Can customer loyalty be bought?

 

By: Theo Muller, managing director of MMResearch™

 

In my wallet, I have coffee loyalty cards of three different cafés in the Wellington CBD. Does that make me a loyal customer of each one? I like each one of them for different reasons. My sole motivation for selecting one café or another depends on where I am at the time I wish to satisfy my coffee cravings without having to walk too far. They all serve good coffee, employ friendly people who give good service and I enjoy the ambiance. Yes, you could call me a loyal customer, BUT NOT BECAUSE I HAVE ONE OF THEIR CARDS ENTITLING ME TO A FREE COFFEE!  

I would go there anyway.

 

About 30 years ago, a loyalty card, points card, club card or whatever name was given to them was a clever marketing ploy, designed to get people into your store and buy more of your products. It was a novel idea at the time and it may even have worked. Now just about all retailers have a card of sorts and the unique competitive advantage that was the prime motivation for introducing them in the first place has disappeared. It’s nothing more than an ordinary, unnecessary and costly discount. Not only have loyalty cards and loyalty programmes well and truly reached saturation point, they do absolutely nothing to create customer loyalty.

 

Darrell Zahorsky wrote: “The advent of the loyalty movement began in the 80's in the airline industry and expanded to cover every major industry. Over 75% of consumers have at least one loyalty card, according to Jupiter Research. My wallet alone has 12 loyalty cards. But does it pay?” A study in the UK showed that consumers have £5.2bn in unused loyalty card points, with the typical adult owning at least three loyalty cards.

 

This essay is not about the effectiveness of loyalty cards or loyalty programmes. The principal question here is can customer loyalty be bought? I think not. To prove this, we first need to examine what customer loyalty really is.

 

The English thesaurus lists various synonyms for loyalty: faithfulness, allegiance, fidelity, devotion, trustworthiness and several others. All these words find their roots in some deeper emotional feeling about something or somebody and it is hard to imagine that any of these can be bought or can be put up for sale. To reach a state of trustworthiness or faithfulness through the eyes of the customer takes time and can only be earned. Loyalty, whether between two people or towards a group of people (club, organisation) or a brand, is a journey that can only be achieved through multiple, positive experiences over an extended period. The crucial words here are multiple, positive and extended.

 

To suggest that loyalty cards or loyalty programmes based on giving discounts create loyal customers is, therefore, fundamentally false. A loyalty programme does not provide a quick fix to failing marketing initiatives and, instead of spending scarce company resources on dreaming up yet another “loyalty” programme, business managers would be advised to explore the fundamental reasons for attaining customer loyalty. What makes a customer come back time after time, year after year to buy your products or services in a competitive environment where they are bombarded with all sorts of offers, discounts and promises?

 

Loyalty is earned. A loyal customer prefers to do business with you because you work harder for them, you provide a superior service to them, you understand their business better than anybody else, you treat them like they are your only customer and nothing is too difficult, you employ a stable workforce of very capable and friendly people, you keep your customers informed about what’s happening in the market and you are pro-active. You are organised, honest, up-front and stick to your word. It is just a great experience to do business with you and as time goes by and these positive experiences keep piling up, you are starting to earn your spot on the loyalty achievement ladder. THAT should be your loyalty programme! Don’t get distracted by bringing out a loyalty card. A discount can never be a substitute for shoddy business practices. It should be your aim to be better in all aspects of business than anybody else in your field.

 

Measuring customer loyalty

Most firms conduct customer satisfaction surveys at regular intervals in the misguided belief that a high customer satisfaction score is clear evidence of customer loyalty. It is not. Satisfied customers will switch brands if they think they will get a better deal somewhere else. A satisfied customer is not necessarily a loyal customer, but a loyal customer is almost certainly a satisfied customer[1] [2]. Customer satisfaction is thus a pre-requisite for attaining customer loyalty. Customer satisfaction is merely the bottom rung on the loyalty achievement ladder.

 

So how do we measure customer loyalty? Frederick Reichheld in his book The Ultimate Question: Driving Good Profits and True Growth (2006), argues that we only need to ask our customers one simple question: "How likely is it that you would recommend our company (or brand) to a friend or colleague?" In other words, Reichheld claims that if you are prepared to recommend a company or brand to someone else, you would have to be a loyal customer. Why recommend somebody or something if you are not a loyal believer in that brand yourself? Indeed a strong indicator, but like customer satisfaction, it only tells part of the loyalty story. It is simply not in everybody’s nature to make recommendations about their suppliers, products or brands and yet, they may well regard themselves as very loyal customers. When was the last time that you recommended a company or brand to someone else? It happens, but assuming customer loyalty simply and only on the basis of somebody’s propensity to recommend is unwise. What people say and what people do are entirely different things.

 

Enter the concept of pride. Pride in the context of satisfaction means delight, pleasure or gratification. Pride infers admiration, respect, having a high regard for, and thinking highly of. The question then is can one be proud of the suppliers we deal with, the brands we use, and the answer is a qualified yes. It is hard to imagine (but not unthinkable) being a proud customer of commodity providers like petrol stations, supermarkets or utilities that supply our electricity or gas. The reason must be clear; they provide everyday commodities and there is very little people-to-people interaction, a powerful ingredient for developing any degree of pride and admiration.

 

It is not so difficult to imagine a degree of pride in the clubs we belong to, the professional organisation we are a member of, the book stores where we are regulars, the bank where we have regular contact with frontline staff, consultants and financial advisors, the school or university we went to, the employer we work for or any organisation where there is the potential of people-to-people interaction. People can make us proud.

 

However, like recommending a brand to others, pride is probably not something that everyone readily associates with suppliers or brands. Therefore, assuming customer loyalty only on the basis of expressed pride in being associated with a brand or organisation doesn’t tell the full story either.

 

Customer loyalty as a composite indicator [3]

I have come to the following conclusions:

  • Customer loyalty cannot be bought.
  • Customer satisfaction and customer loyalty are not synonymous.
  • Willingness to recommend on its own does not surmise customer loyalty.
  • A single measure of pride is not sufficient to assume customer loyalty.

 

While the three individual measures tell us part of the loyalty story, each one of them in their own right is insufficient to tell the entire loyalty story.

 

So, to get the full story we have combined customer satisfaction, willingness to recommend and pride in the MMResearch™ Loyalty Factor™. In addition to the conventional customer satisfaction questions, our surveys also include questions about pride and the customer’s willingness to recommend. This produces a robust and meaningful loyalty indicator that allows managers to develop strategies aimed at growing the number of truly loyal customers without the need for loyalty cards.

 

 

 

July 2012

 


[1] http://mm-research.com/Customer+Satisfaction+Article Loyal customers don’t quit... Satisfied customers do, by Theo Muller, January 2010 and http://mm-research.com/Forget+about+satisfied+customers Forget about satisfied customers, by Theo Muller, March 2011

[2]  http://www.mm-research.com/Loyalty%20Factor The Loyalty Factor, by Theo Muller, April 2012


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