Is customer loyalty sustainable in today's digital world
I had a very pleasant lunch with a very good friend of mine in London recently – he operates a very successful marketing company, where he mentioned: “do you think customers actually stay loyal to brands?”
I said back in the early 2000 era, we were all looking to deploy strategies across customer lifetime value – brand satisfaction and brand loyalty played a key part to our business survival toolbox. In today’s world customers staying loyal to companies for long periods are numbered.
The amount of trust consumers put in brands is decreasing all the time, and a typical consumer will now switch brands without hesitation if they get a better offer. The famous rule of 20% of customers accounting for 80% of the turnover has turned into more like 60/40 rule (40% of the customers generate 60% of the turnover) and it is slowly evolving towards a 50/50 rule where loyal and disloyal customers generate the same amount of income.
The conventional wisdom about competitive advantage is that successful companies pick a position, target a set of consumers, and configure activities to serve them better. The goal is to make customers repeat their purchases by matching the value proposition to their needs. By fending off competitors through ever-evolving uniqueness and personalization, the company can achieve sustainable competitive advantage.
An assumption implicit in that definition is that consumers are making deliberate, perhaps even rational, decisions. Their reasons for buying products and services may be emotional, but they always result from somewhat conscious logic. Therefore a good strategy figures out and responds to that logic.
But the idea that purchase decisions arise from conscious choice flies in the face of much research in behavioral psychology. The brain, it turns out, is not so much an analytical machine as a gap-filling machine: it takes noisy, incomplete information from the world and quickly fills in the missing pieces on the basis of past experience. Intuition, thoughts, opinions, and preferences that come to mind quickly and without reflection, but are strong enough to act on, is the product of this process.
This behavioural shift is putting some fundamental, established marketing tactics in doubt, but are we as marketers powerless to stop it?
Why customer loyalty is down
1 – Companies can not keep up with rising consumer expectations. Declining customer loyalty has been an issue for most companies in spite of heavy investments in service improvement. Consumers do not compare a company to where they were a year ago; rather, they compare companies to the ‘best-in-class’. If Amazon does not question a faulty delivery and deals with the problem immediately, consumers will expect the same of their local supermarket.
2 – Loyalty programs are missing their mark. Many companies thought there was a shortcut to creating customer loyalty: the loyalty card. However, all the latest studies agree that loyalty cards slash profit margins on existing customers. Instead of creating loyalty you’re really losing money.
3 – Digitisation makes everything transparent. The fast adoption of smartphones and tablets has further enhanced transparency. Today, more than half of the consumers use their mobile devices to compare prices while shopping. The online world has made price transparency very accessible, a trend that spells danger for any company out there.
4 – Focus on individual touch points instead of on the customer experience as a whole. Companies are divided into various departments, with every department being responsible for the customer’s experience of one specific aspect of the customer relationship. There’s hardly any contact between the sales and after sales departments and invoicing is housed three floors down.
5 – No unique relevance to consumers. When customers are disloyal, they are really saying that a product or service was not relevant enough for them to remain a customer there. Too little thought is put into the role a brand has to play in consumers’ lives. The relationship is too rational in nature instead of emotional.
So exactly what is the solution?
According to popular theory, there are two ways to escape the commodity market. On the one hand a company can work more efficiently, making it possible to sell its products cheaper. On the other hand, you can offer a unique added value, thereby reestablishing differentiation so you can charge higher prices again.
If we look at the history and look at people behaviour, historically people engaged into brand loyalty, but how do you get customers to become loyal to your brand in the first place? Here are a few suggestions:
Build targeted messages
With social media being the center of many people’s day-to-day lives, consumers want to see that brands care about them. Consumers are constantly bombarded with ads, so yours can easily get overlooked. How do you stand out? Try targeting your ads, using campaigns that appeal to your audience’s specific interests, and customizing your messages with a personal touch.
Develop a loyalty programme
Customer loyalty programmes are a huge factor in retaining loyal customers. 44% of customers have between 2-4 loyalty cards, and 25% have between 5-9 loyalty cards. 43% join loyalty programmes to earn rewards, and 45% say it’s a primary driver for purchasing from a brand. As you can see, loyalty programmes are a huge deal with customers, and it pays by getting them to come back to your brand whenever they decide to shop.
However, be aware that you’re more likely to retain customers through a free rewards programme. The majority of people (52%) aren’t willing to pay a membership fee.
Adopt a mobile strategy
Brand loyalty has gone mobile. Seventy-seven percent of smartphone users say that mobile offers have a positive impact on their brand loyalty, according to AccessDevelopment.com. This can include surprise points and rewards or exclusive content.
Another 66% of consumers say they’d have a more positive opinion of a loyalty programme if it was available on their smartphone or in a mobile wallet app. Furthermore, 73% of smartphone users are interested in having loyalty cards on their phones.
What happens if you fall behind your competitors and don’t offer a mobile solution to your loyalty programme? You’ll likely see a decrease in customers. 66% of companies that saw a decrease in customer loyalty in the past year didn’t have a mobile app.
Another reason brands lose customers is because they don’t respond to their needs. In today’s fast-paced social landscape, customers expect brands to respond to their feedback, and quickly. 97% of customers say they’re more likely to become loyal to a company that implements their feedback. By ignoring them, you’re sending a message that their loyalty doesn’t matter, and with that, they’re likely to move on to a brand that shows them otherwise.
Although ideas about brand loyalty have shifted from generation to generation, people are still brand loyal today. However, you will have to adopt strong social and mobile strategies to retain customers who rely on the internet landscape to make buying decisions.
Finally, my personal opinion is that the subject of whether sustainable competitive advantage has disappeared, is greatly exaggerated. Competitive advantage is as sustainable as it has always been. What is different today is that in a world of infinite communication and innovation, many strategists seem convinced that sustainability can be delivered only by constantly making a company’s value proposition the conscious consumer’s rational or emotional first choice. They have forgotten, or they never understood, the dominance of the subconscious mind in decision making. For fast thinkers, products and services that are easy to access and that reinforce comfortable buying habits will over time trump innovative but unfamiliar alternatives that may be harder to find and require forming new habits.
Simon Mainwaring once said:
“Companies and their brands need to reach out and speak directly to consumers, to honor their values, and to form meaningful relationships with them. They must become architects of community, consistently demonstrating the values that their customer community expects in exchange for their loyalty and purchases.”
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