what are addicted customers?

Over recent years there has been a dramatic shift inwhatcustomersvalue.But,thisisnotwhatmostbusinessesaredelivering.Thereisahugeandgrowingdisconnectionand

itiscostingbusinessesmillionsinprofitsand,insomecases,itsabo-tagestheirverysurvival.

Globalization,rapidinnovation,andhyper-competitionhavepushedmany businesses into commodity tactics that emphasize prices and incentivesforshort-termgains.Thesepracticesareneithersustain-ablenorprofitable.1

Customers,ontheotherhand,areconfrontedwithabundance,over-whelming choice, the uncertainty of rapid change, and increasing time pressures. A marketplace with a huge range of choices in prod-uctsandvendorsgivescustomerstheupperhandinthecommoditygame.Atthesametimegrowingdistrusthaveincreasedcustomers’stress levelsand iscreatinga senseof alienation.Combined, thesefactorshavecausedafundamentalshiftinwhatcustomersvalueandwill reward with loyalty. Starbucks has been a worldwide success, not

addicted customer ( n.Anaddictedcustomer:1.isemotionallyandpsychologically engaged in the customer experience surroundingaproduct.2.derivesgratificationfromhisorherinvolvementinacustomerexperience.3. willingly scrimps elsewhere to be able to splurge on desired customer experiences. 4. seeks a relation-ship with a company because its product enables an emotionally gratifying experience and an authentic relationship.

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Chapter One

What are Addicted Customers?

because of coffee per se.That isavailablefrommanyothersourcesand often at a much lower price. Evenpeopleinlowincomeneigh-borhoods splurge at Starbucks because it offers experiences that are meaningfulandof value.

Formostpeople,fulfillingbasicneedsiseasytoaccomplish.Increas-ingly, customers value opportunities to reduce stress in their lives;moreover,theywanttobecomeengagedinmeaningfulexperiencesand to become immersed in authentic relationships. When a busi-nessoffersanemotionallyandpsychologically fulfillingexperience,customers will scrimp elsewhere to enable them to splurge on the desired offering. They do so because of the total experience, not just the product.

Yet, most businesses are focused on selling “things.” They have afocus on sales and marketshare and compete by exceeding competi-tors’ offers. The upshot is that this “competitiveness” encouragescustomers to shop on price and to shop around. This works against loyalty.Loyaltycomesfromdeliveringwhatcustomersvalue,some-thingtheyfindmeaningful,notjustutilitarian.

Thisisachallengingsituationthatrequiresnewstrategiestodelivertheexperientialvaluecustomersseek.Thefoundationof thesestrat-egiesmustbebasedon thepsychologyunderlying thebehaviorof today’scustomers. It is important tounderstandhowtheyarriveatdecisions, and how their decisions are tempered by current market-place dynamics and the demands of contemporary lifestyles. Creat-ing addicted customers is a metaphor for theprocessof deliveringwhattoday’scustomersvalueandengagingthemincustomerexperi-ences that are emotionally and psychologically gratifying. These are the types of experiences that stimulate desire and as a consequence, lead to committed customer relationships. This is “how to get them hooked on your company.”

The Two Distinct Buying Personalities Customers have two distinct buying personalities: indifferent andengaged. The personality that surfaces during particular buying deci-sionsdependsonthetypeof valuecustomersseek.Mostbusinesses

2 Addicted Customers

What are Addicted Customers? 3

are optimized to sell to the indifferent personality. In this buying mindset, customers are focused on practical features such as price and convenience.Asaconsequence,customers’relationshipswithsellersareoftenadversarial.Customersareinterestedinacquiringproductstofulfillwell-defined,basicneeds.Theywantmeans-to-an-endandthey want them at the best combination of low price and conve-nience.Theyhavetaskstocompleteandthereareminimalstandardsof functionality,butbeyondthat,itispriceandconvenience.Inthismindset, customers are emotionally indifferent to the products or the tasks those products serve. Batteries are bought so flashlightswork. In these situations customers become indifferent to the pur-chase process as well as indifferent to the products. Or they become adversarial—theytrytogetasmuchastheycanforthelowestprice.They want the purchase process to be a non-experience. They want to extractthegreatesttangiblevalueatthelowestpossibleprice.Thereis no inherent basis for loyalty.

