There are several truths of customer loyalty that continue to prove out, though many businesses have been slow to adapt to their reality.
First, and this is no surprise to anyone, loyal customers reward vendors with greater wallet share, revenue, profitability and relationship growth. According to Gallup, a fully engaged customer offers an average 23 percent premium in these areas.
Second, loyal customers are engaged with the vendor or brand in some way beyond the simple transaction. But according to Adrian Swinscoe, a contributor to Forbes.com, what’s troubling about the current engagement strategies is that they are focused on encouraging customers to spend more and more frequently. Says Swinscoe, “…is that they best way to build ongoing and loyal relationships?”
Gaining customer loyalty is a tricky thing, and the variety of solutions to this need in the market suggest we might not have a clearly thought out concept. Gallup divides customers into three major types—fully engaged, indifferent, and actively disengaged—and each description addresses the emotional state of the customer. Interestingly, Gallup describes the disengaged customer as “emotionally detached” and “[t]hey will readily switch brands,” which doesn’t sound wholly unlike descriptions of loyal customers from other studies.
Now a better understanding of loyalty is surfacing, and it has little to do with rewards or discounts but much to do with engagement that goes beyond the transactional, to Swinscoe’s point. A recent article in Harvard Business Review, “The Elements of Value,” by Eric Almquist, John Senior, and Nicolas Bloch, discusses engagement in terms of perceived value. Customers engage with brands to receive specific kinds of psychic value that is often well beyond the product fundamentals.
According to the authors, customers see or seek value along four parameters, which are described as functional, emotional, life changing, or having social impact. They group these values in a pyramid much as you’d expect to find in a discussion of Maslow’s hierarchy of human needs, where the lowest levels are dedicated to basic needs and the top deals with a kind of transcendence. So functional values can include avoiding hassles, making money, and reducing risk; emotional values include reducing anxiety, fun/entertainment, and therapeutic; life changing values include motivation and providing hope. Finally, the social impact value is termed self-transcendence.
Most brands don’t compete on all levels, they don’t have to. Even one of the best brands studied, Apple, excels in only 11 of the 30 elements in the value pyramid. The reason is simple and gives all businesses trying to stoke rewards. It doesn’t matter which level(s) of the pyramid you compete in—i.e. where you offer value—as long as you do it well.
According to the HBR article, Amazon Prime scores well on mostly eight functional elements. At the same time, the article says smartphone makers’ success stems from how they deliver multiple elements, including “reduces effort, saves time, connects, integrates, variety, fun/entertainment, provides access, and organizes.” That’s a blend of functional and emotional elements. No wonder that “Manufacturers Apple, Samsung, and LG—got some of the highest value ratings across all companies tested.”
What comes into clear focus is the idea that when a company chooses how it competes on value attributes, it is defining how it wants to attract loyal customers. That decision needs to be tracked through design and development processes all the way to how customer-facing employees listen to and treat customers—what the article calls a “hunt for value” mentality.
This is far from an all or nothing proposition. Any business can adopt a value pyramid approach to loyalty and define the elements that it wants to be great at. The best place to start is by asking customers how they feel about a brand, what comes to mind when considering it and other open ended questions designed to get customers to reveal their feelings. This is often done in a variety of ways that include direct conversations, focus groups, and communities. Running a community is the least expensive approach for gathering actionable data and some of the best businesses from a value standpoint use them.
What’s certain is that rewarding customers may be a good idea at times, but rewards run out of gas around the same time a vendor runs out of margin, leaving the question of loyalty unresolved. Understanding customer engagement through value approaches doesn’t get old, and it continues to deliver loyalty results.