To Reach the Pinnacle of the Loyalty Ladder, You Must Have Advocates

High on the list of “must watch” contemporary business trends is something called community retailing. The business model calls for relying on a user community that works in a closed loop, which means that the community, itself, is responsible for the sales of the products and the purchases.

Perhaps the most famous success story in this mode is Threadless, a T-shirt company that earned $20 million in 2006 with its community designing, voting on and purchasing the T-shirts it produces.

A company called Karmaloop works in a similar vein, though with a somewhat different take on the model. Like Threadless, Karmaloop provides clothing to its user community. As with Threadless, the user community designs the clothes (though Boston-based Karmaloop carries established brands like Adidas, too). But where the two companies differ the most is in Karmaloop’s use of a horde (8,000 at this writing) of customer advocates to drive a significant percentage of Karmaloop purchases.

This is the case of advocacy to the nth degree. Which would you rather have? A customer who sticks with you for many years, buys your stuff and forgives you for your corporate indiscretions or the same customer who does all of that and is willing to recommend you to friends?

The difference is the difference between a loyal customer and an advocate. And an advocate is the one you must have to create, maintain and identify some measure of your business success.

For years, the so-called measure of how much a customer liked you—or was, at least, neutrally predisposed toward you—was customer satisfaction. That meant that customers, at a given moment, said that your relationship with them was fine. For that moment. But customer satisfaction has been increasingly unreliable as a means to determine the state of your customer. That’s because customers’ expectations have become increasingly strident and incredibly more demanding. No longer is it good enough to provide good products and/or decent services. Now the experience is what matters.

If you don’t believe it, consider a statement in the Dec. 19, 2005, issue of BusinessWeek, (a formerly conservative business weekly owned—full disclosure—by my still conservative publisher McGraw-Hill):

Companies used to focus on making new, better or cheaper products and services. … Now the game is to create wonderful and emotional experiences for consumers around whatever is being sold. It’s the experience that counts, not the product.”

That’s from BusinessWeek, not Mother Jones.

Satisfaction is a more and more unreliable way of looking at the customer’s relationship to you, because the customers’ experiences will keep changing as they change, you change and social/business circumstances change.

For example, as far back as 2001, Forum Corp. reported that 80 percent of its respondents who defected from the companies reported that they were “satisfied” with the suppliers they had abandoned. This dovetails with multiple other studies, such as one by the Harvard Business Review in 2003 that gave the same number as 65 percent.
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Gaining loyalty

Trying to gain and retain—and measure—customer loyalty is something that remains an important part of how a company deals with its customers. Because the customer commands the relationship now, though, it’s not only harder to retain customer loyalty but also it’s difficult to just to capture the customer’s initial attention and then keep it.

But when you do gain the customer trust—the prerequisite for gaining the customer’s loyalty—you reap great benefits. In a 2005 survey of more than 6,000 consumers in the United Kingdom, conducted by Carlson Marketing Worldwide, 85 percent of respondents said they would recommend a company with which they have a trusting relationship. Fifty-five percent said they would spend more of their money with that company; that’s he ultimate metric for most enterprises in their measure of customer loyalty.

But loyalty is no picnic. Keeping a customer loyal isn’t easy—or even always profitable. Harvard Business Review studies conducted in 2005 found the correlation of loyalty to profitability to be mediocre to fair.

Yet, I would argue that hard as it is to keep a customer loyal, it’s even more important to work on the utmost stage of loyalty: advocacy. Customer advocates arise out of the company’s culture, created by company advocates for the customer. That means you have to sincerely take your customer’s viewpoint and act in the customer’s interests. In the spirit of that collaboration, the customer works to expand and extend the reach of the company.

How important is this? In 2004, a Forrester Research survey of 6,000 North American consumers of financial services, customer advocacy was identified as the single biggest factor underlying future business and cross-selling success.

Realize, though, that creating advocates means getting your customers to participate in the creation of your products, services and experiences so that they are getting what they want. It isn’t just producing great products or providing awesome services. It means providing the transparency that your customers need to know that you actually want their involvement in the life of your company and returning meaningful value to them.

Karmaloop’s customers, for example, get discounts or cash for every purchase they make and every purchase someone they’ve referred makes. Karmaloop calls these 8,000 advocates its “street team.” And the company has an affiliate program for web sales. “Street team” members can dictate the advertising for the community-designed clothing, too, by uploading photos or artwork to make banners that can be downloaded by other members of the street team or affiliates.

This advocacy model works. While less than 1 percent of Karmaloop’s user community belongs to the street team. Member spending makes up 15 percent of Karmaloop’s revenue. That, in 2006, was $600,000 of $4 million. Numbers that anyone would kill for. And that could be achieved only by having an advocacy program.

Satisfaction. Loyalty. Advocacy. Climbing the ladder to the latter may be hard, but the results, oh man, the results.