Future CMO Movement

Home » CRM » Loyalty in an interactive digital market

Loyalty in an interactive digital market


The concept of loyalty is a very profound human emotion like love and trust. Loyalty is an outcome of shared values and experiences, forged with time. It’s not a fling, its about integrity, trust and dedication. Loyalty truly is the holy grail of brand relationship even in the interactive digital marketplace. When we think about loyalty between people, we know that it takes a long time to develop such deep feeling of trust. The same aspect of time certainly applies to brands too. Brands are concepts you can see, feel and experience, even have a dialogue with via customer interfaces and people representing the brand in question.

Well, think hard and consider which brands, products or services are you loyal to? I would imagine there are some. Then think, which brands show genuine interest in you, making your life easier, helping you, respecting your wishes, sharing your values, trusting you completely. Can you think of any?

Companies are quite good at “doing things right”, professionally and operationally delivering what is expected from them. The superb quality of certain product does create trust and loyalty as such due to rational and emotional consideration. This is especially true when your life could depend on that product. On the other hand companies are not that good at “doing the right thing”. Doing the right thing has to do with a context of engagement, feeling of fairness and trust. If your phone breaks a day after the guarantee closes, what does the company do? In case you have bad luck and you fall behind you payments for some period of time, what does the company do then? If the company has a choice between 10% higher profit margin and environmental or societal benefit, which will they choose? There is a lot of data that shows, how profitable “doing the right thing” actually is in case of reclamation. When you do the right thing, listen to your customer, pay attention and do your very best to make things right, the customers reward such deed with their wallets and hearts.
So, my advice for brands is coming straight out of the Bible, Matthew 7:12, The Golden rule: “Do to others whatever you would like them to do to you.” This truth is eternal and applies to Brands on- and offline just as it does to people. Loyalty truly is a concept that takes time to evolve and it can only be earned over time.
Well, the concept of loyalty, in case of commercial operation, means that brands are measuring their brand loyalty with KPI’s like RFP analysis (recency, frequency and monetary), length of customer relationships, life-time-value, share of wallet and Net Promoter Score. All of these measures have to do with loyalty, but they could also be about something else. Not all behavior that appears to be loyal has to do with the concept above. Let’s take a look at commercial loyalty strategies:
1. Rational Loyalty
2. Emotional Loyalty
3. Habit based loyalty
4. Imprinted customers
5. Legal loyalty
6. Structural bonds
Rational loyalty
Most loyalty programs don’t deliver brand loyalty, really. That is due to the fact that people have all loyalty cards and they pick cherries from where ever they happen to find best offer at that point in time. Points based loyalty programs are often buying loyalty from customer. You get more discount when you buy more and you get offers only available for members. Loyalty can be completely rationally driven model that create a behavioral pattern for customers to buy when it’s cheap. Naturally, they don’t if you don’t have an offer for them. In the open online market its very easy make comparisons.
Most often, members also get bulk messaging in which there is nothing personal. A membership equals the license to sell. Selling is often positive. Customers consider selling as active relationship in which the company is offering new services and value for them (servicing by selling). Buying several products or services from a single company generate stronger relationship and lower attrition probability. Everything above is basically positive, better than no program. However, when customer relationship is based on rational decision, another company with more aggressive approach can do considerable damage.

Emotional loyalty
Emotional loyalty has to do with the true concept of Loyalty. Brand as a whole has its foundation in customer experience, quality, integrity, service, ethics, trust, corporate responsibility and values. If the brand feels right for the customer he’s less likely to consider competitors. Also, the loved brands become part of customer’s own identity and they don’t lose customers without warning. If customers truly love your brand, they let you know if your pricing or position is having a strong challenger and they actively ask your approach to the situation. Emotional loyalty is not price driven. You can have healthy margins and customers accept it. In such a position customers also offer their helping hand and are much more open to participate in open innovation or co-creation dialogue or giving you advice how to improve your service even further.
In current business environment there’s too much of everything all the time. It’s very difficult to differentiate yourself by offering or pricing. The truly emotionally driven approach to loyalty is to consider how the company can show it’s loyalty towards customers. How do you take care of your customers? How do you make certain that the value you are delivering to your customer becomes even higher? How do you solve problems that your customers have?

