Is Customer Loyalty a Thing of the Past?
By Adrian C. Ott
While attending a recent presentation on customer loyalty, a question from a member of the audience sparked my imagination.
"Do Millennials care at all about loyalty? Does loyalty to products and brands still exist?"
When I looked around the room, there seemed to be a mood of skepticism about the topic of customer loyalty.
Another woman responded, "It is hard to be loyal because there are so many options out there today. There are always new products that seem interesting."
Are they correct? I remember my parents unquestioningly buying Ford automobiles, or insisting on filling up at "Herb's" corner gas station.
Are loyal customers an endangered species in the business world - soon to join the fate of the dinosaur? or the typewriter? Are executives and marketers deluding themselves?
Only 2.5% of Consumers are Loyal
No doubt, our relationships with brands have significantly changed. The Financial Times cites a two year analysis of 685 brands using data from 32 million consumers that in 2008 the average brand lost a third of its most highly loyal customers. These customers were lost to price and promotions from other brands - something brand marketers considered improbable in the past.
B-to-B executives constantly complain about pricing pressures and reverse auctions as vendors are deemed as replaceable. Even products and services that were considered fortresses of differentiation reach commodity status at a record pace.
The CMO Council and Pointer Media Network study further reveals that 80 percent of brand sales are attributed to only 2.5 percent of shoppers - not 80/20 as previously thought. Searching for traditional brand loyal customers is like looking for a needle in a haystack. These figures suggest that such customers could be considered as endangered species.
Tilting at Windmills of Unwavering Customer Allegiance
According to Merriam-Webster's Online Dictionary, "loyalty" is an act of unswerving allegiance. Synonyms are: faithfulness & fidelity. These terms connote an unquestioning devotion - an effect on our emotions that drive our actions. Analogous to a marriage where using competing products constitutes a terrible act of adultery - something to be avoided at all costs.
Consider the products and services you use personally and for business. How many of those items truly stand out for you? How many would you drop if something better, (or cheaper with equivalent quality), came along?
Rather than tilting at windmills in pursuit of unwavering allegiance, a more pragmatic and fresh approach is needed. Let's stop focusing on diminishing returns of 2.5% of customers and think about the rest of the 97.5% of customers out there. Don't they have money to spend?
Customer engagement today is different because there is a greater risk of distraction. Time is limited. We multitask as we juggle different types of technology. The Internet and globalization have enabled a plethora of products and services that vie for our time and attention. We can buy products and services from across the globe.
Consider a teen that has choices to spend his time on World of Warcraft, The Wii, Halo3, a social network, or texting. He actively considers competing alternatives on how to spend his time. Understanding the forces that compel a customer to spend time with a product or banish it as "background noise" is key.
Traditional customer loyalty is blind to the alternatives. Today's customer has access to all the alternatives. When customers are compelled and see value in an offering, they give a share of their time and attention to what they deem as the best alternative. The following chart highlights these differences:
This demonstrates that the term "Loyalty" is an imprecise way to describe contemporary customer relationships. Ask around and you will find few, if any, customers that view their relationships with brands as a faithful, loyal marriage - many don't even consider it a betrothal.
Customer Engagement: Speed Dating versus a Faithful Marriage
There is simply not enough time in our day to devote our attention to all the products and services we purchase and consume. This results in varying modes of engagement.
Customer traction is possible, however the reasons are not uniform and not always based on emotions or attitude. Behavior can be just as profitable as words of affection. For example, some people always buy the same brand. However it is not because it tugs at emotional heartstrings as branding agencies would like us to believe. The product simply works. We don't want to think about it further. We want to move on to more important decisions in our lives.
With hectic lifestyles, most customer interactions are like speed dating combined with a few serious brand relationships where customers are willing to invest more of their precious time and attention. Alternatives are waiting in the wings that are ready and willing to replace your products and services. Distractions from technology abound.
Changing our mindset to address the reality of today's distracted, multitasking, digitally-savvy customers calls for fresh approaches to engage them.
Future blog posts will describe strategies based on our work with leading clients, and three years of extensive research with innovative companies who have gained sustainable traction in this hyper-competitive environment. (Hint: These strategies involve entirely new ways of thinking that go well beyond social media, and tactical loyalty programs.)
Food for Thought: Dogs are loyal. Customers are not dogs.
What do you think? Is the term "Loyalty" outdated? Is there a better term? Is there a difference in the way the generations engage with products and services?
© Copyright 2009, Exponential Edge Inc. All Rights Reserved
While attending a recent presentation on customer loyalty, a question from a member of the audience sparked my imagination.
"Do Millennials care at all about loyalty? Does loyalty to products and brands still exist?"
When I looked around the room, there seemed to be a mood of skepticism about the topic of customer loyalty.
Another woman responded, "It is hard to be loyal because there are so many options out there today. There are always new products that seem interesting."
Are they correct? I remember my parents unquestioningly buying Ford automobiles, or insisting on filling up at "Herb's" corner gas station.
