Preventing Supply Chain Failures From Crippling Customer Loyalty

The supply chain crisis disrupted shopping experiences for the vast majority of consumers last year and caused them to question their relationships with brands. In fact, a 2021 Oracle study found that 92 percent of consumers believe even more disruptions are on the way, and 80 percent said delays could lead them to abandon their favorite companies entirely. How much would it take for that abandonment to take place? For most customers, a mere one to three delays or disruptions. The bottom line: Loyalty painstakingly built over decades can vanish with just a handful of mishandled transactions.

With customer loyalty on the chopping block, savvy business leaders need to tackle the challenge now with insights that will allow them to identify and quantify the supply chain’s impact on customer relationships. The right approach can transform the supply chain crisis from a challenge to a competitive differentiator, detecting the effects of rapid change on a constant basis and nurturing customer relationships rather than allowing loyalty to deteriorate.

What’s the Scenario?

One implication of supply chain challenges for senior leaders is that scenario building, with the aid of analytics, is becoming critical. Traditional "plans" don’t mean much in the face of constant change. In a world of rapid, continuous disruption, the new currency of great leadership is scenarios — i.e., essentially “structured guessing” that uses analytics to frame a series of possibilities and help clarify the best choices.

In turbulent environments, even the most meticulous, time-proven assumptions quickly become dangerous biases. For example, long-trusted methods for measuring customer loyalty might be leading you astray right now.

Re-Examine Your Customer Loyalty Measurement Process

Marketers should conduct an urgent, critical review of their current loyalty measurement process. Is it accurately accounting for the disruptions (delivery delays, lack of availability, price hikes) caused by supply chain issues and inflation? Are there critical data gaps you need to fill? Are generic or private-label or low-price brands getting another look from your customers?

Challenge your organization’s existing customer loyalty assumptions. You may need to redefine the way you think about and measure “loyalty” for reasons completely beyond your control. Research is only valuable when it’s designed in a way that accurately diagnoses current market conditions.

Stretch Your Elasticity Awareness

Current conditions and disruptions have put a spotlight on pricing. Unfortunately, most marketers are still measuring absolute price elasticity (i.e., how much do my sales go up/down in relation to price) when the game has quickly shifted more dramatically to relative price elasticity (i.e., how much do my sales go up/down in relation to competitors' pricing).

While you’re at it, check to see if you're measuring the relationships between price and loyalty across multiple markets/segments, rather than merely looking at overall averages. And keep in mind that outlying results that may seem correlated to pricing could actually be supply chain disruption manifesting in unusual ways.

Focus on Uncovering What You Don’t Know

Commit part of your analytical program to anticipating irregular but impactful events such as major supply chain disruption stemming from wars or pandemics so that you're as prepared as possible for outlier situations as they emerge. Then predict possible customer loyalty outcomes via simulation.

This inherently forces you to pay more attention to what you don’t know and form hypotheses about unlikely but possible disruptive events. Using simulation can selectively remove risk by testing possible outcomes until you have enough clarity to chart a reasonable course of action for even unexpected scenarios.

Betting on Change

The way your business looks this year — your challenges and opportunities, what your customers want and who they are, how best to communicate and orchestrate logistics — is no guarantee of how it will look next year. COVID is the extreme, but not the only example of this full-tilt pace of change, which risks undermining businesses without the infrastructure required to detect new threats and opportunities.

Leading businesses will prepare themselves to perpetually re-evaluate their customers, identify new areas of opportunity, and improve their performance. Those without such systems are likely to freeze in place, an unacceptable disposition for a world moving in ever faster motion.