Understanding Customer Loyalty

This post was first published on http://www.thinkaboutcrm.com where I am a contributing author.

Any good product manager will tell you that every product goes through a predictable life cycle following launch. Marketers make plans for their products to take them from early adoption through to maturity and decline or renewal – usually in the form of line extensions or product re-launches. The skills involved in managing this life cycle are often want makes some products a flash in the pan: think Beanie Babies or Neopets – or an established and loved part of the scenery: think Kelloggs cornflakes, Folgers coffee.

Understanding where a business sits on the life cycle is imperative to develop strategies for growth and is taught in every business school and marketing 101 course. Increasingly, companies that are growing at rates higher than the market or their category have added another important layer of complexity to their analysis and started looking ‘outside in’ to understand how to grow their businesses. These companies appreciate that consumers also undergo a life cycle in their relationship with brands and take more deliberate steps to manage the loyalty process with these consumers so that they can capture the greatest possible share of wallet from them during the lifetime of their relationship with the brand or product.

By approaching their consumers in a different way, because these companies understand that the context within which their consumers might be interacting with the brand is not the same for all consumers, they develop more targeted and as a result, more effective campaigns to retain customer loyalty and grow sales.

Let’s look at this at the most basic level: How I feel about drinking a cup of coffee first thing in the morning will be very different to how I feel about drinking the same cup of coffee after my evening meal. If that basic premise is accepted, it leads to questions as to why an advertiser might run the same ads for its products throughout the day.

If contextual relevance can influence consumer behavior simply by looking at different use occasions, think how powerful a model would be for determining strategies where a company understands and then targets the loyalty cycle stage for a segmented group of consumers.

This model exists and can be applied to every brand through developing a better understanding of the benefits ladder for each brand or product. When I work with clients, one of the most challenging exercises we carry out is the creation of the benefits ladder. The benefit is the principal driver in any consumer’s purchase decision and it is the consumer’s payoff for using the brand. It is imperative to build better benefits so that the consumer gets a compelling payoff.

As the benefit provides the consumer with the basis for choosing the products or services it needs to be competitive and should be the most meaningful consumer benefit that the brand wants to and can own in the hearts and minds of the consumer. We ladder up from product or functional benefits to consumer or rational and then emotional benefits.

Product benefits get at what the product does and are the lowest order benefits. It usually fails to evoke any brand loyalty, particularly with parity products. A consumer benefit addresses the inherent reward to the consumer from the product benefit, building a bridge for consumers in translating the product benefit into something more meaningful to them. The highest level benefits are emotional, because these create feelings and beliefs around the brand or product that transcend the functional results that a product might deliver.

When customer loyalty is approached in the same way as the product life cycle it becomes a very powerful tool for the marketer – why? Because emotionally loyal consumers are more valuable in terms of length of relationship with a brand and the level of profitability these consumers deliver to the business.

Consumers who understand and receive only functional benefits will remain loyal to that product for much less time and will be much less profitable than those who develop an emotional attachment.

Over many years of working with global brands I have seen time and time again, that the leading brands are those that successfully give their consumers a compelling reason for choosing their brand in preference to a competitive product, which immunizes the consumer against the lure of equivalent products. When a functional benefit is shared by a competitor, regardless of whether it is a product feature, benefit or consumer benefit, the brand’s emotional benefit might be the compelling point of difference that wins the consumer and creates brand loyalty.

The thing is that all consumers new to a brand start from the same place, but more often than not the advertising or communications that they see fail to give any support to developing the relationship with the consumer from functional to rational and then emotional bonding.

Reaching higher levels of loyalty requires brand and product teams to work together to position their brands and products more effectively and then develop and implement objective driven marketing plans to move these consumers through a loyalty life cycle.

How does CRM impact on this? To be effective in developing relationships with consumers, relationship development needs to be sensitive to where they consumers currently sit on the loyalty spectrum and have the tools available to help elevate the relationship with the consumers to the next level.