Are loyal customers an endangered species in the business world - soon to join the fate of the dinosaur? or the typewriter? Are executives and marketers deluding themselves?
Only 2.5% of Consumers are Loyal
No doubt, our relationships with brands have significantly changed. The Financial Times cites a two year analysis of 685 brands using data from 32 million consumers that in 2008 the average brand lost a third of its most highly loyal customers. These customers were lost to price and promotions from other brands - something brand marketers considered improbable in the past.
B-to-B executives constantly complain about pricing pressures and reverse auctions as vendors are deemed as replaceable. Even products and services that were considered fortresses of differentiation reach commodity status at a record pace.
The CMO Council and Pointer Media Network study further reveals that 80 percent of brand sales are attributed to only 2.5 percent of shoppers - not 80/20 as previously thought. Searching for traditional brand loyal customers is like looking for a needle in a haystack. These figures suggest that such customers could be considered as endangered species.
Tilting at Windmills of Unwavering Customer Allegiance
According to Merriam-Webster's Online Dictionary, "loyalty" is an act of unswerving allegiance. Synonyms are: faithfulness & fidelity. These terms connote an unquestioning devotion - an effect on our emotions that drive our actions. Analogous to a marriage where using competing products constitutes a terrible act of adultery - something to be avoided at all costs.
Consider the products and services you use personally and for business. How many of those items truly stand out for you? How many would you drop if something better, (or cheaper with equivalent quality), came along?
Rather than tilting at windmills in pursuit of unwavering allegiance, a more pragmatic and fresh approach is needed. Let's stop focusing on diminishing returns of 2.5% of customers and think about the rest of the 97.5% of customers out there. Don't they have money to spend?
Customer engagement today is different because there is a greater risk of distraction. Time is limited. We multitask as we juggle different types of technology. The Internet and globalization have enabled a plethora of products and services that vie for our time and attention. We can buy products and services from across the globe.
Consider a teen that has choices to spend his time on World of Warcraft, The Wii, Halo3, a social network, or texting. He actively considers competing alternatives on how to spend his time. Understanding the forces that compel a customer to spend time with a product or banish it as "background noise" is key.
Traditional customer loyalty is blind to the alternatives. Today's customer has access to all the alternatives. When customers are compelled and see value in an offering, they give a share of their time and attention to what they deem as the best alternative. The following chart highlights these differences:
This demonstrates that the term "Loyalty" is an imprecise way to describe contemporary customer relationships. Ask around and you will find few, if any, customers that view their relationships with brands as a faithful, loyal marriage - many don't even consider it a betrothal.
Customer Engagement: Speed Dating versus a Faithful Marriage
There is simply not enough time in our day to devote our attention to all the products and services we purchase and consume. This results in varying modes of engagement.
Customer traction is possible, however the reasons are not uniform and not always based on emotions or attitude. Behavior can be just as profitable as words of affection. For example, some people always buy the same brand. However it is not because it tugs at emotional heartstrings as branding agencies would like us to believe. The product simply works. We don't want to think about it further. We want to move on to more important decisions in our lives.
With hectic lifestyles, most customer interactions are like speed dating combined with a few serious brand relationships where customers are willing to invest more of their precious time and attention. Alternatives are waiting in the wings that are ready and willing to replace your products and services. Distractions from technology abound.
Changing our mindset to address the reality of today's distracted, multitasking, digitally-savvy customers calls for fresh approaches to engage them.
Future blog posts will describe strategies based on our work with leading clients, and three years of extensive research with innovative companies who have gained sustainable traction in this hyper-competitive environment. (Hint: These strategies involve entirely new ways of thinking that go well beyond social media, and tactical loyalty programs.)
Food for Thought: Dogs are loyal. Customers are not dogs.
What do you think? Is the term "Loyalty" outdated? Is there a better term? Is there a difference in the way the generations engage with products and services?
© Copyright 2009, Exponential Edge Inc. All Rights Reserved
Posted by Adrian Ott at 6/24/2009 11:05 AM 
Categories: Marketing,Strategy,Customer,Customer Behavior
Tags: Marketing Customers Loyalty Customer Relationship
Categories: Marketing,Strategy,Customer,Customer Behavior
Tags: Marketing Customers Loyalty Customer Relationship
definitely food for thought..
Your assessment of the threats to loyalty behavior is spot-on.
With regard to your last question: is the term "loyalty" outdated?
"loyalty" in terms of customer behavior is defined as:
- buy again
- buy more
- spread positive word of mouth..
To increase the above behaviors is what most companies strive for, since these are clearly drivers for increase in profitability and revenue growth.
These efforts are usually not focused on only loyal customers, but on all customers. At best this is done through a segmented approach. There are no "same" customers, but there are customer groups that show similarities.
I do not mind whatever the name is we give the "animal". As long as you continue to increase value for your customers and in return they buy again, spend more and tell good stuff about you to their friends, you are on the right path.
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