Insight: Is loyalty a transaction, or an emotion?

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By: RickFerguson |

Posted on February 11, 2016

An interesting if too-brief eMarketer interview with Mark Taylor, senior vice president of digital customer experience at Capgemini, broached the age-old question for loyalty marketers: Is loyalty a transaction, or an emotion? The answer to this question lies at the heart of a successful customer loyalty strategy. And the answer, as in most seemingly binary questions, lies not at either extreme�but somewhere in the middle.

Taylor�s central thesis in the interview is that most loyalty programmes fail because they�re �transaction-based� and therefore fail to address the emotional side of loyalty by providing a strong customer experience. The value of transaction-based loyalty programmes to consumers is thereby rapidly diminishing. Money quote from Taylor:

[Most loyalty programmes aren�t] relevant to who I am. Two-thirds of loyalty programmes are abandoned by consumers within the first year, because the value isn�t there. Consumers look for a seamless experience with brands more than they look for future discounts. They will not trade in today�s experience for tomorrow�s discount.�

According to Taylor, the original purpose of loyalty programmes�to drive increased frequency, retention, and customer value�focused those programmes on the transactional side of the customer loyalty equation without accounting for emotional loyalty as driven by the customer experience. That focus, Taylor argues, has made loyalty programmes less relevant in a consumer environment driven by a desire for unique experiences:

�While loyalty is massively important, loyalty programmes are less relevant. Brands today should focus on ensuring that the experience is simple and pleasurable. It can�t always be pleasurable, but it can always be simple. Loyalty�not a loyalty programme�is an emotional state of mind. The way to drive real loyalty is to create engagement through experiences.�

Taylor makes a strong point: it's true that loyalty programmes that focus solely on delivering low-value rewards in exchange for transactional behavior will nearly always fail to deliver emotional loyalty. It�s in this comment, however Loyalty�not a loyalty programme�is an emotional state of mindthat Taylor misses an important point that lies at the heart of a successful customer strategy. �Loyalty� not only means different things to different people, but it also means different things to different brands. To drive real enterprise value through your customer strategy, you must build relationships at the intersection between these two often disparate definitions.

Much of the academic research in customer loyalty reveals that there is no single definition of �customer loyalty.� Loyalty can be driven by emotion, by price, by convenience, by inertia, by lack of competition, or by strong barriers to exit. In essence, these different types of loyalty can be placed into two main categories:

  • Transactional loyalty: Loyalty driven by rational decisions based on price, convenience, inertia, or other non-emotional factors. A Platinum frequent flyer, for example, can appear highly loyal in the airline�s database. That loyalty, however, may be driven by lack of choice�perhaps the flyer lives in a hub city where the airline has effectively blocked competition. The flyer may not only feel little emotional loyalty to the airline, but given a real choice, might jump ship.
  • Emotional loyalty: Loyalty driven by an emotional attachment to the brand based on customer experience, its aspirational value, popularity, or other personal reasons. Emotional loyalty sometimes does not translate into high customer value. A consumer can, for example, love the Nordstrom brand without being able to afford to shop in their stores. In this case, the loyalty is aspirational�and therefore has no impact on Nordstrom�s bottom line.

Marketers who focus solely on the customer experience to build emotional loyalty, as Taylor argues, risk making the same mistake as marketers who build loyalty programmes that focus solely on the transactional: wasting money to build the wrong kind of loyalty. Every business has to deliver a baseline quality customer experience to attract and retain customers. But why pour dollars into experience-based loyalty if your customers are driven by transactional values such as price or convenience?

Conversely, if your high-value customers are driven largely by an emotional attachment to the brand, a transaction-based loyalty programme may not move the needle. What�s more, different customer segments may be loyal for different reasons.

The key to a successful customer strategy: Don�t focus on loyalty�focus on relationship value. Learn which customer segments offer the highest current or potential value, and which type of loyalty�emotional or transactional�motivates those segments to spend more and remain with you longer. In some cases, you may drive relationship value through rewards and discounts; in others, you may drive value through delivering unique and personalised experiences.

Loyalty is either an emotion, a transaction, or both. As desirable as it may be, emotional loyalty alone is ultimately only as important as its impact on sales and revenue.

You can read the rest of the Taylor interview here.

�Rick Ferguson

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