Current loyalty marketing practices are aimed at retaining the most valuable customers but they often disregard medium- and low-value customers who have been faithful to the brand for a long time, according to Dr Enrico Tronchin, head research and development analyst at The Customer Equity Company.
In a nutshell, the real problem is that dissatisfied customers don't always defect from the brand (for example, in the airline industry), while satisfied customers sometimes do (as observed in the automotive industry).
Loyalty versus satisfaction
In fact, it has been found that while automotive customer satisfaction is high (up to 90%), repurchase rates are still very low (as low as 40%).
And, in the various service industries (in the US at least), up to 20% of defectors will tell you that they were satisfied customers. So customers who are apparently loyal are not necessarily the same as customers who are satisfied, and vice versa. As a result, Tronchin argues, marketers can't really tell how customers feel by merely observing what they do or purchase.
The commitment equation
The key to understanding this problem lies in an understanding of commitment - that is, how a customer feels about brands, and the nature of their psychological attachments, rather than focusing purely on behavioural loyalty (i.e. what brands a consumer actually buys).
Marketing sciences are now at a point where techniques such as agent-based modelling are starting to indicate that strong market barriers (which customer retention programmes often are) can actually damage the market share of big brands through customers spreading negative word-of-mouth.
The customer's opinion
It's a simple fact that committed customers are more likely to advocate their brand of choice, which also means that if you upset them they will probably also be the first to voice their dissatisfaction. However, the most committed customers will usually tolerate the most dissatisfaction.
So the question a marketer needs to answer for each apparently committed customer is whether or not they are so dissatisfied that brand switching is imminent. Are they waiting for the straw that breaks the camel's back? After a committed customer defects, winning them back to the brand can be a very costly proposition, if it's even possible.
Characteristics of commitment
From The Customer Equity Company's extensive research, there are several main characteristics of a brand-committed customer, including:
- They are willing to pay more for the brand;
- They will overcome market obstacles to buy the brand;
- They shop where the brand is available;
- They complain if the brand is out of stock;
- They might notice competitor marketing but will use it to reinforce their own choice of brand;
- They buy the brand again without persuasion;
- They stay longer with the brand than other customers do.
Unfortunately it doesn't work to simply ask consumers if they are committed to a particular brand, and whether or not they are likely to be loyal to it. The fields of neuroscience and psychology have shown that people don't always know why they do what they do, and they don't generally know exactly what they are going to do before they do it. Interestingly, they can't always tell you what they've done once they've done it.
So marketers who want to identify committed customers need to use a more holistic and indirect measure - for example, using a multidimensional model of the consumer-brand relationship. Dimensions underlying commitment include:
- The extent to which a brand meets a person's needs, because people act according to a generalised feeling of what is best;
- The importance of brand choice to a person in a particular product category (i.e. category involvement);
- The degree to which a person is ambivalent about their brand choice;
- A person's perception of alternative choices, because everything in life is comparative.
The measure of commitment should be able to not only determine the degree of commitment of a brand's current user base, but also the degree to which non-users are open to switching to the brand. Only once we know this can we begin to build appropriate loyalty marketing strategies. Finally, perhaps the most important point is that the measure of commitment should be validated using actual consumer purchase behaviour data.
Ultimately, building brand strength is more about fostering strong relationships with customers than retaining or gaining market share. Factors such as packaging, advertising, editorials, and personal experience are all elements that help consumers form stronger relationships with brands.
It's being able to measure customer commitment, which looks at the relationship each consumer has with the brand, that allows the marketer to devise the right strategy and also measure and evaluate its effectiveness.