Habit based loyalty
In most businesses there comes a time when customers re-consider whether to buy the same brand again or to buy something else. If the customer is involved in continuous relationship it requires active sign-off from the current relationship. If you can turn single purchases in to continuous relationships in any way, you are likely to drive much higher loyalty. That’s the best part. Once the customer is engaged in continuous relationship it requires time and effort to close it. The bigger the required effort is, the less like people are to go thru with it. Some of the best psychological themes for loyalty are laziness and minimizing points of discontinuity creating experiences like billing. One of the great ways of improving loyalty is allowing customers to have automatic payment methods directly from account or via credit card (eg. Netflix and Spotify). As a result customer does not get direct invoice for the service delivered but it’s included in credit card invoice or directly paid from account. Attrition probability drop is quite significant with such a method and the relationships could continue for as long as the credit card is valid.
When people establish behavioral patterns like reading a newspaper every morning, their likelihood of attrition is much lower. Habit based loyalty is really about keeping the status quo. Low profile and making certain that there is no need for active consideration for the customer enable very profitable type of loyalty.
I have have been completely loyal to LensOn contact lens selling online store for the past four years. This is because they send me an email enabling me to repeat purchase with only two clicks. I didn’t even remember the brand, but in case I didn’t order instantly I would go back to my email and search: “contact lenses”. This search will bring me the email I am looking for and with only two clicks I’ll order new package of contact lenses. Because my credit card information is already stored in the service, this habit is extremely easy for LensOn to maintain.
Another fantastic case of habitual loyalty is online banking. The first online bank was issued in Finland and since then the whole retail banking has changed completely. People no longer have a reason to go to the bank. They can take care of all their finances online. As an outcome people have become user interface loyal. Only in case of major need for relationship driver service, like mortgage, people would consider changing their bank relationship. Online banking is like electricity, as long as you get it when you need it, there’s no problem. If you don’t, you have a major problem. If the service keeps on going there’s nothing to question the current relationship. Online banking enabled huge cost cuts and automated service processes. Cost to serve is now marginal. Once online banking was introduced and became a habit for customers, the vast majority of customers became profitable. Banking margins and profits have grown and the profitability has increased without attrition.

Imprinted loyalty
Customers are not necessarily loyal to the company, but person they are in a relationship with. If customers get imprinted to their counterpart and the person stays with the company, relationships could be very strong emotionally, rationally and habitually. Trusted person can be an enormous asset for a company. The online revolution has diminished the role of person-to-person relationships in consumer businesses. The role of brands and trust in service processes has substituted the void to some extent. It’s not quite the same but works too.
The company’s customer interfaces and people servicing customers should still be trained to reach for such relationships. The brand is as good as the person representing it. Some major hairdresser chains evaluate their employees based on the fact, how many of the hairdresser’s customers book their next visit from the same hairdresser. This measure is beautifully simple and revealing. Being a great hairdresser is not just about the quality of your work, it’s very much about the whole experience. Especially women open up and discuss at the hairdresser. They could easily spend two hours with the hairdresser and spend a lot of money on the experience. It’s about being heard, appreciated and pampered along with getting your hair cut and dyed.