The engaged personality emerges when customers are emotionally and psychologically engaged in the buying experience, and when this engagement ismotivatedbydesire.Certainly,“engaged”customersmay buy tangible goods or services that serve utilitarian purposes.However,customersincreasinglyvaluetheshoppingexperienceforits own sake, and want to be immersed in the emotional and psy-chological consequences of the experience surrounding a product. Companies that support them in this quest strengthen the relation-ships and this ultimately translates to customers with high lifetime value—inshort,thosecompaniesaccruecustomerequity.

The following “tale of two purchases” illustrates the distinction between the two primary buying personalities and their impact on the ability of businesses to create addicted customers.2

The Quest to Buy New TiresIhavetogetnewtiresformycar.Thisisarealpain,becauseitmeansIhavetowastemostof adayonsomethingIdon’treallycarethatmuchabout.Iwantsafetires,of course,butbeyondthat—well,tiresare tires.

SoI’malreadyinanegativemood.Wheretostart?IguessI’dbetterfindoutthesizeandmakeof tiresonthecarnow.Next,I’lllookatthe tire ads in the newspaper and check out the Yellow Pages.

This isnotgoing tobea simplechoice.Therearemanybrands—Goodyear, BF Goodrich, Michelin, Bridgestone, Yokohama, Toyo, to nameafew.Eachbrandoffersseveraldifferentstylesof tires.OneadoffersadealonYokohamatiresformyInfinitiG35—$835.Bridges-tonetirescamewiththecar;areYokohamatiresOK?

What’smore,therearemyriadtireshops—howcanIcheckthemall?Icallanearbytirestore;theycouldputBridgestonetiresonthecarfor $980.Boy, this isone timeowning a“performancecar” isnotsogreat!ItellhimIcansave$145if IbuytheYokohamatires.Hisresponseis:“ThoseareOK,buttheyareonlyratedfor40,000miles.TheBridgestonesareratedfor50,000miles,andwillgiveyouaqui-eter ride.”

“ButIcansave$145.”

“Sir, did the other price include balancing, new stems, the tire disposal fee, and a lifetime road hazard guarantee?”

Thiswasbecomingcomplicated.Ithinktomyself,“Idon’tknow.AllI want is a new set of tires with minimum hassle.”

“Wecanput you in theBridgestones today for $940or theYoko-hamasfor$880.”

With more than a little frustration, I ask, “Can you put them on this morning?”

“Certainly.”

Istilldon’tknowwhatkindof dealIcouldgetatothertirestores,andIstilldon’tknowif YokohamatiresareinferiortoBridgestones.ButIdon’twanttowasteanymoretimeontires.

“Givemeanother$20off theBridgestonesandIwillbetherein20minutes,” I say.



“See you in 20 minutes,” he says.

Thetruthis,thepurchasewasaboutgettingalowpriceandconve-nience,withasensethat thetireswerereliable,without investingalot of time and energy in the process. I am still not sure I got the bestdeal,butatleastIwon’thavetobuytiresforanothercoupleof years.

The Process of Buying a New BicycleForthepastfewmonths,I’vebeenridingmyoldbiketogetsomeexercisewhileItakeiteasyonmyknees.I’mreallyenjoyingit—nosweatygym,nicescenery, freshair.Now it’s time to reallyget intoit—buyanewbike,maybeevenahelmet.My15-year-oldbicyclesuredoesn’t lookmuch liketheoneLanceArmstrongwasriding intheTour de France.

I get on the Internet to do a little research, narrow down the type of models, and get a bead on a reasonable price. Wow, the number of optionsisincredible—mountainbikes,roadbikes,racingbikes,tour-ingbikes,cruisers,hybrids.Withineachcategory, thevariationsareoverwhelming,andthepricesrangefrom$100to$10,000.Therearedecisions to be made about frames, gears, seats, brakes, tires, shifters, handlebars.TheInternetgivesmealotof information,butIhavetosupplymyownanswers.Eventheonlinereviewsseemtobewrittenforanexperiencedrider.Hey!I’mgoingtogetintothiscyclingthingand I want help in making the right decisions for me, a somewhat inexperiencedrider.Ineedhelp;no,Iwanthelp!

