The ever-changing dynamic of customer relationships

It’s rare for an organization’s relationship with its customers to remain completely stable over time due to constant changes in our own lives and the wider world. Scanning the LinkedIn airwaves, it would be easy to assume that COVID-19 has been the core driver of changing consumer relationships. In retail alone, 17,500 stores closed in 2020 because of a shift to online shopping.¹ However, while the pandemic may have driven a move towards certain behaviors in greater numbers, disruption and its impact on what customers want was present long before the pandemic. For example, in the US, only 60 companies on the Fortune 500 in 1955 were still trading in 2017², demonstrating that consumer expectations have always shifted.

However, over the last two decades, the conversation of customer relationships in the industry has become robotic, focusing on CRM and technological solutions, rather than customers themselves. Many organizations now find themselves data-rich but insight-poor in terms of what makes their customers tick.

Our four-part article series will explore, in detail, the more human side of customer relationships and their ever-evolving nature, as well as providing guidance on how to make human-centric decisions in relation to your customer relationship strategy. So, let’s start with the basics: what do we really mean by the term customer relationships?

Defining customer relationships

To understand the psychological construct of consumer relationships and how they evolve, we have developed a framework based on three key ingredients.

1. Purpose as a company

Consumers want companies to reflect their own values and beliefs, taking a stand on the social, cultural and environmental issues that they care about most. Purpose spans three core areas:

• Community: Having a positive impact on the community beyond simply creating local jobs.
• Colleague: Being part of a company that understands its employees, cares about what employees think and aligns with their values.
• Brand: Understanding how to build trust and embody products and services that go beyond delivering great experiences.

2. Accumulated experiences

Our day-to-day interactions with organizations can be managed individually through experience design. However, the accumulation of these experiences form, and reinforce, our perceptions of the organization. Therefore, organizations not only need to consider standalone experiences for customers but how they fit into the wider narrative of the customer relationship.

3. Memory

Time is the major element that distinguishes customer relationships from customer experiences. Experiences themselves change over time, as the details of the memory fades, and the perception of the experience morphs against an evolving personal context. This can sometimes be positive, such as a nostalgia that enriches the moments of delight, or negative, where a previously good experience is seen in a less favorable light against the context of the current situation, or pain points become entrenched in recollection.

The combination of these factors means that a customer relationship is never static on an individual level, and to build meaningful relationships, organisations need to understand the transitions their consumers experience in their journey through life.

Changing and evolving customer relationships

Customer relationships are anchored in the needs and expectations of the consumer, which are dynamic in nature. For organizations to get on the front foot, they need to delve into the drivers of this dynamism and understand the moving currents that are the catalysts for change.

It’s not you, it’s me

Life events: Whether it’s going to university, a new job, moving house, starting a family or retiring, these significant life moments affect people’s behavior, values and perspectives, changing what they look for from organizations. Many organizations will target a single customer lifecycle, but life events are also becoming increasingly non-linear and moving away from traditional norms, meaning a more nuanced and multi-faceted understanding of personal trajectory is needed, catered for through a wider range of personas.

Personal expectations: Consumers’ day-to-day experiences form a memory bank of expectations. For example, remembering when you had to wait at your doorstep for a taxi and then pay for your journey in cash puts ride-hailing apps in a more positive light. Memories of previous experiences increase the expectation for all industries to continuously improve.

Personality and biases: There are many different personalities and contrary to belief, research has found that over time, personalities can shift. This is often based on the ‘maturity principle’, where people become more extroverted, emotionally stable, agreeable and conscientious as they grow older.³ Tied to this, cognitive biases are also malleable, with 188 confirmed biases in existence, the softening or hardening of these can shape a relationship. Some companies need to break traditional biases associated with them to reinvent their customer relationships.

Resources: Changes to money, time and energy can impact the type of relationships that consumers seek to build. For example, our relationship with food may change from when we’re a student to an established professional, as we have more disposable income, frequent restaurants and become exposed to more cuisines. Time-poor consumers may be more willing to pay for convenience, which may change over time.

Or is it?

It’s not always personal changes that drive changing perceptions of customer relationships. External factors can also have an impact on our lives and, subsequently, our relationships with organizations. The PESTEL model remains an excellent lens through which to breakdown these environmental elements.

