe your industry just has plain ol’ customers
Maybe in your industry there’s no such thing as constrained or dedicated customer relationships. When I hear this it usually means one of two things:
- You’re in an industry that sells a commodity (insurance, rice, steel, etc.)
- Customers make a large purchase they won’t need again for a long time (a new roof, a swimming pool, cars, etc.)
When you look a little deeper, you see that constrained and dedicated relationships exist in both cases. Customers refer others to businesses in both cases. Word-of-mouth comes from dedicated relationships.
What about large purchases? These customers need accessories. Swimming pools need chlorine, roofs need maintenance and cars need tune ups. Constrained and dedicated relationships exist in every business and industry.
Which means there’s always an opportunity to boost conversion rates
The key is to integrate these concepts into your marketing. To lay out a plan that includes both strategy and tactics.
Use constrained and dedicated relationships together and you’ll avoid Liberty Mutual’s mistake. There’s no need to control your customer when all of them want what you’re selling.
Constrained and dedicated relationships are the key to customer loyalty, repeat sales and higher conversion rates.
Do you want to develop these ideas but unsure where to start? Download my ideabook for step-by-step help, No opt-in required.
Read other CrazyEgg posts by Andrew McDermott