I head to a nearby bike shop and am astounded by row after row of bikes. I wander around, trying to make some sense out of the choices. A slightly distant clerk asks if he can help me.

“Yes,” I say, “I would like to buy a bicycle.” His response, “What typeof bicycledoyouwant,andwhat’syourbudget?”Ianswer,“Idon’t really know. I plan to go on long rides and hit a few hills.”Hisresponseis,“Youprobablywantaroadbike.Theyarerightoverthere,sowhydon’tyouhavealookatthemandI’llgetbacktoyouin a few minutes?”

I think, “Look at what? The colors?” I want to get a bike that will allow me to really get into cycling. How do I decide on brand, gears, andallthatstuff?HowmuchdoIhavetospendtogetabikethatwillmeet my needs? How will I know when an upgrade is worth it? I want to talk to somebody who is into cycling, shares my budding passion, and will help me feel like I am becoming a cyclist, and not just a bike rider.Obviously,thisguydoesn’tfillthebill.

Several stores later, I meet Nick. He hears my story and, with asmile on his face, enthusiastically assures me that he will help me put together the right bike. He asks me where I usually ride and what aspectsof therideIenjoyandwhatIdon’tlike.ItellhimaboutthechafingIgotinthegroin.Hisresponseis,“Let’sgetyouabikecon-figuredandadjustedtoyou,andthenI’llgetyououtfittedintherightcycling clothes so the ride is most comfortable.”

He picks a medium-price road bike and explains what he likes about the particular brand and model, why certain features would be impor-tant to me, why I will probably want to upgrade others, and what accessoriesIshouldhave.Hey,I’mstoked!IamconfiguringabikejustformeandlearningwhyitfitsmetoaT.Nickpointsoutthatonce people like me purchase a good cycle, they often like to include more hills. Then he recommends a couple of good rides to try out, andgivesmeinformationonafriendlylocalcyclingclubImightwantto join. He also mentions that if I really got into the hills, I will prob-ablywant toupgrademygears.Theconfigurationhe recommendswould suit me today but I also get a sense of how this might change in the future. I like that explanation so much, I buy the bike! I spent morethanIhadplanned,butit’sworthit.NowI’meagertogetonthe road.

As I check out my new gem, Nick explains that the bike comes with ayearof freeservice.Heasksmetostopbyandlethimknowhowthings are working out, and to come by in a couple weeks since the wires would stretch and need adjustment. Wow! I was already feeling like I was a cyclist, with a knowledgeable pit crew and coach (Nick). My next stop was to meet up with my riding buddy, show him my



great new wheels, and tell him about Nick. This purchase is all about thetotalexperienceIamhavingaroundmynewbike.

The Moral of the StoriesWhatisthesignificanceof thesetwoshoppingstories?Whatdotheytellusaboutthenewbusinessenvironmentandhowtocompetesuc-cessfullyinanageof abundance,informationoverload,andtoomanychoices for the consumer? While there will always be companies com-petingonprice,itisincreasinglydifficulttocompeteandremainprof-itable—customersfeelcompletelyfreetoswitchinamomentfromoneproductorservicetoanother.

A growing number of compa-nies, however, have discoveredthat there is an alternative. Byenabling customers to havemeaningful experiences, these companiesbuildeffectivelong-term relationships that lead to addicted customers and sustain-ableprofitsandgrowth.

Formanyyearscompanieshavebeen told that customers differ and that approaches should varybasedonthecustomers’valuetothecompany.Butlittlehasbeendonetodescribehowcustomersthemselvesseevalue.Intoday’scom-petitivemarketplace,wherecustomersareincreasingly“inthedriver’sseat,” it seems prudent to understand what customers desire. In fact, customers are signaling that they are less interested in “things” and more interested in the experiences “things” enable. The two stories abovehighlightthefactthatcustomers’desiresformeaningfulexpe-riences arewhat differentiate them.These desireswill vary amongcustomersbut,asthestoriesillustrate,theyalsovarywithineachcus-tomer. Understanding this is critical. Recent research, though, clearly indicates that the majority of business leaders focus on products and efficiencyandarenotlisteningtocustomers.3

The more profitable, engaged buying personality emerges when customers are emo-tionally and psychologically involved in the buying experi-ence, and when this engage-ment is motivated by desire.