Legal (Contractual) Loyalty
Mobile operators in Finland suffered from very high attrition rates after number portability was enabled. Churn rates reached +30% level even though customers were very happy with their operators. This is a great case proving that customer satisfaction DOES NOT EQUAL loyalty. Customers want to have a new mobile phone every two to three years. The need to get a new handset created natural discontinuity to relationships. Mobile operators have an orientation to offer good deals for new customers and winning higher share of dynamic market. This orientation led to higher advantage for changing a company than staying with the current one. These operators had same level of perceived value and customers had rarely real preference. Most customers had only options that were equally good in general. Only differentiating factors were the brand communications and current offers.
The operators started selling customers 12 month agreements, which offered lower cost calls in the evenings or weekends. These agreements sold quite well and led to lower attrition rates. Once 3G bundles were introduced they included 24 month agreement and were sold with handset subsidies. Against your 24 months agreement you got the mobile phone at about half price. These agreements dropped attrition rates below 10%. In other words agreements offered steady relationships and predictability. As a result mobile operators profits increased and people purchased more expensive mobile phones, which enabled major increase in the use of data creating completely new mass market. Everybody won. After the 24 month agreements ended, the attrition rates increased back to 15-20%. Although the attrition rate increased, they didn’t reach previously familiar 30% rates.
Human nature is lazy and towards many product and service ranges, indifferent. In order to gain market share in a business like this brand has to actively sell and create discontinuity with sales. Electricity agreements are a great example of this. Very few people compare electricity pricing and actively change a power company unless it’s actively sold. When you get a call offering you -5-10% and the offered power is produced with water and greener than your current option, it’s easy to agree. Even better, the new company also close the previous deal so that the only thing you need to do is say ”yes” on phone. It is possible to surprise a competitor with heavy attack in a case like this. Unless the competitor has closed agreements for certain period of time, they are likely to lose a lot of customers almost over night. Who would start comparing for 5%? Very few would. Who would accept such offer when it doesn’t require any effort? Quite many will. Only thing hindering people to accept such an offer would be to tie them in the relationship with an agreement for certain period of time.
Loyalty by structural Bond
What could you sell your customer to make him dependent on you? Structural bond is an interesting approach to loyalty and how to create value in which the customer becomes dependent on.
When Polar Electro introduced their wrist top computers with heart rate monitoring they soon created online Personal Trainer in the end of 1990’s to supplement additional training advice for users beyond possibilities of the cadget in it self. Personal Trainer recorded all your training to a database and created record. It helped analyzing your training requirements and results very effectively. In the early 2000 this was a ground-breaking innovation. When all your training history was online, Polar Electro had a structural bond on you. If you wanted to change to more advance training tools, you had to buy another Polar wrist-top-computer in case you wanted to keep your training record ongoing. Currently mobile phones have same functions and you can use variety of platforms for storing your data eg. Samsung back-up, Apple iCloud or Android saving to Google account. These platforms effectively still create structural bond although some of them are now cadget independent and available to iPhone, Nokia and android. Still, Polar Electro’s Training Tool is an effective loyalty driver for everyone who has been using it for the past decade. The current rush to “internet of things” will produce massive offering of services just like Polar Electro’s training tool. As this market is only just opening, every brand should consider right now, how can they lock their customers in.

Facebook also has a strong structural bond, your friends that are already there. When everyone is already there, it becomes very difficult to leave and completely stop using it. It is also very challenging for other services to get really active users, because Facebook is a strong habit and it holds your entire social life and has become big part of yourself – part of who you are and how you represent yourself to the world.

Attrition
No matter what you do, some customers will leave eventually. Still, applying effective win back strategies could diminish negative churn. One telecom company actually managed to win back 80% of already lost customers. Win back operation was probably the most profitable function the company had ever created.

Just one more advice, when you are trying to develop your company’s customer relationship excellence, you can’t just look at the customers who are happy and satisfied. Their responses will only strengthen the status quo and hinder innovation and adaptation to changing business environment. Lost customers on the other hand are a great source of insight and improvement advice. Any information that help you predict discontinuity, increase the probability of re-purchase, or shield customers from competitors influence and decrease retention clearly increase profitability.

Loyalty certainly is something worth thriving for. Just remember the Golden rule when you are making choices – even though you work in the interactive digital market place.

SEE ALSO:

About Author


3 Comments

  1. […] The concept of loyalty is a very profound human emotion like love and trust. Loyalty is an outcome of shared values and experiences, forged with time. It’s not a fling, its about integrity, trust and dedication.  […]

  2. […] The concept of loyalty is a very profound human emotion like love and trust. Loyalty is an outcome of shared values and experiences, forged with time. It’s not a fling, its about integrity, trust and dedication.  […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: