Earning My Mouse Ears, Part II: The Disney Approach to Customer Loyalty

"You can dream, create, design, and build the most wonderful place in the world but it requires people to make the dream a reality"—Walt Disney

Note: We left off in Part I at the end of the opening session of The Disney Approach to Customer Loyalty: Creating Service that Keeps Your Customers Coming Back, a professional development program offered at the Disney Institute.

PROFIT IS A RESULT

Every business owner should have to repeat this saying at least 50 times daily: Profit is a result of customer behavior (in fact, it's really a lagging indicator of customer behavior). After all of the research that exists on loyalty economics and the value of customer retention, the average company in America today loses between ten and thirty percent of its customers annually. The consulting firm Bain & Company has proven that a 5% change in the rate of retention can swing profits anywhere from 25-100%.

Service firms rely on existing customers for 85-95% of their revenue. The AICPA reports that it costs 11 times as much to bring in a new customer as it does to keep an old one. Imagine being able to increase your marketing and advertising effectiveness by a factor of 11. With all of this empirical evidence, why do so many businesses still insist on focusing on customer acquisition rather than retention?

Walt Disney understood the value of customer retention long before most business people forgot it. When an elaborate Christmas parade was being planned for Disneyland, at a cost of $350,000, the Park Operating Committee spoke against it. They argued that it was money wasted since the holiday crowds would come to Disneyland with or without the parade. Walt replied: "We can't be satisfied, even though we'll get the crowds at Christmastime. We've always got to give 'em a little more. It'll be worth the investment. If they ever stop coming, it'll cost 10 times that much to get 'em back." Walt got the economics right.

CUSTOMER SATISFACTION VS. LOYALTY

It would seem that satisfaction and loyalty go hand-in-hand. But they don't. Merely satisfying customers is no longer enough. We have to exceed their expectations, and move them into the Zone of Affection, which is where we earn their loyalty. Measuring customer satisfaction through such tools as surveys, questionnaires, telephone interviews, etc., is not enough. You can score high numbers on these surveys, and the customer may still defect to a competitor.

Customer satisfaction measures today. Customer loyalty and retention measure the future. Economists refer to this a revealed preference: Watch what people do, not what they say. The ultimate judge of customer loyalty is repeat purchases over their lifetime, not high scores on satisfaction surveys.

During his many visits to Disneyland, Walt would always be on the look out for "plussing" opportunities—that is, ways to provide more pleasure for the Guests. At Walt Disney World today, they have a "Take 5" program. Each Cast Member is encouraged to take five minutes out of their day and make something special happen for a Guest. This could be something as simple as offering to take a picture for a family (so everyone gets in the shot), to giving away stuffed animals to a sick child confined to her hotel room.

Disney refers to these encounters as Moments of Magic and attributes their phenomenal retention rates to creating as many of these moments as they can. When you consider that Walt Disney World has 43,000 Cast Members on its property, five minutes per Cast Member, per day, is bound to create many Moments of Magic for its Guests. By emphasizing the Moment of Truth—any encounter a customer has with an organization and develops an impression of its service—an organization changes its internal focus from the activity to the outcome of the customer encounter. Many businesses have entirely reengineered their processes and procedures in order to turn these moments of truth into opportunities to wow their customers.

THE DISNEY-MGM STUDIOS FIELD EXPERIENCE

In the morning, we boarded buses to the Disney-MGM Studios theme park. The marquee on the bus was flashing: Customer Loyalty: Keeping the Promise. After viewing Jim Henson's Muppet Vision 3D show, we were instructed to visit an area of the park and observe first hand Disney elements of earning customer loyalty.

Of course, my idea was to run over to "The Twilight Zone Tower of Terror" to ride this new $127 million attraction. Luckily, I found two like-minded souls who were brave enough to agree with my idea. The entire "theme" around this ride is a hotel stay. The Cast Member who boards you into the basement elevator asks, "How many in your party, sir?" Excellent entertainment, especially if you're a big Twilight Zone fan.

This made me think about the Value Proposition, which every business offers to its customers. It has three components: quality, service, and price. If you study these three components, it becomes clear that it's no longer possible to compete on quality, especially for CPAs. Quality is a table stake-the minimum you need to be in the game. Who would stay with an incompetent CPA? Quality does not provide a competitive differentiation.

And price is no good as a competitive differentiation either. After all, someone will always be willing to do what you do for less money. There's nothing exciting about competing on price, unless you enjoy price wars.

That leaves service. Since a competitor can match my quality and beat my price, service is where I can win—and win big. Your competition can't even observe your service and relationship skills with your customers, making it difficult for them to persuade customers to join them. What's more, if you offer Total Quality Service you will command higher prices, as customers almost always willingly pay a premium for good service.

