How important is customer loyalty? Business consultant Jeffrey Gitomer (@gitomer) insists, “Customer satisfaction is worthless. Customer loyalty is priceless.”[1] On the other hand, A.G. Lafley, former CEO of Procter & Gamble, and Roger L. Martin (@RogerLMartin), former dean of the Rotman School of Management at the University of Toronto, assert, “Customer loyalty is overrated.”[2] Although those positions may appear to be mutually exclusive, Lafley and Martin go on to argue that too many companies focus on “brand” or “rebranding” and not enough on “consumer behavior.” This misplaced focus, they argue “is rooted in serious misperceptions about the nature of competitive advantage — namely, that companies need to continually update their business models, strategies, and communications to respond to the explosion of options that sophisticated consumers face. Research suggests that what makes competitive advantage truly sustainable is helping consumers avoid having to make a choice. They choose the leading product in the market primarily because that is the easiest thing to do. And each time they select it, its advantage increases over that of the products or services they didn’t choose, creating [a] cumulative advantage.” In other words, their preferred term could be “habit buying” over “brand loyalty.” Whatever you want to call it, the desired goal is to convince consumers to buy your products time and again.
Retaining Loyal Customers
Obtaining new customers and retaining current customers are both important activities for business growth. Generally, however, the cost of obtaining a new customer far outweighs the cost of retaining a current customer. That doesn’t mean brands shouldn’t continue to pursue market share, it just means they shouldn’t ignore the so-called bird-in-the-hand. Michael Mclaren (@michaeljmclaren), Global CEO for the B2B Group at Merkle, writes, “As the ongoing growth debate between customer retention and acquisition continues, one thing is for certain: managing the entire ‘customer lifecycle’ is arguably the most important aspect of marketing today.”[3] He adds:
“Analyzing the customer lifecycle allows you to better prepare your marketing, sales, and customer service teams to turn one-time purchasers into loyal promoters. … Arguably a brand’s most valuable asset, customer loyalty implies the mastery of customer behavior strategies to earn loyalty and lifetime value. It goes beyond CX to deliver truly personalized interactions and deliver on unmet human needs. It’s critical, however, to consider the entire customer lifecycle and experience ecosystem, from the research stage through to post conversion marketing, all while making good on promises made.”
Securing customer loyalty, however, is a difficult, if not Sisyphean, task. Why? According to numerous experts, brand loyalty has suffered severe damage during the pandemic. Allison McMenimen Bakken, Executive Vice President for Client Services at Collective Measures, reports, “It’s well documented that consumers have shifted buying behaviors in order to balance convenience and availability against perceived value. The shift to digital was one way to safely fulfill these needs, opening up a sea of possibilities with new brands, categories, and choices. For many, this has grown into a habit with staying power — the comfortability of abandoning a well-loved brand for something else that works just as well. This newfound mentality means that brand loyalty is in jeopardy.”[4] Further evidence of brand loyalty erosion comes from research conducted by Inmar Intelligence. Journalist Jessi Devenyns (@jdevenyns4) reports the research found, “More than eight in 10 consumers purchased a different brand from the one they normally purchase [during the summer of 2021]. … Lower prices of substitute brands influenced this decision for more than 65% of shoppers while out-of-stocks for the original brand motivated 51% to make a switch.”[5]
Inmar Intelligence analysts concluded, “The CPG supply chain has been wracked by labor and ingredient shortages, shipping delays and fuel price increases, which has left many store shelves with insufficient inventory. Meanwhile, manufacturers have been passing along higher costs to the end consumer, who appears to be taking note and shifting their shopping behavior.”
What Can Be Done?
According to Mclaren, understanding consumer behavior is the key to fostering customer loyalty. He notes, “‘Cognitive computing’ showed a strong rise in interest by brand marketers. … A subfield of artificial intelligence, cognitive computing is the simulation of human thought processes in a computerized model. With new platforms, systems, and technologies emitting customer signals everywhere, it’s become more important than ever for marketers to engage with potential and existing buyers at the right time, with the right message, with consistency, and at scale. AI and machine learning have evolved to where it is now possible for most companies to implement AI as a tool, because it enables personalized services on a massive scale — and customers increasingly demand it.” Cognitive computing solutions, like the Enterra Shopper Marketing and Consumer Insights Intelligence System™, can leverage all types of consumer data to provide high-dimensional consumer, retailer, and marketing insights.
