Trust Stakes Its Claim

How important is building customer trust to your company's future success?

Getting the most value from any customer requires building that customer's trust in your company. And although trust is the welcome consequence of any successful customer relationship, it is not something to take for granted. Bad business practices can erode trust just as surely as they can damage your bottom line.

If you doubt whether your customers trust your firm as much as or more than they trust other companies, we strongly suggest that you make some changes. As we delve more deeply into the methodology of our Return on Customer^SM concept, it becomes apparent that trust is a critical factor. Return on Customer is the sum of a firm's current-period profit from its customers, plus any changes in customer equity, divided by the total customer equity at the beginning of the period.

You can maximize the value your firm creates by maximizing your Return on Customer. But to increase the overall return generated by a customer (including long-term value as well as current profit) you must change the customer's behavior, creating more value than otherwise was expected. To create value, you must put yourself in the customer's shoes, understand the customer's own needs, and then act accordingly. Ultimately, this requires you to earn your customer's trust.

Value is a two-way street
To understand this connection, think about the value proposition with your customers. You give the customer something that he values, and in exchange, he gives you something of value. Over the long term, you can expect to receive the maximum return from customers at more or less the same time that they are getting the maximum worth from you. But what value do the customers get?

Product quality, price and service all factor into the customer's purchase decision. But other factors figure in as well. To maximize your Return on Customer, you must balance both the current profit from a customer and the long-term increase in a customer's value. The customer will have a similar perspective, as he considers whether to do business with you both now and in the future. Maximizing your return on a customer and maximizing the customer's trust are similar tasks because they represent two different views of the customer value proposition – yours and the customer's. The more a customer trusts you, the more overall value he will generate for the company, considering not just the current transaction, but also potential future transactions. The company receives the greatest Return on Customer when the customer trusts the firm completely.

Trust violations
To illustrate this connection of trust to Return on Customer, let's look at an example where trust has been violated. In September, Japan's Financial Services Agency ordered Citigroup to close its four private banking offices in that country following an investigation into problems that included possible money laundering, stock manipulation and misleading of investors. According to the agency, Citigroup exploited its 5,000 Japanese private banking clients by suggesting unrealistic returns, urging them to buy complicated derivative products they didn't understand and overcharging for services. While the effect on Citigroup's earnings is expected to be minuscule – less than 0.5 percent – Merrill Lynch nevertheless downgraded the firm's stock because "Citigroup might lack something that poses a threat to its future growth: a sense of right and wrong."

According to an article in The Japan Times, Citibank "tied salaries closely to sales performance, giving incentives to managers and employees to break rules if it meant large profits." This kind of poisonous culture makes headlines when it surfaces at an otherwise respected, global corporation. But an obsession with short-term results will destroy value at any business where it's allowed to reign unchecked.

What does trust look like? If customers trust a company, they share personal information. They will trust it to make recommendations about other products and services. They will even let the company help them in other lines of business. They will recommend a company's products to their friends. Trust is inversely related to self-orientation – the kind of self-orientation that can cause a company to gamble on the quality of customer experience to nail this quarter's revenue goal. And trust does not necessarily mean the same thing to companies and their consumers. A recent Accenture survey found that 74 percent of businesses blame online security fears for compromising consumer trust. However, when consumers were asked what compromises trust, 67 percent cited aggressive marketing as the most corrosive factor.

Trusted companies are not just selling something. Look at USAA Insurance, which ranked highest among financial services companies for customer advocacy in a June 2004 survey by Forrester Research. Forrester found that high customer advocacy correlated to customers' stated intent of buying from a firm in the future. It's no surprise, then, that USAA took the unfortunate circumstance of the recent series of Florida hurricanes to increase its trust profile. For its Florida credit card customers, USAA dropped interest rates to 0 percent through Jan. 31, 2005. It deferred credit card payments for 90 days, waived all late fees and offered hurricane victims unsecured loans up to $25,000. That might not get USAA the maximum short-term revenue, but it's an excellent example of investing in the long-term value of the customer base and increasing Return on Customer.

That kind of culture leads to maximizing customer trust. Building trust is an investment in the future of your customers. You have no more important asset; you have no more important strategy. When you execute these strategies and then take the next step, which is measuring the actual Return on Customer, you'll see that it pays off financially as well.

Bio: Don Peppers and Martha Rogers, Ph.D., are co-founders of Peppers & Rogers Group, a management consulting firm recognized as the leading authority on customer-based business strategy. Together, they've co-authored five bestselling books on the subject. Their firm helps its clients worldwide create and execute customer-based initiatives that make a bottom-line impact. Visit Peppers & Rogers Group online at www.1to1.com.

Don Peppers and Martha Rogers, Ph.D. are co-founders of Peppers & Rogers Group.