One of my main areas of research and my passion is customer loyalty. After spending 5 years and spending nearly £350,000 I have produced research which is quiet exciting. I researched, studied and/or worked with numerous firms including Apple, Emirates Airlines, Thomson Travel, Serena Hotels & Resorts, Singapore Airlines, Harley-Davidson, Ikea, Zara, Walt Disney, Caterpillar Financial Services, and a dozen other companies I sought out to find what really is a truly loyal customer, and to see how we can cultivate these customers in our firms.
True loyalty, is one where the customer remains loyal to the company in all circumstances. The customer never seeks out alternatives or uses competing brands, is willing to forgive mistakes, and will even pay more money to be with the same brand/firm. When we look at the real world, these types of ‘customers’ do exist, in places such as sports or music fans, and people that donate to charities. For example, people don’t stop supporting the Red Sox or Manchester United, just because they lose a game or don’t win the championship. Similarly, people don’t buy a particular type of music, because its on sale, or because you get more loyalty points for it! True loyalty exists in these types of areas. This type of loyalty can also be referred to as emotional attachment, or emotional loyalty. However these types of businesses are not characteristic of the other ‘normal’ types of businesses. Moreover, since these customers are not really rational thinkers (since they are willing to pay more money to be with the same firm) the question is do they exist in the B2B domain?
The good news for marketers is that these types of customers do exist in all of the firms that I studied / worked with (even in the B2B domain). The not so good news was that none of the firms seemed to have a clue about how to identify them! If you don’t know how to identify them then how can you manage them? For this blog, I just wanted to help you identify the different types of loyal customers.
The first type of loyal, which I would guess about 99.99% of the firms go after are what I call the behavioral loyal customers. A company merely looks at the behavior of the customer (i.e. is the customer coming back to us). While it may be useful to measure repeat business, it is not the best method. Most loyalty schemes target these customers. However, as I found, people may return for a number of reasons, other than loyalty. For instance, if a supermarket is close to where I work, I would go there. If I were to move, I would switch to another one. Another reason is the cost. I go to the cheapest supermarket. If a different brand offers something cheaper I go there. Similarly for loyalty schemes, I may be loyal to a company because it offers the most points, but if a different company were to offer more points, I would switch. Hence, this is not the best measure of loyalty. However, in a typical company the majority of the customers belong to this category.
One step up from this is to look at the attitudes of customers (attitudinal loyalty), in addition to repeat purchases. Do they WANT to come to our firm? People who return to a company and also like this are in this category. These customers are better since they like you or your brand, and are not stuck with you. These customers will spend more, buy a greater range of products and services, and spread positive word of mouth (recommendation). However, I’ve found even these customers have limitations. If you offer bad service, or have a higher price, these customers will switch. Moreover, most of these customers will look for alternatives or competing brands/products. So even if they like you they may think of trying out others. Again, these customers don’t represent true loyalty. However they are better than the behaviorally loyal customers. These customers represent a smaller percentage of customers than behaviorally loyal ones.
The emotionally loyal customers are the best. These are the customers who don’t just like the brand/company they love it! These customers feel that the product / service that you offer is so great, it is not worth the risk to look at anyone else. They do not search for alternatives, and also block out competition’s messages. Moreover, these customers do between 80-100% of their total shopping (in a category) with the brand they love. These customers not only tell others about the brand they love, they will go out of their way to tell people! These customers will also forgive service failures, something the others will never do. Finally, these guys are willing to pay up to 20% extra to continue to receive the same product/service from the firm! These customers are the most profitable. Unfortunately these customers constitute a very small percentage of our customers.
The goal for a company should be to:
1) identify their customers in the appropriate segments
2) to build a program that will cater to the different needs for each of these segments
3) to try to get most of the customers to shift from the lower levels of loyalty to the higher ones
I believe that companies should alter their loyalty programs to fit into these categories of loyalties.
This is all the time I have for now, but I will be posting more on this topic in the future. If you would like help in any of this, feel free to get in touch.
Dr Osman Khan, one of the world’s leading experts in Customer Loyalty and Customer Experience Management