This Customer Experience Mistake Killed Toys R Us

Is your brand making the same error?

Good morning! In a previous issue of Backstage Pass I talked about how customer engagement leads to customer loyalty and advocacy. I mentioned the process of Interaction leading to Understanding leading to Trust leading to Advocacy.

That process starts with interacting or engaging with the customer. It’s why customer engagement is such a vital investment for your company, because it leads to understanding your customer.

Which is where Toys R Us ran into problems before the brand collapsed. Toys R Us failed to understand how buying behavior of its customers was changing, and couldn’t adapt as a result. As the internet evolved and ecommerce sales began to boom in the late 1990s and early 2000s, Amazon moved much quicker to capitalize on the online sale of toys. When Toys R Us finally got serious about ecommerce, the brand actually partnered with Amazon to sell its toys on Amazon. This was a short-term win for Toys R Us, but it benefited Amazon even more, and helped lead to the demise of the once iconic toy store.

Amazon understood how customer behavior was changing and was able to offer shoppers an experience they wanted, which Toys R Us couldn’t match.

Customer Engagement is an Investment Worth Making

Last week we dealt with the top objection that companies have to investing in customer engagement initiatives: The cost. Please check the previous issue of Backstage Pass to see how research proves this isn’t the case.

Now let’s shift gears and focus on the top benefit that companies realize from engaging with their customers: Increased levels of customer loyalty.

So how does this work? How does increasing engagement with customers lead to higher levels of loyalty?

Recall one of the key points I made in the first issue of Backstage Pass: Interaction leads to Understanding leads to Trust leads to Advocacy. For our purposes, let’s focus on the starting point: Interaction.

By interacting and engaging with our customers, we begin to understand them. And they begin to understand us. Our communication begins to become more efficient. We begin to realize what the customer likes, and dislikes. So we adjust our communication accordingly. Over time, our communication with the customer evolves, and improves so that we become more interesting and relevant to the customer. That all flows from engaging with the customer.

Think back to when you started using Substack. At first, you likely had no idea what you were doing here. I know I didn’t, and really still don’t! But over time, you started to engage with other users, you picked up some advice along the way, and adjusted how you use the platform. By whatever metrics you judge your success on Substack, I’d wager that you can point to improvement that you have made since joining the platform.

It’s the same thing with engaging with your customers. The more you interact with them, the more you understand HOW to better communicate with them. It’s why companies that bake customer engagement into their customer experience design efforts typically have more success than companies who do not. For instance, Harvard Business Review highlights research that shows that emotionally engaged customers are three times more likely to recommend a product and less likely to shop around.

Why are loyal customers different?

Loyal customers feel an emotional connection to their favorite companies and brands. More so, loyal customers view themselves as owners of their favorite brands. This is an important point that I always stress to companies because few of them understand the ramification of this statement.

When a customer considers themselves to be the ‘owner’ of a brand, it denotes certain changes in behavior. These changes fall into two main categories: Sales and feedback. Let’s look at both:

Sales. This one is easy to grasp. Loyal customers spend more, and they refer more. According to Gallup, loyal customers generate 23% more revenue. Above I mentioned research highlighted by HBR that showed that loyal customers are 3 times more likely to drive referrals.

In short, happy customers spend more, and they go to greater lengths to promote their favorite brands to other customers, driving additional sales.

Feedback. This is the behavioral change found in loyal customers that most companies misunderstand. Remember I said that loyal customers consider themselves to be owners of their favorite brands. That means they will be far more likely to give their favorite brands feedback. As perceived owners, they view it as their responsibility to tell you what they experience when interacting with your brand.

Good and bad. Loyal customers have no problems telling you what they believe your brand is doing wrong, the mistakes, the errors, the mishaps.

But the good news is, loyal customers will also give you feedback on how the perceived problem can be fixed. They won’t complain just to be complaining, they are drawing a potential issue to your attention so your brand can fix it.

Remember, loyal customers view themselves as brand owners. So they act like brand owners, when they see a problem for the brand, they bring it to the brand’s attention so it can be fixed.

If your brand is smart and actively engaging these loyal customers, you will get more feedback from them, and these loyal customers can be leveraged to not only help you proactively address issues that your brand is facing, but these customers will also be more likely to want to work directly with your brand to help correct the issue!

Finally, let’s consider another role that loyal customers play that many brands don’t consider: The role of Brand Defender.

Loyal customers will proactively engage other customers who attack your brand, or who post inaccurate information. If a ‘troll’ pops up to attack your brand, your loyal and engaged customers will spring to your defense, and will typically neutralize a troll’s efforts before it ever becomes an issue that your brand needs to address.

Think of your loyal customers as a guard dog. They are sitting looking out the window, scanning your front yard vigilantly. If a troll walks up, they immediately start barking and alert you, and scare the troll off. Loyal customers are one of the best allies you can have when it comes to brand reputation management.

Additionally, if other customers raise a concern about your brand or have a question about how a product or service functions, your loyal customers will proactively engage the concerned customer and help answer their question, or point them toward a source at the brand that can answer their question for them. All of this helps deflect customer support inquiries, which is a cost-saving for your brand.

Loyal customers are pretty awesome! And you create loyal customers by engaging with them. It’s one of the biggest reasons why customer engagement is such a beneficial investment for every company to make.

That’s it for this issue of Backstage Pass, I hope you enjoyed it and if you did, please pass it along to a colleague via email or please share with your Substack friends. Thank you to Kevan, Joyce and Neela for your support!

See you on Thursday!

Mack