As I was sitting through the meeting of an enterprise for reviewing the efficacy of customer loyalty programs, it was clear that in spite of increased spending on customer service and loyalty programs, the company’s loyalty base is steadily eroding.
Erosion of loyalty base isn’t new phenomenon. Credit card issuers, for example have been competing with each other by generously disbursing loyalty points, value added services, etc. to retain customers and increase the share of wallet. But these measures hardly impact loyalty. In fact the problem of loyalty erosion is much more fundamental than it seems. Loyalty is not a fancy measure or concept to run behind, but a well thought through strategy to build brands by increasing the promoters. It takes time to both acquire and erode promoters. However erosion can be quicker than acquisition.
Over the past few years, like many other management principles and concepts, technology has disrupted the paradigms of ‘Customer Loyalty’. While the first principles of customer loyalty are still intact, the means for building and retaining loyal customer base have drastically changed. It is no more possible to assume that brands can pump funds in programs that aim to build loyal customer base and ripe the benefits of recurring revenue for many years to come. In fact, customers hardly want to be loyal!
Immaterial of whether your enterprise is focused on building loyal base or arresting the erosion of existing base, your knowledge about the erosion process and its prevention approaches will be invaluable. In general, Customer Loyalty erosion happens over 4 unique phases. While the phases are progressive in nature, it isn’t necessary that erosion starts after you have built a reasonable loyal base.
Consider the illustration depicting the 4 unique phases of loyalty. If @, #, $ and % represent 4 different brands that a customer or group of customers choose from. The 4 different scenarios below represent the customer purchase pattern, each representing a unique phase of loyalty.
The 4 phases of loyalty erosion are described below:
Solo Loyalty : As the name suggests, this is the ideal or aspirational scenario for any brand. It enjoys full loyalty of customers who hardly consider competition for repurchases. Unfortunately, in today’s scenario, there are hardly few brands that enjoy this comfort. Even those who are claim to have solo loyalty only do so by virtue of inbuilt lock-ins that make migration impossible or different for customers.
Diluted Loyalty : Diluted Loyalty is more realistic representation of brands that enjoy reasonable loyalty in the market and occasionally feel the heat of competition. Most of their loyal customers are willing to try new brands in the market. When there was a burst of multinational brands in FMCG, as customers, all of us have gone through this phase. Number of product launches, new packaging formats, innovative branding and advertising dent the loyalty of existing brands leading to phase of diluted loyalty.
Split Loyalty : This phase is undesirable, but it happens. Most brands have reconciled with ground reality. Customers do have split loyalty and the wallet does get shared. No business executive chooses the same brand of hotel for his all business trips. He shortlists 2 or 3 best ones, all with same preference. Where he really stays is incidental and doesn’t matter to him. Why does he do this? Probably because both are equally good. Or he wants to encourage healthy competition, etc. Over the last decade, many Indian brands had to share the wallet of their loyal customers with multinational or big Indian brands. Nestle, for example had to share the wallet with ITC. In this phase of split loyalty, customers are the beneficiaries.
No Loyalty : Whether brand managers would like to agree or not, we are moving towards a phase of ‘No Loyalty’, if not already in it. In this phase, customers enjoy and relish choices. They ruthlessly reject brands and choose the ones that they like. They don’t think twice before attiring or re-purchasing from a brand. To sum-up they don’t believe in brand loyalty. The driving factors for this change are (1)Easy access to technology and process automation for brands means a products have matched performance (2)High employee attrition (3)Global brands have easy market access and (4)Change in buyer’s outlook and decision making process.
Where does this leave most of the brands?
Companies which have built amazing brand stickiness (Solo Loyalty) through customer centricity like Harley Davidson, Ritz-Carlton or Walt Disney would be the least impacted by this change. As one would appreciate, this list is very small and it isn’t easy to enter this list. Most brands aspire to be in this list or live in a deceptive world that we are already there till they get a jolt from competition. A prudent approach will be to accept that we are in an era of ‘No Loyalty’ and aim to be preferred brand.
What can brands do differently to lead the pack in ‘No Loyalty’ era?
In today’s complex world, customers criteria to select a product or service providers goes much beyond basic dimensions such as brand, quality, delivery, service and cost. To become a preferred product or service provider brands can consider the following aspects:
Flexibility : Contact centers are designed to handle fixed interaction plans with customers. There have defined processes and scripts for various scenarios that the agents have to follow. There is hardly any room to accommodate the special requests of customers, thus making the whole interaction seem inflexible from customers’ point of view. Customers prefer a human touch that provides reasonable amount of flexibility for unusual situations that they encounter. For example, HSBC provides its premier customers with emergency cash in local currency if international customers misplace their wallet during travel. Such flexibility provides an upper hand against peer group.
Customer Productivity and Effort : Customers are under tremendous time pressure. Everyone wants to be productive in their professional and personal lives. That is why customers prefer restaurants with fast and easy car(valet) parking rather than the quality of food and dining experience. Brands which can design products and services which reduce the customer’s effort and increase her overall productivity are naturally preferred products.
Emotional Value: Any product or service has a definite functional value, but it also has some emotional value. Traditionally most products and services have focused on enhancing the functional value and lowering the price. Conventional product design approaches hardly consider emotional value as a parameter. But studies in the field of Behavioral Economics have proven that many of the economic decisions of customers are irrational and driven by emotional value they derive rather than pure functional value. For example, a first time car buyer would attach immense emotional value when Maruti Suzuki gifts a family snap with the new car. For most first time car buyers, this gift is of high emotional value and it finds a place in their drawing room.
Barriers in the Journey: Every customer passes through a 3 step journey of shopping, buying and using in their life-cycle. Each step is a collection of several interactions and bundle of experiences. Every such interaction is equally a lever and a barrier. Barriers drive customers crazy and push them to abandon the journey. Once abandoned, the customer never returns back. Brands that proactively understand and eliminate the barriers in customer’s journey will be a natural choice of customers.
Fun and Image: Brands are beyond the values. Brands set expectations with customers and products/services fulfill these expectations. When brands promote fun and provide a social image, they are preferred choice of customers. Brands which are successful in doing this create customer interaction that looks, feels, smells, sounds, and tastes unique and harder for competitors to imitate. Take for example the case of how Singapore’s Night Safari creates a unique interaction of fun & information that makes it not only a memorable experience but a reason to visit them again.
Environment Friendly: In developed economies, most businesses chose to do business only environment friendly firms. But even in developing economies, with increasing awareness, the game is in favor of brands that truly care for the environment.
To sum up, there are ample opportunities for brands to prosper and be a preferred choice of customers even in an era of ‘No Loyalty’.