Perceptive’s Oliver Allen says there’s a pervading theory that customer loyalty is a myth – that if it ever existed, it’s gone the way of the Blockbuster. But maybe it’s just not for everyone or forever.
With the internet at our fingertips, it’s never been easier to for us research and compare products and service specs, price and value for money. As more than one expert touts, it’s now about offering the right service at the right time at the right place.
But are they right? What’s struck me as I’ve read and listened to these views is that they’re making vast generalisations, sweeping statements that are intended to cover every possible interaction a business might have with its customers. As a leader of a customer-intelligence agency who’s worked with hundreds of clients across dozens of industries, I’m always sceptical of absolute truths when it comes to business insights.
To be clear, in many instances, the experts are right: there is no customer loyalty. It’s more about creating a frictionless and easy experience for your customers to generate customer habits than actual loyalty. Make
it easy for customers to use your product or service and meet their needs, and typically they’ll keep coming back. That’s not loyalty, that’s a habit.
The difference between habit and loyalty
I define customer loyalty as a faithfulness or a commitment to a brand; loyal customers buy into a brand’s character and story, forming a relationship with it almost like they would with a person. Meanwhile, a habit is simply a regular tendency or preference to perform certain actions – like buying a coffee, going to the gym or doing the grocery shop.
Habits are driven by functional benefits, such as being close by, having the cheapest prices and the best range, and so on. Loyalty is driven more by the emotional, ethereal elements of the brain. The two aren’t mutually exclusive – building habits can lead to loyalty and vice versa. Moreover, many brands will often have a mix of both habitual and loyal customers.
Loyalty exists, but it comes with conditions
Customer loyalty isn’t a myth. Loyalty exists, but it’s not unconditional. Some brands and retailers have fervently loyal customers – just look at the likes of Apple or Nike. (Some might argue that the loyalty people feel towards these brands is more about the status they bring. But isn’t this association with status a form of emotional connection, ergo a type of loyalty?)
What’s missing in a lot of customer-loyalty conversations is that loyalty has limits. Think about it in any other context, say a friend or a family member – if a friend did something terrible to you, your loyalty would evaporate.
Customer loyalty naysayers might argue, “What about Blockbuster Video? Loyalty clearly didn’t exist for them. If it did, they’d still be here.” The thing is, Blockbuster did have loyal customers, but it was conditional. When they stopped offering a strong service that competed in the market, that loyalty eroded away. It doesn’t mean it wasn’t there, but competitors such as Netflix and other streaming services simply created more favourable customer habits that took the market away from Blockbuster.
As another example, say you’re a small fashion label with customers who’ve bought into your ethos – everything from your designer and your store to the experience you offer. Those customers will be loyal in some way, but again, it’s not unconditional. If you triple your prices, they may well go elsewhere.
Instances such as these are why brands need to understand their loyalty dynamics. Under what conditions will your customers stop being faithful to your brand? It could be a price point, changing what you offer or changing consumer habits that mean you find you’re no longer meeting your customers’ needs.
Why Brands need to understand their loyalty dynamics
Understanding your brand’s loyalty dynamics starts with understanding your market. Are you in a category that generates loyalty, such as clothing or technology, or is your brand more suited to building favourable habits, such as FMCG? From here, you’ll also need to dive deeper into your category and customer behaviours to uncover how much your customer loyalty is to your brand versus the functional benefits you’re delivering.
One of the biggest issues I see is brands equating customer loyalty with their most frequent customers. “These are our loyalists,” a business might say, but often they don’t know if that’s actually the case. Say you have a ‘loyal’ customer who shops with you once a week but also shops at your competitor five times a week – are they truly loyal to you? Or do they shop with you because your outlet is on the way to a weekly activity?
In the past, gaining the knowledge of where customers are shopping and whether they’re driven by loyalty or habit has been difficult, a process often requiring extensive research and category-level transactional data analysis to get a clear picture of how loyal customers really are. The good news is that technology is helping to speed up the process and effort involved, which is allowing businesses to service themselves and understand the loyalty and habitual behaviours of their customers and category in near real time.
In my mind, it’s not a case of ‘customer loyalty is a myth’ – it’s more that loyalty isn’t for everyone. There are markets in which you don’t need loyalty much at all. For them, it’s about removing barriers and making a process easy for a customer to build customer habits. Meanwhile, in other industries, loyalty is still very much at play – and if you have it, it’s critical to understand your habit/loyalty make up, what drives each of these elements and where their limits lie.
This article was originally published in the September/October 2021 issue of NZ Marketing. Click here to subscribe.