Managing Customer Loyalty

How loyal are your customers?

92% of consumers trust referrals from friends and family more than advertising and 70% trust consumer reviews (via Loyalty360). But do they trust the brand?

eMarketer talks about millenials (aged 18 to 34) being very price sensitive in a recent article ‘Millennial Grocery Shoppers Favor Deals Over Brands’. Their research concludes that the path to a purchase grows increasingly fragmented and brand loyalty is diminishing. Shoppers – across many retail areas – are becoming used to switching brand, channel and outlet in an effort to save on price (87% of their survey respondents suggesting price was the biggest influence).

These are just two examples of recent research reports that raise the role of loyalty in a purchase decision. How do retailers respond in this multi-channel world? Is building customer loyalty worth the effort?

Worth the Effort

To answer that, we need to look at those companies handling customer loyalty at an institutional scale (i.e. investing time and resources to manage it). A report published in the US, “Data Management: The DNA to Loyalty Program Success” (Altair and Loyalty 360, October 2012), gives good reasons to take customer loyalty seriously. Here are some highlights from a survey they conducted of marketing departments:

  • 65% of their respondents have implemented loyalty programs (82% of the loyalty programs were developed internally);
  • 53% of companies with loyalty programs stated their budget was over 20% of overall marketing dollars;
  • 93% of respondents stated the value from the program exceeded the costs;
  • 67% have seen growth due to their loyalty program;
  • 63% have strengthened customer relationships.

The Bigger Picture

Perceived wisdom requires that customer loyalty is part of a wider culture of feedback in an organisation. Organisations with highly loyal customers are more likely to distribute research data to employees, co-create new products and services with customers and prospects, and have invested in unified CRM systems to build comprehensive views of their customers.

Recently, on the back of some high-profile, customer-centric companies like Zappos, much attention has been paid to the relationship between employee and customer. One cannot effectively manage customer loyalty, customer experience and employee experience without considering them part of the whole system. Think of the last time you asked a question, checked out at a store, spoke to customer services: all touchpoints between customer, and employee, and the organisation’s systems. The experience a customer has is directly impacted by the quality of the ‘employee experience’. Tie this experience together with the operational data collected in the transaction and you have some powerful CRM data. One further step to tie CRM data stores together and the organisation has a single, valuable platform on which to manage their customer loyalty.

Measuring Loyalty

Thomas Jones and Earl Sasser in a Harvard Business Review article from November 1995 questioned whether customer loyalty really was just a product of customer satisfaction and the successful handling of complaints. In their quest to understand the real reason a customer stays loyal, they proposed the Apostle Model.

The implication is that if you know where a customer or customer segment sits, you can approach the marketing effort differently for each quadrant. This brings us to the sources – at least the ones I can think of – to measure a customer experience and it’s by no means an exhaustive list:

  • Surveys: leftovers from the days of market research. There’s a right and wrong way of conducting surveys. But given that billions of surveys are flung at customers each year, it’s not surprising we’re all a little weary of answering questions. If you’re going to use surveys, make sure they’re co-ordinated across departments, small and easy to complete, don’t duplicate activity, and clearly follow the same branding and data policies so that the respondents aren’t left bewildered. Perhaps even make them mobile (i.e delivered over mobile device) as soon after an interaction to get the respondent at their freshest? Companies like Fizzback are making good progress here.
  • Data from points of customer contact: operational data and metrics from call centres, complaints procedures, checkouts, returns, etc;
  • Employees;
  • Online communities and social media;
  • Customer councils: especially useful in the B2B market;
  • Independent Reviews;
  • Response to marketing campaigns;
  • Concierge-type services for high value customers: especially in the personal finance and travel industries.

Gathering data from these sources is not the end game. It’s clearly worth the effort to ensure a full and comprehensive view of a customer’s experience by stitching the data together from the various sources and channels.

And then there’s the debate about calculating loyalty scores. From Net Promoter Scores, Customer Effort Score, to Customer Satisfaction, and so on. Whatever the approach, the suggestion is to use a combination of scores as no single measure does a good enough job. Read here for more on this.

The Bottom Line

This superficial glance around the world of customer loyalty has firmed up in my mind why managing loyalty is important. There is empirical evidence to show customer loyalty helps to grow a business. There is plenty of support and case studies to show that managing customer loyalty is part of a sustained, comprehensive program to collect and use data effectively. There are many organisations capturing valuable insights off the data they collect and this is helping to drive a high level of engagement with customers. This engagement – over time – is where brand value and loyalty is built. That may not guarantee you every sale, but will surely maximize the return on your marketing efforts.

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