Peoplehavevarying levelsof interest and involvement in thepur-chasestheymake.Manypurchasesareviewedaschores,andcustom-ersseektominimizethecost,time,andeffortinvolved.Theymakeno distinction among products and simply shop where it is easiest and cheapest. They take the opposite approach for purchases related to activities in which they are highly interested. They want to beinvolved,theywanttospendtime,andtheywanttounderstandthedifferencesinproductsfromvariouscompanies.Emotionalandpsy-chologicalinvolvementisatleastasimportantastheproductitself,andcustomersarelookingforcompaniesthatcanprovidethis.

Yet,avolatilebusinessenvironmentandfreneticlifestyleshavemadeitmoredifficulttoengageinmeaningfulshoppingexperiences.Peoplehavelesstimeandfacecompetingdemands.Atthesametime,busi-nesses focusonefficiency,andactivelydepersonalize theshoppingexperience. As a result, most customers see the majority of their pur-chasesascommodities—buyonpriceandconvenienceandminimizethe total experience.

The buying experience takes place on a continuum from a com-pletely indifferent buyer to a fully engaged consumer. The indiffer-entbuyerhasasimplegoal:buytheproductasquicklyandcheaplyaspossibleinordertomoveontosomethingmoremeaningful.Heorsheseespurchaseoptionsasessentiallyequivalentandpayslittleattention to the companies offering them. As a result, the purchase isbasedonacombinationof priceandconveniencethatproducesthehighestvalueforthecustomer.Forexample,peoplewasteaslittle money, time, and effort as possible to get gas for their cars. That is why you will see a long line at one gas station and nobody across the street where gas is selling for a few cents more. The brandisirrelevant.Itisvirtuallyimpossibletopermanentlycapturesuch indifferent customers because their next purchase goes to the lowestbidder—thecompanywith thebestcombinationof priceandconvenience.

Engagedcustomersaretotallyemersedintheactivitiesandexperiencesrelated to the products. They want to know as much as possible about



theproductsandwillpassionatelydevotetimeandefforttobecomemore expert. They see the products, the company, and the experi-ences as one, and are willing to pay premium prices if necessary. They are or become dedicated, long-term, loyal customers. They enjoy spendingmoneyontheproductsbecauseof theiremotionalvalue.They are addicted customers.

Addicted,fullyengagedcustomersarehighlyprofitablewithhighlife-timevalue,andareextremelyeffectiveadvocatesof companiesthatserve themwell.Starbuckswasable toavoid traditionaladvertisingfor years, for example, because their engaged customers were such effective evangelists. There is nomore powerful advertising thanword-of-mouth. And, as recent research indicates, recommendations of peers is near the top in credibility.4

Thegreater thecustomerengagement, themorevaluable thecus-tomer is to the company. As customers increase their focus on the experiences, they are willing to pay more for the products.5What’smore, when they find a company that provides engaging experi-ences, they are increasingly likely to return to that company. The fast food industry, not known for its meaningful experiences, pro-videsaninterestingexample.Whencustomersperceivedemployeesto be engaged, they were 6 times more likely to come back. And in the banking industry, they were 20 times more likely to return.6 This highlights another critical point. It is possible tomove customersuptheengagementladderandincreasetheirvaluetothecompany.Becausepeopleliketohavemeaningfulexperiences,theyarelikelytorespondpositivelywhengivenopportunitiestoincreasetheirlevelof involvement.

Indifferent Customers or Engaged CustomersCompanies can choose to compete for indifferent customers, but must recognizethatefficiencyisthekeyandthattherewillbeconstantpricewars.Long-termsuccesswill require theability to sustainefficiencies.Onlyafewcompaniesinanindustrycanaccomplishthis,buteventheyare under the constant threat that competitorswill find newways to

10 Addicted Customers reduce costs. It is anongoingbattle.EvenWal-Mart, theparagonof efficiencyandpricecompetition,felttheeffectsof cutthroatcompeti-tion when it failed to offer discounts early enough in the 2004 Christmas season, and saw sales drop.

