What is customer engagement, and why does it matter?
Improving cross-selling and customer retention through relationship marketing, relationship selling, and customer engagement is key to organizational success. Customer engagement, in particular, can have an outsized impact on your company’s revenue.
A Bain & Company study found that reducing your churn rate by 5 percent can lead to a profit increase of 25 percent to 85 percent. And McKinsey & Company estimates that improving customer engagement can lead to a 10 percent increase in revenue through cross-selling and upselling. (That estimate doesn’t come close to the real-world example of Wells Fargo, which reports that 80 percent of its revenues are the result of household cross-selling.)
That’s because it leads to long-term relationships with customers who are:
- more loyal,
- more likely to make repeat purchases, and
- more likely to recommend your company.
The obvious benefit of these relationships is a higher customer lifetime value. It also reduces customer acquisition costs because engaged customers actively promote your brand.
This article will explain:
- What customer engagement means
- The benefits of customer engagement
- How customer engagement impacts company value
- How to measure customer engagement
- How to improve customer engagement
What is customer engagement?
Customer engagement refers to a customer’s level of involvement with your company. All customers are involved with your company, at least through a transactional relationship. But engaged customers have a “proactive, interactive customer relationship” with your company that goes beyond the purchase and use of your product or service.
Achieving this level of customer engagement requires your employees to develop emotionally connected relationships with your customers. These relationships will motivate your customers to contribute to your company in the form of activities like:
- Additional purchases
- Participation in brand communities
- Blogging about your company
Levels of customer engagement
The level of attachment your customers have to your brand or business depends on how your company creates value and opportunities for engagement. Customers can fall into one of three categories:
- Fully engaged
- Actively disengaged
Where the customer falls on this continuum will depend on three key factors:
- Whether the company consistently delivers what they promise
- Whether customers feel proud to be customers of the company
- Whether customers think the company or its offering is perfect for them
Dimensions of customer engagement
Full engagement depends on five underlying factors. Those factors are the five dimensions of customer engagement: enthusiasm, attention, absorption, interaction, and identification.
Research suggests that enthusiasm is one of the most important dimensions of customer engagement. Also known as vigor, enthusiasm is “the customer’s level of energy and mental resilience while interacting with the service employees, the organization, the brand or with other customers.” Enthusiastic customers make things easier on your employees and are more likely to stick around when your company makes a mistake.
In the context of a product review, a customer demonstrates enthusiasm when their review is well-written and comprehensive. For example, a review written by an unengaged customer will likely be short unless the customer has a list of complaints.
A review written by an engaged customer may contain criticism, but the customer will take the time to think about their experience and share all relevant feedback.
During a call with a support representative, an engaged customer will be more willing to take the recommended actions to resolve their problem, while an unengaged customer may become frustrated.
Along with enthusiasm, at least one study has suggested that attention is one of the two most important dimensions of customer engagement.
Attention refers to the amount of time and level of focus a customer devotes to your brand. Attentive customers enjoy learning more about your brand and will pay attention to anything related to your company.
They will open your newsletters, read articles about your company, and engage with your digital content.
Absorption refers to how involved the customer is in your brand. At the optimal absorption level, a fully engaged customer enters a state of flow during brand-related interactions. While in a flow state, a customer is energetic, deeply involved, and entertained.
During interactions involving your company, a customer with a high absorption level will be focused and cheerful. They enjoy spending time on brand-related activities (e.g., sharing a social media post about your company) and interactions with employees and other customers.
Interaction is any activity through which the customer engages with the company. It could be personal interaction with an employee or a customer.
But it also includes interactions between the customer and the company (e.g., writing a blog post about a new product launch) or the customer and the brand (e.g., wearing a branded t-shirt).
Identification, or dedication, is the extent to which the customer considers doing business with your company to be a part of their identity. Dedicated customers hold your company in high esteem and are excited to play their role as a customer.
Fans of Apple products are a prime example. They are proud to be Apple users the way that fans are proud of their teams.
The benefits of customer engagement
As we mentioned at the beginning of this article, researchers have conducted a substantial amount of research to measure customer engagement benefits. These studies have shown that customer engagement leads to:
- Increased sales revenue
- Greater profitability
- Higher customer satisfaction
- Customer trust
- Brand loyalty
- Brand recognition
Gallup has conducted multiple studies across different industries and found that:
- In the consumer electronics industry, fully engaged shoppers make 44 percent more visits to their preferred retailer per year than actively disengaged shoppers.
- On average, the engaged consumer spends $373 per shopping trip, while actively disengaged customers spend $289 per trip.
- In casual restaurants, fully engaged customers make 56 percent more visits per month than actively disengaged customers. In fast food restaurants, fully engaged customers make 28 percent more visits per month than actively disengaged customers.
- In the hospitality sector, fully engaged hotel guests spend 46 percent more per year than actively disengaged guests.
- In the insurance sector, fully engaged policy owners purchase 22 percent more types of insurance products than actively disengaged policy owners do.
A few reasons explain how engaged customers create value for the companies with which they engage.
