Many companies have invested heavily in the past twenty years in loyalty schemes, particularly in the retail and travel markets.
But recent research has suggested that this has had little impact – with only one in four UK consumers professing strong loyalty to their favourite brands.
More interesting are the regional variations the research uncovers, with strong loyalty at 33% in the Tyne Tees area but only 20% in Scotland. Why is this?
The research, from Arvato Loyalty Services, makes for interesting reading.
It shows Londoners matching the Scots, with 20% expressing strong loyalty and the folks from East Anglia the most difficult to engender loyalty at 16%.
Arvato says that “sophisticated Londoners” are less loyal, citing “their high exposure to a wide range of product choice”.
I think this is very wide of the mark - sophistication is not a characteristic unique to Londoners.
I have been involved with the customer feedback programmes of many organisations, where loyalty is of great interest.
Many of these programmes have tested the efficiency and friendliness of staff and it is remarkable how often customers from the north of England report that employees are more friendly than those in the south.
Perhaps this is why consumers in the North express greater loyalty? There is no doubt that the people factor is always high when the drivers of satisfaction and loyalty are tested. But even this is too simplistic.
There seems to be little agreement about what loyalty is. Net Promoter fans will point to the studies (now increasingly questioned) that relate advocacy to financial growth, while loyalty card operators will point to the increased share of wallet that schemes like Tesco Clubcard generate.
Others will talk about emotional connections or take a financial perspective, focusing on what customers buy.
Let’s just step back a bit and look at loyalty in its different guises.
First, the monopoly view of loyalty. We are all loyal to the Inland Revenue but not out of choice. Imagine a competitive tax provider that competed on rates.
Research in the local government sector in Canada in the late 1980s suggested that consumers dissatisfied with the service they received from monopoly suppliers expressed it through disruptive behaviour – not paying on time, complaining or taking excessive time to complete simple tasks; basically making life difficult for the supplier of the service.
Deal loyalty drives the buying habits of many consumers, particularly in some sectors. I might be loyal to a supplier not because I like them and sing their praises (the advocacy view of loyalty) but because I want the best deal.
I might put up with all manner of problems just to get that everyday low price, as Asda quotes in its advertising. Deal loyalty is often no loyalty at all – it disappears as soon as there is a better deal elsewhere. The financial service companies endearingly call these customers ‘rate tarts’.
Several industries benefit from inertial loyalty. The biggest retention tool that many banks and utilities employ is the knowledge that a large number of customers can’t be bothered with the hassle of sourcing a better package and changing supplier.
They’ll stick with what they’ve got until something really drastic goes wrong - a competitor offers a package that just can’t be ignored or the ease of switching changes. Price comparison sites like Uswitch or moneysupermarket.com are good examples.
Real loyalty is far deeper. It is when a customer has a very positive attitude to a company or product.
It is that characteristic that makes the consumer willing to give suppliers certain liberties. They might charge a bit more than the rest or introduce a product that doesn’t quite match up to others on the market, but that tie gives the company a bit of wiggle room.
Overstretch that commitment, however, and a loyalist becomes a terrorist - it’s like an elastic band, it will stretch so far but when it gets stretched a little too far, it snaps – suddenly – and both parties can get hurt.
The customer feels badly let down and seeks revenge - no opportunity is lost to repay the betrayal. Are such emotive words appropriate? Definitely. To borrow a saying: “Hell hath no fury like a loyal customer scorned”.
Many companies fail to generate such loyalty because they are unable or unwilling to take an holistic customer perspective.
They are hamstrung by fragmented organisations. When we help our customers design feedback programmes, we start with an holistic view of the customer experience.
It is intentionally broad because that is how customers see suppliers. Product, ease of doing business, friendliness, value for money and reputation are just some of the factors that influence the experience from the customer’s perspective.
Some say that this is too broad and unrealistic but that misses the point – customers don’t compartmentalise their views as suppliers do. You may recall the stories of the boycotts on Shell because of the problems with the redundant oil platform – nothing to do with the quality of the product, it’s accessibility or ease of doing business.
That issue of reputation tainted the experience in a way that led to significant changes in buying behaviour.
The real key to loyalty therefore is to understand what mixture of the different elements of customer experience your chosen customers value, preferably at a detailed segment level and focusing on delivering against that.
Don’t guess that you know because you won’t. Build your capabilities around that knowledge. Test it regularly and get feedback from customers to measure how well you are doing.
Make sure this measurement is relative to the competition, not just a simple scale of 1-10 because loyalty is about customers making and affirming a choice and succes is a relative not absolute business. Use this information to improve those factors that loyal customers value most.
The fact that the people in Tyne Tees have a greater inclination to loyalty should not come as a surprise. After all, look at the numbers that stay loyal to Newcastle united, Middlesbrough and Sunderland football clubs.
It just goes to show that it’s not all about the product!
David Jackson is the MD of Clicktools