Customer loyalty

October, 29, 2009
Sylvain

Today I’m going to talk to you about an interesting Marketing Concept: Customer Loyalty.  You might ask:” Why bother about a customer’s loyalty if all that counts is how much we can make off him, in short, profitability?”…you would be both wrong and right.

Wrong because a barely profitable client who is loyal yields more in the long term, and you would be right because loyalty and profitability are correlated (on this subject read: ’Beyond Customer satisfaction to Customer Loyalty’ by Bhote).

So, acting in favour of Customer Loyalty gives us every chance of increasing our profits, which is our main objective (let’s remain down to earth).

To work on customer loyalty we have to understand what it means and we need to create a typology. Luckily Stephanie Coyles and Timoty Gokey (McKinsey) published this:

Customer retention is not enough. Stephanie Coyles, Timothy C. Gokey.  Journal of Consumer Marketing, 2005.

In this paper they present the results of a survey carried out in 2001 on a representative sample of 1200 people in 16 different economic sectors.  The basic idea was that company customers can be divided up into two main types: The loyal and the disloyal, and in each group there are subdivisions.

Loyal Customers

These can be divided up into three main groups based on rationality/sentimentality.

Emotional/ loyal

These customers rarely reconsider their shopping decisions because they are convinced, for emotional reasons mainly, that the company they have chosen is THE right one for them.  To keep these customers it’s important to work on the emotional connection that they have with the Brand.

Passive/ loyal

These customers are loyal to a brand because changing would be problematic: high costs, difficult procedures (having to change banks for example).  They believe that the change isn’t worth the effort involved.  To keep these customers it is import to make sure that moving away is a pain in the ass.: so, you want to cancel your subscription? OK, you will have to come, in person, to our Cancellation Centre in Timbuctoo which is open between 23:48 and 23:53.

Thoughtful/ loyal

These spend their time going over their shopping decisions but remain loyal because they have found rational reasons for what they prefer (“I shop at xxx because they’re cheaper”).  To keep these customers you have to make sure your offers are cheaper than the competitors’ (price, quality and service).

Disloyal customers

These move from shop to shop looking for better or more suitable options/ these are customers who jump ship according to what they think is a better deal/ hoping to reach their el dorado…

Disloyal in essence

This customer moves with his changing needs (or at least he thinks they change).  A typical example is one who ‘needs’ an Ipod this year and who will need a Blackberry the following year.   Most of the time there is nothing we can do to hold on to him and the only valid strategy would be to have a holding that sells every item in a specific field (luxury sector for example!).

Disloyal, Rational

This customer left because he found better options elsewhere. Do you want to regain his custom?  Then align with competitors.

Disloyal, unsatisfied

This customer leaves because he’s unhappy: customer service upset him, and he ended up not phoning his wife for their wedding anniversary etc… An emotional loyal could quickly become this if he feels abused.  He needs to be spoiled!

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Picture: courtesy of Abby Blank