Why The Obsession With Loyalty?

Organizations have an unhealthy obsession with Customer Loyalty.

Fact is, and I wrote about it before, that what we measure as loyalty is not even real loyalty. Loyalty, same as satisfaction, is a feeling, an emotion and it cannot be measured or repeated.

You can point me to the countless studies done that show correlation between loyalty and re-purchase, wallet-share, mind-share, upgrading, buying more and what not.  All I see is a metric being tracked, and a established relationship between that metric and another one.  Anyone with even a couple of classes in statistics would find it not that hard to do.

So, why do we chase Loyalty today?  Why did we chase Customer Satisfaction three years ago?

We are looking for a magic, easy, short and simple solution to the most complicated question: how do we keep customers engaged and have them return for more?

The idea of having to segment our customers, determine what makes each segment march, and find a way to leverage that knowledge into a marketing, sales, and service campaign is just too much work to even think about it.  It is simpler to believe there is a magic pill that will make it easy, and that it is our fault we cannot do it right — not the fact that the system may not work.

Chasing Loyalty, as with any other single-metric, is very wrong.

There is no method to know whether a specific customer will continue to do business with us or if they will increase their spending.  There are different metrics that we can track and co-relate to each other, but that only reduces the amount of guessing involved.

The best way to measure Loyalty is to not measure it, worry about it, or be obsessed with its implementation.

Just segment your customer base, find the key metrics for each segment, the co-relation to corporate metrics, measure and repeat on a historical basis.  The results may not be a “sexy” NPS score, but they will definitely be a good way to manage your business to success.

6 thoughts on “Why The Obsession With Loyalty?”

  1. Esteban,

    Good stuff, as always!

    I am not going to steal my own thunder too much, as I plan to touch on this topic later this week in my response to 303030. But, that said, maybe for SMB who does not have all of the available tools, Loyalty may also be regarded as a soft measure, not a hard one.

    Loyalty is contagious – meaning that given my ‘velocity’ comments from a few weeks ago, striving for loyalty is really about striving for excellence. In the world of Twitter and Facebook excellence can and will be rewarded with the modern day WOM, social media.

    For businesses who can afford to truly segment, and who can afford the tools to slice and dice, your comments are spot on. I would augment the thought process as we have been discussion regarding #scrm by suggesting that for every thing we do, there is a soft qualitative component, as well as a measurable quantitative component.

    My view on loyalty is certain skewed, that could be good, or it could get me in lots of trouble. Based on the feedback here, I might alter part of my response, as this provides an interesting venue to discuss the topic :-)

    Mitch

  2. Mitch,

    Did not mean to pre-empt your post, but since I did not know about it… all is well there.

    I strongly agree with your assessment of Loyalty as a soft measure for SMB. I think that the SMB market is being misled by the “gurus” and “experts” with a hammer (if you have one, all solutions are simple – just bang the heck out of it).

    Especially for SMB I think that replacing the search for the mythical creature (loyalty) with other metrics would be more beneficial just so they can focus on what drives growth and the business for them – not supposedly for everybody else.

    Would love to talk offline sometime about your take on Loyalty. Will trade you for my real feelings about NPS.

    Thanks for a great point, and one that I often forget to cover.

  3. Spot On, Esteban. Loyalty is not a metric, it’s an emotion. It can be earned only if you get customers involved emotionally with your business.

  4. Perhaps “loyalty” has become a surrogate for some far more grand ideal that connects what we do with what we want customers to do. If we treat customers well we hope that they will behave in a positive and predicable way – purchase more, renew a relationship, recommend us to others, etc.

    In this case loyalty is not an expression of an emotion, but rather an indicator of possible behavior. For lack of a better term I understand why there is a gravitational pull to this term.

    It would be interesting to know what loyalty means to those that use the term – what is your definition, what tangibles are factored into the measure of loyalty, etc. I believe that there are things that we should try to nail down so that we can better connect our behavior with the behavior of others.

    BTW – Great blog EK

  5. Tom,

    Very good insight, and aligns with something I have been trying go figure out the last couple of days.

    Why do companies chose “loyalty” of all things to measure? I think you hit a point, it seems to be linked to predicting behavior, and I am guessing trying to remove risk from decision making by Sr. Management.

    While it is true that managers want to have some certainty as to what they are doing and make decisions based on data, the truth is that no matter what customers will buy from you only if two conditions are met:

    1. you have a good product (or service) 2. you are a good person (or company)

    If you do things right, people buy from you the right product. If you are going to be a “bad person” (I cannot use the word that most people are thinking about right now), then they won’t. Tradeoffs on this will happen on axis related to price (drop your price, be less good), value (give something else, be less good), and depending on customer’s needs other variables as well (distance, location, availability, etc.).

    Once they buy they look at you to remember they exist, and be grateful they are your clients. That is pretty much it. Loyalty builds over time if you do things right, you are nice, and you remember you customers.

    And, while loyalty may reduce your operating costs, it has not predicting ability – as loyal customers are not more likely to buy that non-loyal customers (Infoquest did a study on NPS’s ability to predict, some 20% of promoters did not buy as expected, around same number of detractors bought -not as expected also).

    I could go on, but I probably already sound like a raving lunatic screaming about the end of the world if you adopt loyalty. I would prefer, like I said in the blog, to have clients that do their own correlations on metrics that matter to them, rather than adopt a “fake” metric with no proven value..

    Thanks for stopping by, and for a great comment.

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