How customer engagement impacts company value
Every customer makes direct contributions to your company’s value by making purchases. If they are satisfied and loyal customers, they will make more purchases, increasing revenue.
But your customers also make indirect contributions through their networks, influence, and knowledge.
Engaged customers generate new business and brand awareness for your company through referrals. That helps persuade customers who may be on the fence or haven’t heard about your company through your marketing efforts. That is especially valuable because customers referred to a company lead to greater profits than those who aren’t.
When your customers use social media networks to share positive information about your company, it influences the people in their network and beyond. Their influence “creates a chain reaction across a wide group of customers.”
Engaged customers help shape your product or service development process through feedback. They will more readily share their feedback with you and provide valuable information on:
- Their needs, requirements, and expectations
- How they use and perceive your product or service
You can use this information to improve your current offering and determine future products or services to develop.
How to measure customer engagement
You can measure consumer engagement indirectly through key performance indicators like:
- Conversion rate
- Retention rate
- Time on site
- Social media engagement
- Usage rate
- Churn rate
Those metrics offer a general idea of whether you are on the right track, but they are dependent on many variables, so they won’t give you the complete picture.
Four levels of customer engagement
Researchers at Georgia State University developed a way to categorize customers by engagement level. They created a customer engagement matrix that illustrates four levels of engagement based on the customer’s level of satisfaction and emotional connectedness with a company.
- Need-focused (low emotion-low satisfaction). Need-focused customers are indifferent because they are only interested in filling a need. It may be that they don’t have an urgent need for the product or service, the price may be too high for their budget, or they may be a customer because it’s the easiest option (i.e., they’re not excited about it, it’s just convenient).
- Altruistic (high emotion-low satisfaction). Altruistic customers aren’t satisfied with the service or product, but they still like the company. This dissatisfaction could be the result of a poor product rollout, poor performance, or unmet expectations.
- Value-focused (low emotion-high satisfaction). Value-focused customers are happy with the product or service, but they’re not excited about it. Usually, that’s because convenience was the deciding factor in the purchase decision.
- Engagement-focused (high emotion-high satisfaction). Engagement-focused customers are in love with your brand. But that doesn’t mean your work is done. It’s important to continue building those relationships.
You can use tools like NPS surveys and customer sentiment analysis to determine where your customers fall on the matrix.
Measuring all dimensions of customer engagement
The methods above are helpful, but they don’t measure every dimension of engagement. For example, just because a customer doesn’t churn doesn’t mean they’re enthusiastic about your brand.
A survey can give you a better understanding of how well you are engaging your customers. A study conducted by researchers at the Centre for Tourism, Sport and Service Innovation at Griffith University offers a good list of questions. The researchers developed, validated, and refined these questions to create a multi-measure survey that assesses customer engagement.
They found that the following 25 questions accurately measure customer engagement across each dimension and predict customer loyalty.
- I am heavily into this brand.
- I am passionate about this brand.
- I am enthusiastic about this brand.
- I feel excited about this brand.
- I love this brand.
- In general, I like to get involved in brand community discussions.
- I am someone who enjoys interacting with like-minded others in the brand community.
- I am someone who likes actively participating in brand community discussions.
- In general, I thoroughly enjoy exchanging ideas with other people in the brand community.
- I often participate in activities of the brand community.
- When I am interacting with the brand, I forget everything else around me.
- Time flies when I am interacting with the brand.
- When I am interacting with the brand, I get carried away.
- When interacting with the brand, it is difficult to detach myself.
- In my interaction with the brand, I am immersed.
- When interacting with the brand, I feel happy.
- I like to learn more about this brand.
- I pay a lot of attention to anything about this brand.
- Anything related to this brand grabs my attention.
- I concentrate a lot on this brand.
- I like learning more about this brand.
- When someone criticizes this brand, it feels like a personal insult.
- When I talk about this brand, I usually say we rather than they.
- This brand’s successes are my successes.
- When someone praises this brand, it feels like a personal compliment.
How to improve customer engagement
Once you know which customers are fully engaged and which customers need more attention, you can begin customer engagement marketing initiatives to improve the engagement level of each group. A customer engagement platform can help, but there are many things you can do on your own.
Here are a few examples to illustrate ways you can improve customer engagement.
When a customer feels that something is personally relevant to them, it grabs their attention and influences their behavior. Psychologists differentiate between situational relevance and intrinsic relevance.
Situational relevance is triggered by external factors. For example, a customer might perceive a sales promotion as relevant to a goal of saving money or a personal value like thriftiness.
Intrinsic relevance is the result of a long-held goal or value. For example, a motorcyclist will see purchases and activities related to motorcycles as personally relevant.
To earn your customers’ attention, learn what their goals and values are (through surveys, CRM data, and the knowledge of your sales and service teams). Then promote product features, company news, and stories that will be relevant to them.
