Customer Loyalty
Interestingly, many consumers feel uncomfortable talking about loyalty when the term is applied to businesses or brands. In much the same way, many will express discomfort or even revulsion at the suggestion that they may have a relationship with a company or a product. It seems that, for many people, such a thought represents an admission of weakness, much as many consumers will deny that they are influenced in any way by advertising. Words like loyalty and relationship are reserved to describe our interactions with other people, principally family and friends. To suggest such intimacy with corporate entities or inanimate objects is discomforting for many.
In fact, of course, consumers do develop loyalties to both companies and brands. They do develop strong, long-lasting relationships that see them going back willingly time after time to do business with a particular firm. They come to rely on companies with which they do business, to trust them, and to feel comfortable doing business with them. Brands become a defining part of the consumer's persona; they take on importance and meaning.
If there was ever any doubt about the existence of brand loyalty and relationships, it is dispelled in a wonderful article by Susan Fournier ("Consumers and their brands: developing relationship theory in consumer research," Journal of Consumer Research, vol. 24, no. 4, March 1998) in which the author describes in vivid detail the results of conversations with ordinary consumers about the products that they use in their daily lives, brands that truly mean something important to the consumers involved.
Not Only Alive but Doing Very Well
Some authors and commentators on modern society have decreed that loyalty is dead. They point to what they describe as an increasingly fickle consumer, bombarded on all sides by advertising and an amazing array of products and services. Couple this with the ease of switching brought about by advances in technology, the accessibility afforded by the Internet and the extremely competitive marketplace made more so by globalization, and it is de rigueur to point to consumers as butterflies, flitting from brand to brand, company to company, with little thought of developing anything approaching loyalty.
But such is a supply-side view of what's going on in the lives of consumers—a view that focuses on changes in the marketplace, not what's going on in the minds of consumers themselves. True, the marketplace has changed dramatically in recent years. What has not changed is the inherent need of consumers to be able to rely on people and organizations. Based on thousands of interviews and surveys in which I have been involved on behalf of clients over more than 30 years, I can conclude with no fear of contradiction that customer loyalty is alive and well. In fact, it is no less a fact today that there exists a natural human need to develop loyalties, not only to friends and family, but to organizations and to brands.
What role does loyalty play in the lives of consumers? A very large percentage of consumers have an innate desire to develop loyalties, to put down roots. They go back again and again to companies where they are treated well and where they feel "comfortable"—a wonderful consumer emotion. Loyal retail customers, for example, talk about having a certain comfort level with their favorite store. Loyalties also serve, of course, to reduce risk for consumers. They talk about going back to companies they trust, that they can rely on. Why? "I know what I'm getting there!"
Repeat Buying Does Not Loyalty Make
Loyalty is essentially an emotional concept, like relationships, and yet many firms seem not to understand or appreciate this. Many businesses continue to define loyalty in behavioral terms. At a recent meeting, for example, a senior marketing executive of a national retail chain referred to the fact that its loyal customers appear to be spreading more of their business across a number of competing companies. When I asked how they were defining loyal customers, I was told that loyalty was captured as a combination of number of visits to its stores and total spend. This narrow (even misleading) view of customer loyalty was compounded by the fact that the data used to measure loyalty were obtained only from customers who use the company's credit card.
There is a great tendency in business to measure or define loyalty entirely in behavioral terms—number of visits, frequency of visits, total spend, share of category spend, number of years as a customer, etc. There is a tendency to confuse loyalty with retention—two concepts that are related, but certainly not the same thing. Retention is a behavioral concept; loyalty is not. A focus on retention creates a high-risk situation where a company may think its customers are a lot more loyal than they really are.
Why, then, do some businesses define loyalty primarily if not exclusively in behavioral terms? The answer is often as simple as "that's what we are able to measure most easily." In fact, many companies today capture such information automatically every time a customer interacts with the firm. To obtain a list of our most "loyal" customers, we simply request the information from the customer database. Loyalty defined behaviorally is also a much easier concept to understand, without having to get into all that consumer psychology.
