The Loyalty Open Definition Experiment: Lessons Learned

I have made adjustments to the way I think about Loyalty.

I want to thank everyone for participating, reading, commenting, and for providing very thoughtful point-of-views that I had not considered before.  I went through all the comments and summarized them into six lessons learned:

The choice of loyalty remains with the customer – We knew this, right?  This reinforces my view that loyalty is rational – not emotional.  Virtually all comments emphasized that loyalty is a decision from the customer to endow to an organization.  Decisions are always, always rational in nature – even if they may be nurtured by emotions.  It also highlights the organization’s powerlessness in affecting that choice.  They can provide better products, more services, better experiences, and fulfill their customers’ needs and demands perfectly.  Still, the customer may just choose not to offer loyalty in exchange.  Most customers will reward an effective and well-behaved organization with their loyalty — but it is not earned.  it is a logical decision.

There are Beloved Brands to whom Loyalty restrictions do not apply – There are Beloved Brands with whom customers identify for different reasons.  The cereals from our childhood, the drink from after school activities, items that achieved cult status (e.g. Harley Davidson and Starbucks).  If your organization reaches the status of Beloved Brand, then loyalty is not something you need to worry about.  Harley Davidson managed to keep their customers connected in spite of the poor quality of their product.  A bad cup of coffee at Starbucks won’t tarnish the brand.  Customers don’t make rational decisions about buying from Beloved Brands — but unfortunately there is nothing you can do to become a Beloved Brand on your own.

It is time for the organization to step in and be loyal to their customers – Loyalty is an unrequited love from customers to organizations.  Worse, organizations have trained their customers to not be loyal.  They demand  customers have long-term commitments and loyalty towards them but offer nothing but short-term rewards in return.  Airlines reward only the last year of business, retail stores reward the last purchase, same as  restaurants.  Why would customers continue to grace loyalty upon their partners without return?  Organizations looking for long-term loyalty must focus on a long-term relationship.

There are different levels of loyalty. Something we already knew.  The problem is not that there are different levels, but that there are no rules or preset levels.  Organizations  that offer different levels (e.g. silver, gold, platinum) are not rewarding loyalty but frequency as they only focus on the last few months of activities.  That does not match the customer’s ideas of loyalty, just the organization’s.  Customers’ have their own ideas, mostly personal, of level of loyalties and bestow those to organizations based on their own scales of potential benefits.

Loyal Customers expect retribution for their commitment. Loyalty is not a free entitlement that organizations get, there  is a cost for them to have loyal customers.  The rules are established where customers expect a reward, promised by the brand, in exchange for their “loyalty”.  This reinforces the notion of loyalty being a rational choice.

Loyalty has a price barrier. Even though loyalty is professed as an emotional commitment or investment, there is a limit to loyalty (Beloved Brands, again, excluded).  I will have my price for switching, it just may be above what a competitor is willing to invest.  Then, again, it is the way for organizations to tap into loyal customers their competitors have.  And, you know it, reinforces the fact that Loyalty is a rational response.

This is the summary of the “wisdom of the crowds” — and it led me to make some changes to my concepts of loyalty:

Loyalty is not dead and it does indeed exist, but the stalwart emotional loyalty has been replaced by rational loyalty.

Companies would invest their time much better analyzing campaigns that yielded positive results and use those insights to influence customers’ rational loyalty

When done properly, loyalty monitoring and action yield higher levels of loyalty all the way to fans and advocates.

Here is the new definition:

Loyalty is a commitment to purchase a specific product or service based on a rational decision made by the customer at the time of purchase.  It is influenced  by previous experiences, current needs, expected rewards, and price sensitivity.

What were your conclusions from this experiment? What do you think about Loyalty now? Has it evolved?

12 thoughts on “The Loyalty Open Definition Experiment: Lessons Learned”

  1. Esteban,

    With absolute ‘rational’ respect, I am not sure I netted out the same place you did. It could simply be perspective. I have learned a tremendous amount, and appreciate the forum.

    Decisions are always, always rational in nature – even if they may be nurtured by emotions. It also highlights the organization’s powerlessness in affecting that choice.

    My view is the opposite – all buying decisions have a component of emotion, with rational decision making sometimes overruling the emotion. If this were not the case, the Harley Davidsons of the world would not exist (who could have made a rational decision to buy a Harley in the 1970s?)

    Like I said before, it is not binary, with most people hovering close the 50/50 mark. For some it is an emotional attachment to a brand or product, to others it is the rational price/value which wins. This depends on a series of external factors, independent of the company or product.

    I do agree that company needs to invest and treat loyalty as very real. The object is to increase the rational barriers which may sway a potential purchaser and keep them coming back through thick and thin.

    As always, with respect….

