Customer Retention

Want More Repeat Customers? Revisit Your ‘Psychological’ Contracts

November 6, 2019
12:00 am

Imagine you are walking down the street and a little shop catches your eye. You wander over excitedly. Inside, the shelves are overflowing with things. Perched at the desk, a shop assistant stares down at their phone. It seems strange they don’t acknowledge you, but you press on nonetheless. You ask a question about a trinket that intrigues you. The shop assistant grunts unintelligibly into their coffee. Buying the item anyway because you love it, the assistant is rude to you as you hand over the money, acting grumpy and churlish the whole time.

Would you find that an acceptable customer experience? Most likely not. 

However, legally no one has done anything wrong. The shop assistant has no obligation to be friendly. You’ve paid your money and got your item, job done. On a purely monetary basis, the transactional exchange has been a success. Yet the whole process leaves a bitter taste in the mouth, and, chances are, they won’t see you back there in a hurry. If there is any way of getting that item elsewhere in the future, that’s exactly what you’ll do.  

Customers expect to be treated a certain way in return for their business. Understanding these expectations and how to go about delivering against them is crucial if you want to succeed and earn repeat customers.

Scratch beneath the surface and you soon discover a world of subtly nuanced dos and don’ts that aren’t represented in a legal contract. 

They are represented in the psychological contract

What is a psychological contract?

The concept of a psychological contract has traditionally been applied to the dynamic between employers and employees in business psychology. 

“The psychological contract refers to the unwritten set of expectations of the employment relationship as distinct from the formal, codified employment contract. Taken together, the psychological contract and the employment contract define the employer-employee relationship.”

- HR Zone

But these same principles apply to customers and brands as well. Indeed, in any relationship, both parties have informal expectations that, although they remain unwritten, have the power to significantly impact the length and quality of the relationship. Without maintaining a balance, a sense of injustice erodes trust, leading to disappointment and an eventual breakdown in the relationship between the two. As a business, if you have customers who are unhappy in their relationship with you, your churn rates go up, and your customer satisfaction goes down. Creating a loyal customer base relies on psychological contracts that are in balance.

What customers expect 

Customers expect companies to respect their time and treat them like human beings, not just another number on a spreadsheet. This means dealing effectively with customers across a number of different channels and touchpoints. When it comes to relationships with a brand:

  • Customers expect to be listened to.
  • Create connected journeys with customer support available 24/7. Customers do not appreciate having to reintroduce themselves every interaction or wait around for responses, and they expect companies to acknowledge and reflect prior conversations. By centralizing your data in one system, regardless of whether customers reach out via phone, email, social media, or on your website, you can deliver a holistic customer experience.
  • Customers expect to be treated as individuals.
  • Use personalization to tailor experiences to the individual. Everyone has their own set of preferences and companies should make use of the data available to create dynamic and unique experiences. Providing coupons for a customer’s favorite product, or rendering UI content based on customer preferences are two ways of doing that. But it doesn’t even need to entail sophisticated technology. A simple hand-written note can go a long way. 
  • Customers expect progress.
  • With all the personal data and feedback available to companies nowadays, customers expect businesses to constantly optimize their offering to be the best it can be. Creating feedback loops and iterative development means the experience is always up to date. Customers are happy to tell you what they think. Give them a chance to do this, through surveys after a customer service interaction for example. 

What companies expect 

Google ‘what companies expect from their customers’ and you will find precious little. With more choice, more access to information, and less incentive to be loyal, today’s customers are in control when it comes to their relationships with companies. 

But, companies are entitled to have expectations of customers as well. After all, this is a reciprocal relationship. If our shop example was reversed, and the customer insulted the shop assistant before telling everyone how bad the shop was without due cause, would that not be equally unacceptable? Fortunately, companies have the power to ensure the right conditions are in place for customers to fulfill their side of the bargain.

  • Companies expect customers to trust them with their data. 
  • Companies require access to personal data to deliver on customer expectations regarding a connected, personalized experience. This means companies must demonstrate exemplary security protection, with the certifications to prove it, and refrain from sharing data unscrupulously for their own financial gain. 
  • Companies expect recommendations.
  • People like to talk about their experiences, and positive reviews help drive business. Companies can make it easier for customers to do this by providing social media buttons and links to sites where reviews can be posted. Building this kind of functionality into the customer journey and digital correspondence makes sharing much simpler.
  • Companies expect loyalty.
  • Companies need to win repeat customers to survive. If a company provides a good experience, it's not unreasonable to expect customers to stick with them, or purchase from them again. Providing an omnichannel and personalized experience, for example by allowing preferences to be stored across devices, helps to show your customers you care, encouraging a sense of loyalty.

Benefits of balancing both sides of the contract

It’s all about whether customers and companies believe that what they are getting out of a relationship is fair compared to what they are putting in. In other words, if it is equitable or not. Inequity leads to negative emotions and so customers will look to change this. Sadly for your business, that often means churning and finding another brand to do business with. 

But when a psychological contract is balanced, both sides are happy. In practical terms, as a company, you get more repeat customers who are willing to spend more and bring in other customers for you as well. Equity reigns. 

Let’s imagine the scene back at the shop. Instead of a grumpy shop assistant, a member of staff brimming with enthusiasm walks you around the shop, telling you stories about all the weird and wonderful things there. You end up buying the same product, but this time they gift wrap it with a smile and wave you on your merry way. There you are, stepping out the door into the cool air, same trinket in hand, but a very different feeling in your heart. You’ll be happy to tell your friends about what a wonderful spot you’ve found.


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