Call Me Loyal! - but only if I really
Wednesday, June 11, 2003 at
Copyright © 2003 Paul Stewart, All Rights Reserved.
Recently while standing at a retail check-out counter with
a friend I noticed that, not unlike many people, he had quite
a selection of credit cards to choose from. Yet, when it came
to selecting one with which to make the purchase, the process
occurred without hesitation – he readily pulled out Card “Y”.
When I asked him about it, he said he pretty much always
used that particular card. “Why not the others?”, I asked. “I
just prefer this one”, he responded. I pointed to another -
Card “Z” - and asked how he would rate his satisfaction level
with that provider. “Actually pretty good”, he responded.
What is apparent here is that although he is clearly a
customer for Card “Z”, and he is relatively happy with the
service behind it, it is commanding virtually none of his
This typical example of consumer behaviour goes right to
the crux of an issue that organisations are increasingly
grappling with – customer satisfaction ratings are a rather
poor indicator of relationship that consumers have with
products, services and brands.
One of the reasons is that general service standards have
lifted, so the minimum benchmark a company needs to reach has
been raised. So, on an absolute basis you can rate quite well,
but relative to the alternatives, you simply aren’t good
A second reason is that most consumers afford the benefit
of the doubt in their assessments of satisfaction. In their
best-selling book Emotional Value, Janelle Barlow and Dianna
Maul cite research by Michael Edwardson, who finds that even
when they give quite high satisfaction scores (say a 5 on a
scale of 1-7), customers are still experiencing more
“negative” emotions about the product, service or brand than
“positive” ones. It was only when they scored a 6 or 7 that
their net feelings were in credit. The research also showed
that for scores of 1,2, or 3, the consumers actual view was
essentially the same – they hated you!. Even with a score of 4
(i.e. the mid point), negative feelings dominated.
An important out-take from this is that analysing averages
in customer satisfaction ratings can be almost meaningless.
Indeed, you can improve your average with no significant
impact upon market share or revenue.
A much better approach is not to focus on customer
satisfaction, but on what drives customer loyalty.
In a recent McKinsey Quarterly article (Customer retention
is not enough), Coyles & Gokey document a highly empirical
analysis of customer behaviour across a range of industries
and organisations. Their over-riding point is that by simply
looking at satisfaction levels and defection rates of
customers (certainly a good start), companies are ignoring
critical links to market share and financial performance.
They say that companies need to focus less on the customers
they are losing, and more on the customers they retain, but
who are reducing their spending. To cite one example, in a
retail bank 5% of cheque-account customers defected annually,
taking with them 10% of the bank’s accounts and just 3% of its
total balances. In contrast, in the same period 35% of
retained customers reduced their balances significantly, and
cost the bank 24% of its total balances.
As they suggest, this sort of dynamic is critically
important in industries where customers deal with more than
one company (such as credit cards, retailing etc).
From this work they have developed a model of customer
loyalty dimensions – 6 categories of customers, 3 of which are
either maintaining or increasing their spending (loyalists)
and 3 which are decreasing their spending (downward
migrators). Because behaviour of the customers in each of
these categories is driven by different factors, they assert
that success comes from understanding the different dynamics
of each group, and marketing to them accordingly.
Strangely, they term all three upward categories as
“loyalists”: deliberative loyalists (those who frequently
reassess purchase decisions); inertial loyalists (who don’t
change to something else because it’s not worth the effort)
and; emotive loyalists (strongly feel that chosen brand is
best for them).
In my view the first two of these categories are clearly
mislabelled - by definition they are not loyal. That is, these
customers are either ambivalent about the brand or, they have
no sustained attachment over and above a logical assessment of
the product or service attributes, made at each and very
Framing them as “loyal” is misleading and misses the key
point that loyalty requires there to be an emotional
connection with the product, service or brand – i.e. the
emotional loyalists. Quite rightly, Coyles & Gokey suggest
that these customers are the “holy grail” for marketers, in
And undoubtedly they are. Loyal customers are not only the
most profitable (the 80:20 rule applies here) due to: higher
proportion of purchases; reduced price sensitivity and; cost
of acquisition amortised over a longer period, they are also
the strongest advocates of the brand and the basis of referral
selling. So, as a rule of thumb (broadly summarising a range
of studies), if you can increase the proportion of loyal
customers by 5 percentage points, you stand to increase your
bottom-line from anywhere between 40-80% (yes really!).
So it pays to understand them and focus your attention on
them. Coyles & Gokey are on the mark by categorising
customers according to their behavioural patterns. But I
believe that organisations should not just focus inwardly on
these categories, they should be developing a clear
understanding of what it takes to shift more customers into
the emotive loyalist demographic. What’s more, everyone
involved in representing the brand through service delivery,
should share this understanding.
How do we recognise them truly (emotively) loyal customers?
Looking at their behaviours and language should give you a few
pointers. However, we can also start by coming back to the
customer satisfaction ratings. The loyal customers are the
one’s right at the top - on a scale of 1-7, they rate you at
least a 6, probably a 7.
This need not be rocket-science. However, increasingly best
practice organisations are starting to focus on the aspects
and attributes that drive the very highest levels of
satisfaction (loyalty), and setting performance goals around
As one example, when Gary Loveman (former Associate
Professor of Harvard Business School), joined Harrahs Casinos,
first as COO and later becoming CEO, he based the entire
customer service strategy around defining, measuring and
building customer loyalty with the objective of increasing the
share of existing customer’s spend at Harrahs. Externally,
they invested in building the brand and developed an
integrated relationship-marketing approach to drive to
loyalty-based behaviours. Internally, they focused upon two
dimensions: excellence in customer service and leadership. The
critical piece here was instilling ownership and
responsibility for building “loyalty” into operational staff.
Their focus is maintained by ensuring they base decisions upon
the customer-behaviour metrics and, by directly linking
performance measures to specific the loyalty criteria.
This sharp-end focus has not only increased the proportion
of customers who fall within the (emotively) loyal category,
but has helped to deliver a 100% improvement in revenue and
earnings within 4 years. The loyalty of the “internal”
customers has also increased - staff turnover has also reduced
Such a concept is strategically based, but it is
operationally driven – particularly across all customer
touch-points of the organisation. To bring life to these
concepts within your team, you might simply start by asking
yourself and your staff these sorts of questions;
- Who are our most loyal (and profitable) customers?
What are key (emotional) expectations that these customers
- What do they find distinctive about the customer
experience (relative to your competitors)?
consistently do you deliver those sorts or experiences?
What opportunities do you have to deliver them more regularly?
An important point here is that the customer experience
does not have to be consistently extraordinary to create the
emotional connection. However, it does have to be of an
excellent standard (ideally sprinkled with occasional examples
of extraordinary service) and there has to be a sound
understanding of what drives customer emotions in relation to
that product or service. It also requires that the customer
experience you deliver is not just like everyone else’s.
Rather, it is quite unique and specific to your brand.
So, roll on credit Card “Y”!>> Back
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