Red Bull’s content marketing efforts show just how far you can take this approach. Red Bull’s mission is “Giving Wiiings to People and Ideas.” The company pursues this mission and earns attention for its brand through multiple initiatives like:
- Red Bull House of Art, an art gallery and residency program for local artists in Detroit, Michigan, and São Paulo, Brazil
- Red Bull Racing, a Formula One team
- Red Bull Stratos, a high altitude skydiving project
One of the best ways to generate customer enthusiasm is to exceed customer expectations in surprising ways. To find new ways to do that, make three lists that detail:
- The needs your product or service is designed to meet along with the expectations customers have for it
- The values, goals, and motivations that drive your customers
- Each step in the customer journey
Then, brainstorm how you can satisfy their needs, exceed their expectations, and align with their values at each customer journey stage.
Zappos generates customer enthusiasm by asking every employee to “‘WOW’ [their] customers in new and wonderful ways.”
The company makes that possible by empowering every member of their Customer Loyalty Team to “accept special-case returns, offer partial or full refunds in cases of loss of service, pay for damages, and ‘WOW’ customers to provide solutions in any other manner they deem appropriate.”
Barry Cohen shared another excellent example of exceeding expectations in an unexpected way in “The ‘WOW’ Effect.” Cohen was the CEO of a San Antonio-based restaurant chain called the Old San Francisco. When employees felt guests had been waiting too long, they would throw a “wait party” for them.
Before the waiting guests could complain, multiple employees would bring them free drinks, appetizers, hats, and party blowers to show them that they were paying attention and turn a negative experience into a positive one.
Always be on the lookout for ways to blow your customers away. Sometimes unforeseen opportunities will arise. For example, Suitsupply, a custom clothing brand, turned a difficult time into a chance to surprise their customers by delivering excellent service in an unexpected way.
Face-to-face collaboration with customers is an integral part of the shopping experience at Suitsupply. When the pandemic led to a halt in in-store shopping, the company used co-browsing technology to recreate their high-touch, in-store experience online.
Shoppers were able to talk to a Suitsupply team member through video chat while co-browsing the website to find the right clothes for the customer and add the customizations that make Suitsupply unique.
There are three factors to consider as you develop a strategy to get customers to identify with your brand. They are three drivers of consumer identification: personality, lifestyle, and values.
- The personality driver refers to how customers use your brand to express themselves. It is how your product or service satisfies the customer’s desires to be unique and present themselves to the world in a certain way.
- The lifestyle driver refers to the functional role your product or service plays in the customer’s life. It’s how it relates to the customer’s lifestyle and how it facilitates activities they engage in due to that lifestyle.
- The values driver refers to how your product or service aligns with the customer’s ideology and aspirations. Customers identify with brands that are consistent with their priorities, beliefs, and values.
Based on what you know about your company, brand, offering, customers, and the market, use these three factors to determine how to position yourself as a unique brand with a clear identity.
Subaru of America took this approach after failing to appeal to a broad audience by focusing on narrower groups, like the active and outdoor customer segments. The company found that five groups made up most of their American customer base: educators, healthcare workers, IT professionals, lesbians, and active people who spent a lot of time on outdoor activities like hiking.
Subaru cultivated its image as the car of choice for these groups through their advertising, charitable giving, and other marketing efforts. By 2010, it was the second fastest growing auto manufacturer in the US.
The best channels to induce flow states are digital. Customers tend to be highly focused when they are online, often concentrating on a particular goal. That concentration is conducive to a flow state, which increases customer engagement.
One straightforward way to increase absorption is to help highly focused customers achieve their goals online through digital content marketing. The key to successful content marketing that improves customer absorption is information quality.
Your ability to induce a flow state by providing relevant content depends on how well that content meets your customers’ needs. The primary factors that determine information quality include:
- Reliability: The extent to which the customer perceives that the content is correct.
- Timeliness: The degree to which the customer perceives that the content is up to date.
- Format: The extent to which the customer perceives that you presented the content clearly.
- Objectivity: The degree to which the customer perceives that the content is unbiased.
- Richness: The extent to which the customer perceives that the content provides all relevant information.
- Value-added: The degree to which the information helps the customer in the pursuit of their goal.
Market research company IHA-GfK focused on adding value to improve their market research studies. Instead of gathering and selling raw data, the company began interpreting it for customers and supplementing it with recommended actions and tools. In addition to improving the information quality of its studies, this strategy transformed the company from a data supplier with transactional customer relationships to a solution partner.
Some of the other actions IHA-GfK took to improve information quality addressed:
- Richness: The company created interdisciplinary teams and partnered with other companies to make its studies more comprehensive.
- Format: The company developed layout templates and presentations to make the information easier to understand.
- Timeliness: The company used frequent online surveys to obtain up-to-date data.
Research into the factors that create a flow state in an e-learning environment indicates that giving students more control during the e-learning process positively impacts flow and focused attention. One way to do that is by using co-browsing software.
Instead of having customers watch you run through a product demo or troubleshoot a problem, you can give them control through co-browsing and walk them through it step-by-step while you’re there to provide them with instant feedback (which also promotes flow).
Grow your business with customer engagement
An effective customer engagement strategy will turn more of your customers into proactive proponents of your brand. That will create value for your company and your customers who benefit from engaged customers’ support and recommendations for improvements and new offerings. These results compound over time as engaged customers lead to more engaged customers.