How Reward and Recognition Can Drive Customers Away

The Short Story:  Verde is seeing a significant increase in customer dissatisfaction with the reward and recognition practices of the companies they do business with.  But companies that attempt to “fix” reward and recognition often make matters worse because they misunderstand the relationship between reward/recognition and core product/service performance.  Performance on the latter is a prerequisite to upside on the former.

Here at Verde Group we are continually evaluating the experience/loyalty dynamics of the customers of our clients.  And over the past year we’ve seen a significant increase in customer dissatisfaction with the “reward and recognition” practices of the companies they do business with.  This shift is occurring across all major categories – pharmaceuticals, retail, financial services, insurance, and communications – and is impacting both B2B and B2C relationships.

It’s not a revelation that poor reward and recognition can drive customers away and revenue down.  Most companies, when presented with troubling reward/recognition loyalty data immediately zero in on “We need to fix reward/recognition!”  Is this a  logical reaction?  Absolutely.  But is it effective?  Probably not.  Because our analysis also shows that “fixing” reward and recognition won’t necessarily reduce dissatisfaction.  And it will often make it worse.

In our work with clients we’ve observed a strong relationship between their reward/recognition policies and their product/service performance.  Some key takeaways:

  • Companies with fewer problems in core products and support services also have less dissatisfaction related to customer reward and recognition.  Conversely, those with more product/service dissatisfaction have greater reward/recognition dissatisfaction.
  • Companies that improved core product/service performance simultaneously enjoyed a lift in reward/recognition performance even if they took no specific actions to change their reward/recognition programs.
  • Companies that focused on improving reward/recognition without addressing issues in core product/services areas created more dissatisfaction with reward/recognition.

Many companies take a “let the tail wag the dog” approach to reward and recognition, an approach that frequently fails.  Acceptable performance on product/service experiences are table stakes before reward and recognition programs can have an impact on customer loyalty.  If you don’t get the basics right, nothing else really matters.

But when you nail the basics, reward and recognition become relevant.  Customers want to know you appreciate their business.   Social science tell us that rewards do not have to be large to be effective, just meaningful.  Recognition for long-term business can be as simple as personal letter from an executive on the anniversary of a business relationship.  A reward could take the form of a gift card, or unexpected discount on the next order.

At first we were a bit surprised by these findings, but on reflection they make sense.  And they reflect a larger truth in experience research: the customer experience is complex and it is easy to confuse symptoms with drivers.  Using satisfaction data to direct corrective action against low scoring attributes can miss the mark.  Companies need to perform the analysis necessary to identify the highest impact improvement opportunities before taking action.  That is the first step in creating real financial ROI from improving the customer experience.



(This blog was originally published by The Verde Group on January 30th 2014)

Executive Vice President of The Verde Group
Jon Skinner