One of the biggest challenges in understanding existing customers is quantifying who your most loyal customers and what are the factors that drive and sustain loyalty. It is a generally understood marketing heuristic that loyal customers are worth more to a business, but how exactly do we quantify loyalty?
In our opinion there is a framework that should drive how all businesses look at customer loyalty, but the relative importance of customer loyalty is unique to every business model.
Let’s start with what we believe loyalty is not.
Loyalty is not a high brand satisfaction score.
Loyalty is not high a NPS score.
These metrics which indicate how customers feel about your product or brand may be indicators of loyalty, and they may be reasons that customers are loyal – but they are not actual loyalty itself.
Loyalty is also not brand love, brand affinity, or brand value alignment.
Loyalty is not is also not “emotional” loyalty. We believe emotional loyalty and brand love, brand affinity to be emotions.
We believe loyalty ultimately is a behavior.
Generally in life, we expect people to demonstrate loyalty – whether it is our spouse, fellow citizen, or favorite athlete – we don’t judge their loyalty based on what they feel, we base it on how they act.
We believe this principle to be true for marketing as well and customer loyalty should be measured in behaviors.
If we think about loyalty, we thing there are two macro-dimension that drive loyalty measurement
• Sustainability: How likely is a customer to continue to buy from a brand?
• Required Investment: How much does the customer need to incentivized against to continue to buy from us?
Using a variety of statistical methods (e.g. survival analysis, etc) and historical transaction data we can forecast for each customer at individual basis the probability that we will continue to engage with a brand.
We can also looking at historical marketing investment per consumer, incentives and discounts redeemed, also understand the relative importance of our marketing investment in getting that customer act.
Customers who are willing to continue to engage while requiring less pushing from the brand demonstrate in our opinion greater behavioral loyalty.
Again there may be a various reasons why customers are loyal – from NPS, to price, to location, etc. And these reasons may differ in how well they create a sustainable competitive advantage. And this is really important.
But we believe the reason’s why you are loyal define loyalty drivers/risk factors, not loyalty itself, and understanding drivers should then be applied within the customer relationship management program.
We recommend to all our clients
• Define the importance of loyalty in your business
• Quantify existing loyalty as best as possible to understand your most vulnerable customers
• Define your customer’s loyalty drivers and risks
• Develop and deploy a comprehensive engagement approach that is business centered: based upon the importance of loyalty to your business – optimized against which customers require investment
• Customer centered: managing drivers / mitigating risks