There is a better option for most companies. They would be well advised to focusoncultivatingengagedcustomers. In thismindsetcustomerswanttobecomeinvolvedinlong-termrelationships.Addi-tionally,theywillbelesssensitivetoprice,andwillbemoreresistantto competitive offers. Successfully engaging customers build cus-tomerequity,thewealth-buildingpotentialbasedoncustomers’rela-tionships with the company.

Identifying and attracting engaged customers and increasing their levelof engagementinvolvesacompletelydifferentapproachfromtraditional business models. The focus must shift from a concern for salesandcost-efficiencytoaconcernforincreasingthelifetimevalueof customers.Companiesmustspendmoneytoeffectivelystimulatecustomer involvementandrecognize it isbetter tohavefewercus-tomers who are engaged and loyal.

Engaged employees are a powerful mechanism for creating engaged customers,andconversely,disengagedemployeesalienatecustomers.Yet most companies have human resources strategies that workagainst employee engagement. A new HR approach is needed. Com-paniesmustbewillingtoinvestintheiremployee’sengagement.Theymust adopt hiring, training, nurturing, and empowering strategies that will make employees passionate about their work. Studies by Gallup havefoundthat,intheaverageorganization,75percentof employ-ees are not fully engaged.7 Gallup estimates, in fact, that unengaged employeescostAmericanbusinessupto$355billionayear.8

Creatinganenvironmenttosupportengagedemployees,whichinturncreates engaged customers, means changing organizational structure and design. Traditional management focus is on managing and con-trolling employees whichminimizes opportunities for involvement.Companiesmustloosenconstraintsandgiveemployeesthefreedomto become engaged in their jobs and with customers.


Is it worth the effort? Indeed. A successful customer and employee engagementstrategyhaslong-termviabilitybecauseeachof thepar-ties—customers,employees,andcompany—achievesitsgoal.Trustbecomeskey—betweenemployeeandcompany,betweenemployeeand customer, and between customer and company. Ultimately, it is trust that sustains relationships, enables them to grow and allows all parties to win.

Buildingthisnewbusinessmodelandachievingcustomerequityisatransformational process, and this transformation is a journey. Yet for most companies it is a journey into the unknown.

The concept of addicted customers is that desire increases when the experiencesurroundingaproducthaspositiveemotionalandpsy-chological consequences. Once again it is not the product itself that isof valuetotheengagedcustomer;itistheengagingexperiencesur-rounding the product. This experience, in turn, accrues relationship valueorcustomerequitytothecompany.

The emotional consequence can be momentary, such as when a clerk’sgenuinesmileelicitsareciprocalsmilefromthecustomer.Or,itcanhaveamorelastingimpact,suchaswhenthecustomergainsagreater sense of competence and control. In either case, an emotional connectiondevelops andbecomes the foundationof thedesire torepeat the experience.

Rekindling or igniting desire is the antidote to indifference and apathy. Botharedefensivereactionstothefrustration,anxiety,andstressthatoccur when a person is pushed out of his or her psychological com-fort zone. The accelerating rate of change, increased complexity, and time pressures of modern life are causing this reaction, and it is a per-vasivesocietalproblem.9 Rekindling of desire is important to custom-ers, because desire is essential to mental well-being and happiness.

Addicted customers are those who derive emotional and psycho-logicalgratificationfromexperiences.Thisoccursfromovercomingnegativeemotionsandregainingasenseof controloverchangeandcomplexity. This returns them to psychological comfort zones.

12 Addicted Customers Getting the customers engaged is the key to ensuring that their expe-riences lead to these powerful emotions. Unengaged customers want a non-emotional non-experience. These indifferent customers will not exhibit preferences or loyalty. At best, they are inertial customers whowillstaywithavendoruntilsomeoneelseoffersamoreattrac-tivemixof convenienceorprice.

If acompany’scustomerbase is largelyunengaged, thecompany isat risk. Customerswhocomplain are actuallypreferable topassiveor disengaged customers. Their complaints signal that the experiences havevalueormeaningbut justaren’t livinguptoexpectations.Thecomplaintstellthevendorhowtoshoreupitsvalueproposition.

