It’s no secret that customers don’t trust organisations the way they used to. In customer research, we often see over-simplified questions about trust, yet questions about loyalty, particularly loyalty penalties, feature less often. Is this because businesses are too nervous to ask, as they might not like the answers?

Loyalty penalties – when long-standing customers are charged more than new customers, or charged more than those who negotiate a lower deal for the same products or services – are common. Yet long-standing customers are rarely asked whether they think they are financially disadvantaged by a loyalty penalty. This clumsy lack of fairness can really undermine those customers’ trust in brands.

Do businesses suffer from the loyalty penalty? The answer will depend on the specific brand. But in trying to do preferential deals to attract new customers, are businesses losing a significant number of customers who’ve been with them for many years? Do those customers tell friends and family about the unfairness of the loyalty penalty?

If we’re unhappy about the loyalty penalty, what do we do?

If we’re unhappy, do we protest? Do we walk away? Or do we suffer in silence? Albert Hirschman explored this range of options in his book Exit, Voice, and Loyalty published in 1970.

Some long-standing customers who have had enough of the lack of transparent pricing and the unfairness of automatic renewal systems will complain or even take their custom elsewhere. So, despite organisations using expensive customer feedback platforms packed full of Voice of the Customer (VoC) sentiments to steer customer experience success, the VoC sentiment can be weakened by exit.

Yet some long-standing customers will suffer the loyalty penalty in silence, not being happy with a brand in general they are unlikely to recommend it to others. Though businesses are primed to deal with endless flux, it is staggering that so few have tried to improve trust among their long-standing customers experiencing the loyalty penalty. These people will not be brand advocates!

Customer service – business practices and standards

Our experience is that while organisations may be immune to customers’ unhappiness in the short term, in the long term their brand and business is likely to suffer. So isn’t it about time they dealt with this issue head-on?

The British Standard for customer service (BS 8477) provides clearly identifiable and verifiable benchmarks for customer service good practice. Davies Hickman recently contributed to the Technical Committee reviewing this Standard. The updated version will include new recommendations for businesses about how to avoid the loyalty penalty. It suggests that when organisations offer deals to new customers they should also meet the interests of their long-standing customers. With consumer trust in brands at an all-time low, this timely intervention is very welcome. The CMA is also addressing the issue. Will it be enough though?

By Jo Davies, MBA, MIPD, Director CX Strategy and Training