How Customer Service Drives Loyalty

Service leaders are under increasing pressure from executive management to contribute to customer loyalty goals, such as retention, growth, and advocacy. And with higher customer expectations, increased competition, and now business disruptions resulting from the COVID-19 pandemic, it's even more critical that service keep customers from taking their business elsewhere.

Most have responded by investing heavily in initiatives to improve service interaction quality, hoping those improvements will inspire increased customer loyalty. But Gartner's previous research into what drives loyalty has shown customer service's primary responsibility lies i preventing customers from becoming disloyal by providing effortless resolution, not boosting loyalty.

A survey of more than 6,000 global customers across industries and business models with a recent service interaction—a large number of which (more than 2,000) faced a stay-or-go decision after their service interactions—confirms service's role in mitigating disloyalty through low-effort resolution. Among some of the findings were the following:

  • A customer whose issue is not resolved has only a 27 percent probability of choosing to stay with a company;
  • A customer whose issue is resolved in a high-effort manner has only a 37 percent probability of staying with a company.
  • A customer whose issue is resolved in a low-effort manner has a 61 percent probability of choosing to stay with a company.

While this analysis reconfirmed the importance of reducing disloyalty through low-effort resolution, what's more noteworthy is the finding that service does, in fact, have an economically significant role to play in increasing loyalty. However, boosting loyalty is less about the service interaction's quality and more about its impact on the customer's perception of the company's product or service.

In the same survey, customers evaluated the following post-transaction statements:

  • "After the customer service interaction, I am able to achieve more with the product/service."
  • "After the customer service interaction, my confidence in my decision to purchase the product/service is higher."

These statements represent customer service's success in value enhancement. Successful value enhancement significantly increases the probability a customer will stay following a service interaction. A customer who reports value enhancement in addition to low-effort resolution has an 82 percent probability of choosing to stay with a company.

Value enhancement represents an economically significant opportunity for service to boost customer loyalty, not just to mitigate disloyalty. This opportunity holds in both high- and low-switching-cost industries and for various measures of loyalty, including retention, wallet share, and positive word of mouth.

The Five Drivers of Value Enhancement

To effectively deliver value enhancement, service organizations must optimize their interactions to trigger the desired customer sentiments, specifically, the feeling they can achieve more with the product or service and are more confident in their purchase decision.

Further data analysis uncovered five activities that trigger those feelings and therefore drive value enhancement:

  • Educating customers on how best to use the product;
  • Advising customers on new uses or untapped product features;
  • Validating customer purchase decisions or reassuring customers that their purchase decisions were smart ones;
  • Anticipating customer needs; and
  • Helping customers achieve a goal.

These activities can take place equally in live and self-service channels, and several can occur in tandem.

Value enhancement is relatively uncommon today (only 15 percent of customers report that a service interaction enhanced value), but there is a significant opportunity to expand the percentage of contacts where value enhancement occurs as a result of shifting contact type compositions and their relative suitability for value enhancement conversations.

The best opportunities for value enhancement occur during customer inquiries (e.g., general inquiries, requests for product or service information, troubleshooting) and other contact types (e.g., purchases, returns, payment). Since 2008, such contacts have increased by 115 percent and 113 percent, respectively. In the same time period, contacts regarding product or service issues, checking or changing status, and complaints, which are all less favorable to value enhancement, have decreased or remained steady as a percentage of total volume.

Because of this shifting composition of contact types, service organizations could increase the percentage of service interactions that produce value enhancement from 15 percent on average to between 35 percent and 50 percent, depending on their own contact mixes.

Service's Role Moving Forward

There is a significant role for service in boosting customer loyalty by helping customers feel better about their relationship with the company and the products or services it provides. This opportunity represents a categorical shift in the way we think about service's role within the broader organization. Service's remit now goes beyond mitigating disloyalty through the provision of high-quality service interactions to include boosting loyalty through value enhancement. Service leaders must take advantage of this opportunity to expand service's contributions and should take steps to formulate a strategy that incorporates this new responsibility.

Sarah Dibble is a senior principal analyst in Gartner's Customer Service & Support Practice.