Engagingcustomersgoesfarbeyonddelightingthemorservingupsensory pleasure. Customers do enjoy sensory pleasure, which can sparkdeeperinvolvement.However,sensoryexperiencequicklylosesvalueandisnotasourceof sustainablecompetitivedifferentiation.Incontrast,gratifyingexperiencesthatcomefrompersonalinvolve-mentleadtoapositivepsychological“catch-22.”Gratificationleadstoenhanceddesire, and this leads toevengreater involvement.Tocultivatethispowerfulemotionalconnectionincustomers,theappro-priate psychological stages must be set. Then customers willingly, eveneagerly,becomeengaged.

Thedynamicsof contemporarylifemakeemotionalgratificationandpsychologicalfulfillmentmoreimportantthanever.Butthesesamedynamicsmakethemmoredifficultthanevertoachieve.

• Consumers live in a world of abundance and choice,wherevendorsaggressivelycompetewithshort-termtac-ticsthateffectively“buythecustomer’sbusiness.”Asaconsequence,businessesarestrugglingtosustainprofitsand growth. Customers might win materially, but they lose psychologically.

• In spite of material well-being, customers in the indus-trialized world are less happy, are more distrustful than ever,andareexperiencingadiminishedsenseof belong-ing,evenalienation.10


•While abundance has enabled people to move beyondneeds fulfillment, change and uncertainty pushes themout of their psychological comfort zones. Avoidancebehaviorswork intheshort-term,butultimatelyunder-minean individual’sability toadaptandfeel incontrol.Theresultisamorepassiveandlessinvolvedapproachtolife.

•Abundanceandchoicemakeiteasyformostof today’scustomers to satisfy their basic needs, and they do so with increasingindifference.However,indifferenceandapathydo not indicate a state of emotional well-being.

• Customers increasingly seek experiences that are emo-tionally and psychologically gratifying, meaningful, and contribute to authentic happiness.11 This pursuit of hap-piness may take place in only selected aspects of their lives. Indifference in other areas gives them the time,resources and psychic energy to become involved inthings that matter. Alongtheway,theproductsmayfulfillneeds,butitistheexperientialvaluethatdrivesdesireandcommitment.

The combination of these forces has four impacts on customers. First, the stress of daily life is higher. Second, value in customers’mindsisrapidlyshiftingfromutility,whichisreadilyavailable,toemo-tionalgratification,which isharder tocomeby.Third,peoplewantauthentic relationships with the companies and employees with whom they do business. Four, trust is a critical component of an authentic relationship, it is a key factor in simplifying life and an increasingly complex world.

By deliberately and systematically helping customers face these chal-lenges,companiesactivelyencouragewin-winrelationships.Bydoingso,theyarecultivatingaddictedcustomers.

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About the Author

John I. Todor, Ph.D., uniquely combines two perspectives fordevelopingwin-winrelationshipsbetweencompaniesandtheircus-tomers. During his tenure as a professor and research scientist at theUniversity of Michigan he investigated howpeople learn andmakedecisions.Asabusinessowner, executiveandconsultanthehas faced therealitiesof turningaprofit.Addicted Customers is the outgrowthof overfifteenyearsof integratingthetwoperspectivesinto amethodology that delivers the experiences customers valuealongwithsustainableprofitsandgrowthforthecompanies.

HeownedandmanagedamarketingfirmwithclientsthatincludedGeneralMotors, FordMotorCompany andDomino’s Pizza, heldexecutive positions with technology companies, and worked as aCRM analyst. As the Managing Partner of The Whetstone Edge, LLC (www.TheWhetstoneEdge.com), he helps companies implement business strategies that strengthen customer relationships and prof-itability.Clientsrangefromsmallentrepreneurialventurestomulti-nationals like Hewlett-Packard.

HereceivedhisPh.D.inEducationalPsychologyattheUniversityof California at Berkeley and completed post-doctoral studies in cognitive science, clinical neuropsychology andmarketing.He isco-directorof theAssociationfortheAdvancementof Relation-shipMarketing’sCustomerEquityInitiative.

([email protected])

what are addicted customers?

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