Defining Customer Loyalty

Defining Customer Loyalty

Brand loyalty is often discussed from the brand’s perspective. People ask questions like “What can we do to make people loyal to the brand?” It’s time we looked at loyalty from a different perspective – that of the customer.

Havas’ Meaningful Brands study found that if 74% of brands disappeared overnight, most customers wouldn’t care. You can bet that most of those brands believe that they have a strong core of loyal customers. So what causes this gap in understanding? Is loyalty really as simple as some brands think?

 

Conscious consumerism

The credit crunch shaped the shopping habits of many consumers. While in the past we may have spent more to impress friends and family – to have the most expensive car on the street or ensure that our kids have the latest must-have shoes or smartphone – we’re now more careful about our spending.

We’re more selective. In 2016, fashion retail took quite a hit in the UK as consumers switched their spending from regularly updating their wardrobes, to saving for experiences like fine dining and holidays.

As consumers, we’re more worried about fulfilling our own goals and aspirations than meeting the imposed standards of others.

 

The impact on loyalty

While previous generations had one job, banked with one bank and stayed put with their brands because loyalty was a long-term concept, things have changed. Loyalty isn’t about blind adoration – it’s about a mutually beneficial relationship.

If we aren’t meeting our goals at our current job, we move on. If another bank has a better deal, we switch. If our partner is unreasonable, we leave them. Loyalty is a relationship, not a right.

When it comes to brands, we know that a brand we love might be pulled off the shelf tomorrow for no reason. We’re forced to go elsewhere or try something new. It’s more important than ever for brands to know the difference between convenience and genuine loyalty.

 

Defining loyalty

The Financial Times splits loyalty into four types:

  • Psychological loyalty – such as developing a bond with shop staff or finding comfort in the shopping process.
  • Economic – you’re loyal to the brand because it’s the cheapest option.
  • Functional – the brand has become part of the person’s routine, and changing brands now would mean a change in habits (and can be very hard to change).
  • Contractual – you have no choice but to be loyal, because you’re tied in to a contract.

Economic and contractual factors can be quick to change. The customer may become a parent, and need to cut back on discretionary spending. Another customer may seem loyal, but switch operators the moment they can get out of their 24-month mobile phone contract. Raise the price of your product, and you’ll see customers that appeared to be loyal flocking to your competitors.

Psychological and functional loyalty is based on emotion, and building a mutually beneficial relationship. People are loyal to a brand because they want to be. The retailer gets repeat custom, while the customer gets a fulfilling experience.

 

Creating loyalty

The problem with many loyalty programmes is the lack of focus. Loyalty is a complex idea, so it’s easier to reduce it to “give them money off” (especially when we love getting discounts). But a loyalty programme built around discounts isn’t ideal for helping long-term loyalty thrive.

A discount code for a product I’d never buy just tells me that the retailer knows nothing about me, and just wants to encourage me to spend. Send me a reward that’s tailored to my aspirations, my tastes, and I’m not only more inclined to spend, I’m also more emotionally invested in the brand as a result.

 

Our next post will examine the key drivers of loyalty.

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