Disney is proof of the value of Total Quality Service (or what they call Disney Quality Service-DQS). I'm a card-carrying member of ACE-American Coaster Enthusiasts. This means I will go to the ends of the earth to ride the fastest, tallest, most looping coasters anywhere. For me personally, "The Twilight Zone Tower of Terror" is, quite frankly, feckless. In my home state, Six Flags Magic Mountain—one of Disney's competitors—recently opened Superman the Escape. Now this is a tower of terror. You accelerate to 100 mph in seven seconds, racing up to the top of a 41-story (yes, that's 410 feet!) tower, and then freefall backwards at the same record-breaking speed. Technologically, it's the most advanced ride ever built. Six Flags, at least in the area of coasters, has Disney beat in terms of quality.

But you know, Six Flags just doesn't have the service culture of Disney—the "Pixie Dust" that makes the place special and happy. So even though Disney's admission prices are 20-40% higher than Six Flags (try to get a discount or 2-for- 1 coupon to any Disney theme park), because they offer DQS, they have a higher customer retention rate, and thus are more profitable than Six Flags. Disney's parks are cleaner, its Cast Members more friendly and helpful, and if I had to be restricted to one park, I'd always select Disney over any Six Flags. That's the power of using service—rather than price or quality—as a competitive differentiation. The same principal applies to CPA firms.

MAKING THE PROMISE

How does Disney create this superior value for its guests? They have a foundation that is composed of three components: core competencies, core offering, and core customers. Your firm's core competency is a bundle of skills, knowledge, and technologies and is a unique source of competitive advantage. Certainly one of Disney's core competencies is Imagineering—Disney parlance for combining imagination and engineering to create its many attractions and movies. Others include: effectiveness at moving people, marketing expertise, training front-line Cast Members, leadership, and creating brand identity. What are your firm's core competencies?

Disney has a specific core offering, passed down from the days of Walt. After noticing one of his railroad conductors treating Guests curtly, Walt said: "Try to cheer him up. If you can't, then he shouldn't be working here. We're selling happiness." Here is the Walt Disney World Resort promise to its Guests: "We create happiness by providing the finest in entertainment to people of all ages, everywhere."

Imagine what would have happened to Disney if they had defined their core offering as animation prior to Disneyland opening in 1955. Their fate may have been similar to the railroads, who thought they were in the train business and then got beat up by alternative forms of transportation. By defining its core offering as creating happiness, Disney was able to get into television, the theme park business, merchandise, resorts, vacation clubs, and now even its own cruise line. What is your firm's core offering?

That leaves core customers, which Disney classifies into two categories: high-fit customers and low-fit customers. In my experience, CPAs spend far too much time with low-fit customers, either existing or as prospects. We are so happy with getting more business, we lose sight of getting better business. One of the lessons from this course was Disney's concerted effort at lifecycle marketing—that is, adding new products and services to meet, and even anticipate, core customers' evolving needs.

Rather than focus on market share, this is a focus on customer share. For CPAs, this means attaining 100% of your customer's budget for accounting, tax, and consulting services. It changes the focus from selling one service to as many customers as possible, to selling many services to one customer. It's about taking care of the customer's entire needs and anticipating them over the course of a lifetime—from a college fund to estate planning. What is the lifetime value of your best customer?

WHO IS YOUR COMPETITION?

At the end of Part I of this series, I asked you to ponder why I can wait 30 minutes in line to get onto the Pirates of the Caribbean ride and have a good time, but if I have to spend more than one minute in line at the Post Office I become irritated. What's the difference? It has to do with who we compete with. Yes, we compete with other CPAs (the Big 4 or regional firms, etc.), H&R Block, consultants, and software products. But that is far too omitted a view of our competition in terms of our customer's expectations.

I contend that we compete with Disney, FedEx, L.L. Bean, Marriott, Lexus, and other world-class service providers. Why? Because we compete with any organization that has the ability to raise customer expectations. Why is it that when I check my luggage with an airline, I have great trepidation that it will show up in the same place I do. Yet, I'll drop a valuable package into a FedEx box in a remote location, confident that it will arrive at my selected destination the next day. Both organizations fly airplanes, so what's the difference? I now demand my airline be as effective as FedEx.

Ask yourself how many of your customers patronize Disney or FedEx or are used to technology becoming faster, cheaper, and more reliable? All of these combined forces dramatically raise a customer's expectations for any organization they come into contact with. After experiencing the level of DQS in Orlando for one week, I am far less tolerant of lousy service in a restaurant, from my dry cleaners, or credit card company. Once we experience outrageous service, we want more.

If CPAs don't raise the bar in terms of customer service, these other organizations will do it for us, and we'll lose the opportunity to shape and manage our customer's expectations. When CPAs comment to me that it's risky to give customers outrageous service because then they'll come to expect it—and be much harder on us if we ever fall short in the future—my response is: If you don't do it, Nordstrom already is. Better for us if we take charge of the customer's expectations rather than leave it up to Disney.

In Part III I will give you some final thoughts from the Disney Institute's Customer Loyalty course.

Note: For more information on the Professional Development Programs offered by the Disney Institute visit their Web site.