Political: This includes the structure of politics in a country, government policy, political stability, and the relationship with politics in our daily lives. The recent national lockdowns caused one of the biggest changes to how organizations build relationships with customers in recent years, showcasing the ability for governments to intervene and impact private sector relationships and the experiences they deliver.

Economic: These are macro and microeconomic factors that predominantly impact the level of resources. Economic policies change people’s available time, levels of disposable income and can nudge behaviors, especially in the dynamics of saving, investing and spending. COVID-19 has had a particularly significant impact on inequality and savings; for those in stable work or with economic support, consumption declined faster than income, leading to record rises in savings that has encouraged economists to believe a recovery may be fast⁴, as consumers seek to re-establish their relationships with experiential organizations.

Social: This relates to both demographic structures of society (age, growth, ethnic diversity), and the beliefs and attitudes that society holds (such as cultural, career, lifestyle, equality). Beliefs and attitudes are rarely universal, and segmentation is important in understanding how different groups of customers will look for different benefits from the same organization. This past year has created a significant change in attitudes through an enforced way of living differently, changing how people view their health, careers and society around them⁵, fundamentally altering past relationships formed with organizations. Consumers increasingly expect organizations to support societal movements that matter to them, such as Black Lives Matter or Pride.

Technological: Technological changes impact production, distribution and consumption of goods and services, along with the technological maturity of the population. Technology has been an accelerating area of change over the last two centuries. The telephone for instance took 68 years to reach a 40% adoption level in the US, while smartphones only took 10 years. The pandemic has again acted as an accelerant, leading to faster digital adoption by organizations and customers to respond to the enforced change in behaviors from social distancing and stay-at-home orders. Despite the increased speed of adoption cycles, social disparities are growing, with 22% of the UK population lacking basic digital skills⁶. Organizations should take this growing divide into account when designing experiences, especially for their relationships with less digitally mature segments.

Environmental: This relates to the environmental impact of organizations, including sustainability, carbon footprints and animal rights. Environmental awareness and activism have moved into the spotlight over the previous two decades. In the UK, there has been an introduction of plastic taxes, increased awareness through popular documentaries and the growth of activist groups such as Extinction Rebellion. Historically, there has been a weak link between attitude and behavior when it comes to consumption. Initial signs suggest that the pandemic has changed this dynamic, with 60% of consumers now making more environmentally friendly purchases⁷ and fuelling a growth in veganism⁸, with conscious consumers increasingly forming a key part in how relationships are changing.

Legal: Consumer rights, regulation, laws and standards can significantly change the dynamics of consumer relationships. Often, this can be because of consumer pressure or regulatory studies but can change the nature of competition. The introduction of open banking in the UK, reshaping the fintech industry, and the likelihood of increased divergence between the UK and Europe in domestic trading standards, are some examples of how legal considerations will impact the experiences and expectations of consumers, changing their relationships once more.

SO HOW SHOULD ORGANIZATIONS RESPOND?

COVID-19 has clearly played a role in shaping what customers want from organizations, but in many cases, it has accelerated existing trends rather than completely tearing up the rule book.

At their core, customer relationships are ever-changing, as they mirror individual journeys through life navigating the complexity of the world. When forming customer strategies, organizations should consider the following factors.

• What do our customers want from us today in terms of both the experiences we deliver and the purpose we fulfil? How does this change across different persona groups?
• Who are our customers, and will they really follow ‘linear and traditional’ customer life stages? How do we engage and meet the needs of customers who do not follow a traditional lifecycle?
• What are the signals for an individual that their needs and context are changing?
• What are the environmental factors that give us an advantage in meeting our consumer needs today? If any of these change, how will this impact the organization’s relationship with existing customers? What doors will it open or close when it comes to acquiring new target groups?

Change occurs at an individual, group and social level. Personal and external factors mean that the needs and attitudes of customers will not be the same now as they were five years ago.

Organizations need to understand how their purpose remains relevant in this changing world, how they design memorable experiences that meet consumer needs today and tomorrow, and how they combine these to create truly meaningful relationships that listen to and evolve with customers.

Read part 2 of the series, Meaningful relationships: Creating purpose.