It's About Points, Not Loyalty
Frequent-flyer and frequent-shopper programs give the illusion of loyalty—in fact, they are often mislabeled loyalty programs. What is it that they are really designed to accomplish? Repeat buying behavior; in other words, retention. The basic premise behind such programs is to reward customers for giving the company a greater share of their business. The rewards are extrinsic—points, "free" merchandise or trips. Where true loyalty exists, the rewards are largely intrinsic. One shopper recently observed in an interview that the frequent-shopper "club" of which he is a member feels nothing like any other club to which he has belonged. It never meets. He rarely gets to associate with other members. Such programs often lock customers in. They create barriers to exit, but they don't often lead to true loyalty.
Of course, customer retention may have little or nothing to do with loyalty. Customers may come back again and again because they perceive no alternative, or they may feel that it's simply too much trouble to switch, or that the competition is no better. Or, there may simply be the fact of customer inertia—they never get around to changing, or they feel switching is just not worth the effort.
There is an obvious need for companies to develop a better understanding of customer loyalty and of the factors that drive it. A focus on behavioral loyalty or retention is potentially misleading, as a company may be experiencing a very vulnerable form of loyalty. In retail, for example, where customer behavior data are increasingly available, it is useful to examine what motivates and satisfies a retailer's "loyal" customers. A recent such project in which I was involved examined a large sample of such customers, selected from the retailer's customer database. A combination of qualitative and quantitative research revealed that loyalty may be best described, not as a continuum, but in more classic segmentation terms. We found some segments of customers whom we described as functionally loyal, and others who were much more emotionally loyal.
Loyalty: Functional or Emotional?
Functionally loyal customers appear to be loyal in that their behavior as reflected in the company's database is not appreciably different from that of the emotionally loyal. They come to the stores almost as often and buy roughly the same amount of merchandise. Their loyalty is driven by the fact that the stores are conveniently located, customers can stop in on their way home from work, stores are open 24 hours a day and have wide aisles and lots of checkouts, and "I can get in and out in a hurry."
The customers whom we labeled emotionally loyal, on the other hand, indicated that, while the access and convenience factors were important to them, so too was the fact that they felt comfortable in the stores, were made to feel welcome, were greeted by name, chatted with the "(person) on the cash," went there with neighbors for coffee, and generally liked the experience of shopping there.
What's interesting is the fact that both groups demonstrated very similar patterns of behavioral loyalty and very similar levels of satisfaction. The functionally loyal customers, however, reflect a much more vulnerable form of loyalty. They are likely to switch as soon as a competitor offers a more functionally-attractive option. They are less likely to seek out the retailer to which they are currently "loyal" if they were to move to another town. The emotionally loyal customer, on the other hand, feels an attachment to the firm or the brand that transcends functional attributes. This is a loyalty that is likely to last, even in the face of competition that offers a more functionally-attractive alternative.
Understand What Drives Emotional Loyalty
Companies that purport to be practicing CRM and to be interested in developing lasting relationships with their customers really should understand the concept of loyalty because of the obvious link with relationships. Customers who develop a genuine relationship with a company or brand are loyal in more than a behavioral sense. Unfortunately, many firms have set out to create behavioral loyalty without thinking much about emotions. What they create then is a spurious or artificial form of loyalty; one that is quite vulnerable in a highly competitive marketplace where presenting a more attractive and accessible product is much easier than in the past. They have defined loyalty from the firm's perspective, not the customer's.
Firms need to know what lies behind the loyalty that their customers appear to demonstrate. Observing customers' behavior sheds light on only one aspect of loyalty. Many customers appear to be loyal, but they are not. We may succeed in retaining their business, but that does not make them loyal. Many customers who appear to be loyal are actually dividing their business between us and the competition or are loyal to us only in certain situations. Unless a company has made the effort to really understand the emotional drivers of customer loyalty, they run the risk of mistaking retention for loyalty. This is a potentially high-risk mistake. The challenge for companies that wish to create true customer loyalty is to understand the nature of loyalty itself and to develop strategies that will succeed in creating higher levels of emotional loyalty among existing customers. The payback from such a strategy is potentially enormous.