FOLLOW

FOLLOW

SHARE

Why You're Looking At Customer Loyalty Wrong

They're the life blood of a successful company, but do companies really know what loyalty means?

1Sep

A successful business needs loyal, repeat customers. They are cheaper to sell to, they spend more on each purchase, and they are likely to act as advocates for your brand on social media. Gartner, for one, has found that 20% of your existing customers generate 80% of your profits. Marketing Metrics, meanwhile, states that the chances of selling to new customers is 5-20%, whereas with existing customers it reaches 60-70%.

However, common consensus is that customer loyalty is a thing of the past. The vast choice and convenience offered by the internet enables customers to easily find new deals. Subsequently, they are less inclined to stick with one brand through thick and thin.

This perception is true to an extent and the logic is sound, but the evidence seems to suggest that millennials are actually extremely likely to keep returning to a product they like. According to Edelman, once they find a company/product they like, 80% of millennials will keep coming back. Elite Daily also found millennials be the most loyal generation to their favorite brands, with 50.5% of Gen-Yers they surveyed saying they are extremely loyal or quite loyal to their favorite brands.

The problem for many organizations is not that the concept of brand loyalty is dying, it’s that they misunderstand two fundamental things about customer loyalty: the kind of loyalty they should be looking to attract, and how to go about attracting it in today’s fast paced world.

First of all, not all customer loyalty is equal. It’s only worth having when someone spends money on your products or engages with your products on social media. The WSJ notes that, ’To be considered loyal, it shouldn’t be enough for a customer to feel a bond to a company, or to simply stick with the relationship. It should also require certain actions, or shopping behaviors, on the part of the customer. Most corporate measures of customer loyalty focus only on feelings. But our research shows that knowing how customers feel about a company is a poor predictor of how they will behave toward the company. If data about buying behaviors are added to the mix, it can help a company identify not just who its truly loyal customers are, but which ones are profitable.’

Most company surveys wrongly look at an emotional connection. People felt an emotional connection with Woolworths and HMV, but they stopped shopping there because what they offered was no longer relevant to consumer habits, and both went bust. Businesses offer them things in the hope they continue to ‘feel’ a certain way, rather than things that they actually need. Often in excess of 50% of customers are not profitable because their loyalty is driven largely by expectations of great deals. A customer who is loyal because you keep giving them your product at a price way below its actual value is loyal only to the degree a spouse you have to shower with gifts is, or a mercenary soldier. You are spending large amounts of money marketing to people and seeing little by way of returns because the margins are so small.

Offering discounts and coupons is understandable. Conventional wisdom dictates that successful companies must keep coming out with new products, rebranding old ones, and bringing out offers to keep people interested and keep coming back. Particularly in today’s fast changing business climate, in which supposedly no competitive advantage is sustainable, so companies try to continually update their business models, strategies, and communications to respond in real time to an ever-expanding array of choices confronting consumers. However, research by A.G. Lafley and Roger L. Martin recently published by HBR actually discovered that the opposite is true. Instead, the way the human brain works means this is not suitable for building a loyal following as is actually functions in a far more simplistic way. Above all else, it loves automaticity more than just about anything else, including conscious consideration. Customers tend to make their buying decisions quickly and often automatically. They look for the familiar – things that are easy to buy. So, Lafley and Martin note, ‘If the mind develops a view over time that Tide gets clothes cleaner, and Tide is available and accessible on the store shelf or the web page, the easy, familiar thing to do is to buy Tide yet another time.’ No amount of marketing or offers will change their mind.

This is obviously an incredibly difficult thing for a business owner to come to terms with, as it implies there is little they can do beyond the design stage. What customers really want is product consistency, more of the same. The problem is that so many jobs rely on breaking the cycle - in creating new marketing campaigns, developing new products, and strategizing new routes to market, but really everything is almost set in stone from the beginning. It is about creating a habit-forming product, and while marketing and aggressive pricing will help it initially, after this it will have little impact. A.G. Lafley and Roger L. Martin note the example of Blackberry as a textbook example of habit-forming design: ‘The smartphone pioneer BlackBerry is perhaps the best example of a company that consciously designed for addiction. Its founder, Mike Lazaridis, explicitly created the device to make the cycle of feeling a buzz in the holster, slipping out the BlackBerry, checking the message, and thumbing a response on the miniature keyboard as addictive as possible. He succeeded: The device earned the nickname CrackBerry. The habit was so strong that even after BlackBerry had been brought down by the move to app-based and touch-screen smartphones, a core group of BlackBerry customers - who had staunchly refused to adapt - successfully implored the company’s management to bring back a BlackBerry that resembled their previous-generation devices. It was given the comforting name Classic.’

A business which desires high, profitable customer loyalty must focus on offering a great customer experience instead of trying to buy loyalty by slashing prices or trying to impress them with a repackaging or a shiny new add on. When they do change their business strategy or introduce new products, it must be in a way that predicts, drives, or responds to a real customer, and it must do so in a way that retains what was initially appealing about the brand - the appearance, the simplicity, the core values. Real loyalty is hard earned and exceptionally profitable, it can’t be manufactured but needs to be built up from the foundations. 

Comments

comments powered byDisqus
Millen

Read next:

3 Things To Avoid When Managing Millennials

i