    Mitch

    1. Mitch,

      I get what you are saying, and what everybody else is saying — but there is a key part of the post you forgot to quote: beloved brands are exempt from loyalty rules (the exception that proves the rule), and there is nothing an organization can do to become a beloved brand.

      the same person, in essence, who would have bought an HD in 1971 would buy a cup of coffee and milk at Starbucks for 5 bucks. Their ‘loyalty’ is driven by different rules, but not everybody can grow up to a an HD or a Starbucks. And, to the rest of the world, loyalty rules apply.

      Also, notice that I did mention that emotion may nurture the decision — but the decision remains rational. How else can you explain price sensitivity built into loyalty (which more than a few people mentioned)?

      Loyalty is becoming more and more a rational choice, not easily influenced by emotions – even though emotions may play a part in the decision making… the final deciding factor is reason.

      Do you have to agree with me? no, you don’t. and I never take anything to be un-respectful – even if you disagree with me. you just have to convince me to your POV.

  2. Interesting discussion. It has rather close parallels with the discussion of trust in the organisational literature. In both cases, there is a strong argument for treating loyalty as an expectation. In the case of trust, we are talking about a vector of expectations that a partner will not engage in opportunistic behaviour, even in the face of countervailing short-term opportunities and incentives (Nooteboom and Six, 2003). Similarly, we might define loyalty as a vector of expectations that a partner will not engage change to another partner, even in the face of countervailing short-term opportunities and incentives. The advantage of this approach is that ‘loyalty’ becomes a variable which can be defined and measured independently of WHY that loyalty exists, and its drivers can be explored empirically. One operational measure of loyalty would actually become the size of the financial gain which a customer would make if they switched to the best offer available from an alternative supplier (althoug, if they stay put, this is necessarily an underestimate of their actually level of loyalty to their existing supplier).

    1. Tony,

      You…. you…. you got me thinking. a lot. and still not sure i get what you are saying completely – but you are making the argument that loyalty comes down to trust that the customer won’t leave. which turns the concept around from what i think, that loyalty resides with the customer and the company has not way to cotrol.

      did i get that right?

      if what you are saying is true, and i need to think more about as my first reaction is to say no way, then most of what i wrote is wrong.

      very interesting, please let me know if i got the jest of what you were saying right.

      Thanks
      Esteban

  3. Loyalty is certainly an interesting subject. Further to what Tony says, don’t overlook that Loyalty should not be confused with a complacency buying pattern (habits) born out of risk aversion behaviour.

    “… It is influenced by previous experiences, current needs, expected rewards, and price sensitivity.”

    I am not going to switch brands just because I can on a whim – I’d be taking a risk of not being satisfied – there needs to be a sufficient rewards prospect to do so. What do you prefer – one bird in your hand or ten in the bush? Furthermore, there are 45,000 brands in my supermarket, I can get information on each and every item but don’t have the time or the energy to try them all out!

    It’s kind of like what the Tobacco industry is doing on the African Continent (disclaimer: in my opinion) where the legislation is not as strict. They sell to people as young as possible, get them into the habit of buying their brand and end up with lifelong customers…

    1. Mark,

      I completely agree and I think I even made the case that loyalty and habits should not be mixed. interesting that you are saying that it is better to stick with the bad known that with the good you don’t know (paraphrasing). I never thought of it that way, as in loyalty is a convenience more than a decision.

      food for thought, thanks for that 🙂

      Thanks for reading

  4. Great blog and follow up discussion.
    I am not sure if the concept of loyalty has changed or evolved but what is gratifying to see is the effort to define, parse and explain an important concept that is in danger of becoming hackneyed because of its misuse/overuse.

    1. Thanks Barbara,

      To me the most important part of a journey into enterprise applications is to make sure we are all talking apples (or oranges, or bananas – or whatever it is we are talking about) as opposed to all discussing different ideas. If we can accomplish some of that, then the intent of the post has been carried out.

      Thanks for reading!
      Esteban

  5. Esteban:

    I wondered how all this would turn out. Certainly drew a crowd to this light bulb. I would certainly classify the metrics of loyalty as “unknown and unknowable” some may argue this and that’s OK (some like “pink sound theory”). I believe there are plenty of metrics that are “unknown and knowable” worth pursuing for customers.

    I suspect that loyalty is fickle. A major event may lose loyalty with no fault to the company (remember the Tylenol scare). Or some products and services we are only loyal as your last experience. If variation in service or product delivered is so great from experience to experience, shouldn’t we be working on that. I still believe customers are waiting for companies to understand their demands and design our systems against those rather than doing crystal ball gazing.

    Regards, Tripp

    1. Tripp,

      I absolutely adore that classification for Loyalty as a Metric. Some may label me harsh and abrasive, but I think that allowing a client to use metrics that cannot be corroborated or verified is just plain wrong.

      Loyalty is fickle indeed, and cannot be measured appropriately, and all that. and it should not be used or pursued. we must understand that, and that is what i am trying to do here.

      thanks for reading and for the comment.
      esteban

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