Despite the evidence discussed above, Robert Passikoff, founder and President of Brand Keys, believes brand loyalty eulogies are premature. He explains, “A recent spate of articles have declared that brand loyalty is in jeopardy, or even … ‘on its way out.’ The reality is, brand loyalty not only exists, but is a measurable, leading indicator of consumer behavior and brand profitability, and is not going away anytime soon.”[6] He admits, “Today’s brand loyalty is different from the brand loyalty of the last century. It has adapted to new consumers in a new marketplace.” Unlike Lafley and Martin, who view loyalty in terms of consumer habit, Passikoff views it as a form of “emotional engagement with a brand.” He writes, “Emotional brand engagement is the 21st century paradigm for loyalty.” The arguments presented by Lafley and Martin may not be as far apart from Passikoff’s arguments as they might seem. Lafley and Martin write:
“The conventional wisdom about competitive advantage is that successful companies pick a position, target a set of consumers, and configure activities to serve them better. The goal is to make customers repeat their purchases by matching the value proposition to their needs. By fending off competitors through ever-evolving uniqueness and personalization, the company can achieve sustainable competitive advantage. An assumption implicit in that definition is that consumers are making deliberate, perhaps even rational, decisions. Their reasons for buying products and services may be emotional, but they always result from somewhat conscious logic. Therefore a good strategy figures out and responds to that logic. But the idea that purchase decisions arise from conscious choice flies in the face of much research in behavioral psychology. … In short, research into the workings of the human brain suggests that the mind loves automaticity more than just about anything else — certainly more than engaging in conscious consideration. Given a choice, it would like to do the same things over and over again.”
In other words, habit and emotion both play a role in brand loyalty or cumulative advantage. To take advantage of habit and emotion, Lafley and Martin suggest brands do three things: 1. Become popular early; 2. Design for Habit; and 3. Innovate inside the brand. Of course, a brand can only become popular early when a new field of products is introduced. So how does a product become popular in an established product field? Passikoff argues that’s where emotional engagement plays a significant role. He explains, “The ability for a brand to meet your expectations identifies a point on a continuum, between brand obsession and indifference. Emotional brand engagement levels vary from category-to-category but are always predictive of consumer behavior. Yes, it’s a more complex measure to take, but today’s consumers, and today’s brand loyalty are more complex too.”
Concluding Thoughts
Passikoff admits the pandemic forced consumers to try new brands when their favorites were not available. He also argues that many of those consumers returned to their favorite brands when they did become available. Like Lafley and Martin, he believes established brands have a leg up on their competition and — all things considered — will likely maintain that competitive advantage. He concludes, “You might try another brand because something’s new. Novelty has its place, but it almost never unseats a brand that best meets your expectations. Unless it meets expectations better than your current brand. That’s called ‘good marketing.’ And buying a brand regularly? That’s called ‘loyalty.'”
Footnotes
[1] Jeffrey Gitomer, “Customer Satisfaction Is Worthless, Customer Loyalty Is Priceless: How to Make Customers Love You, Keep Them Coming Back and Tell Everyone They Know,” Bard Press, 12 June 1998.
[2] A.G. Lafley and Roger L. Martin, “Customer Loyalty Is Overrated,” Harvard Business Review, January 2017.
[3] Michael Mclaren, “‘Customer Lifecycle’ Grabs Attention Of Brands, Agencies Focus On ‘Loyalty’,” MediaPost, 21 September 2021.
[4] Allison McMenimen Bakken, “Brand Loyalty Is On Its Way Out. Now What?” The Marketing Insider, 12 March 2021.
[5] Jessi Devenyns, “Brand loyalty is eroding under supply chain and price pressures, survey finds,” Food Dive, 14 September 2021.
[6] Robert Passikoff, “Brand Loyalty Here To Stay — But Now It’s ‘Emotional Engagement’,” The Marketing Insider, 22 March 2021.
