Responding to the loyalty challenge

Getting customers to remain loyal to brands is becoming more and more difficult, for a variety of reasons. I group these into three main influences:

1. Customer-driven

Access to new media and information tools means that customers are able to more easily compare and extract value from firms rather than passively accept what companies offer them
Growing expectations and falling levels of satisfaction
Growth of peer-group communities allowing customers to collaborate and consult to find best value
Switch in spending from products to experiences.

2. Business-system induced

Explosion of brand choice
High levels of product similarity
Universal product quality and standards
Overuse of promotions and incentives to encourage switching
Over-dependency on plastic loyalty cards to build relationships
Failures of CRM systems to deliver results
Ease of switching from one brand to another
Overzealous use of personal data in direct marketing and CRM efforts
Growing complexity of access to companies through new technology

3. Societal changes

Busier lives and poor work-life imbalance means customers are placing more value on their leisure time and experiences.
Loss of community and local support networks
Rise of the individual and the need to find self-expression and personal meaning
Declining trust in corporations owing to high-profile scandals and boardroom pay imbalances

Taken together, this means that “conventional wisdom” marketing and CRM approaches are becoming less effective.

Firm responses to this "loyalty challenge" can be grouped into three types:

1. “Push Harder” with marketing efforts

Firms can advertise more aggressively in the hope that their brand or promotions will get through to the “right audience at the right time”. Importantly, these approaches depend on economies of scale and volume to deliver the firm’s objective which is why more and more businesses are going “below-the-line”.

2. “Tune Up” through even smarter CRM

Second, they can increase their levels of sophistication in customer segmentation and analysis, implement CRM systems, adapt self-service technologies, provide multiple-channel integrated access to the firm, address employee-training issues and focus on customer satisfaction. The hope is that better systems, standards and insights for building customer loyalty will be sufficient to recruit and retain the right customers and keep them for longer.

3. Build customer advocacy

The third option reflects the more innovative response to the “loyalty challenge”. Some companies are already discovering important new mechanisms and approaches to ”align” their CRM, brand and marketing practices with the needs of their customers. These methods are being dubbed “customer advocacy” based responses (see Urban, MIT Sloan Management Review Winter 2004).

Customer advocacy aims to build deeper customer relationships by earning new levels of trust and commitment and by developing mutual dialogue and partnership with customers. It can be defined as doing what is best for the customer, even if that entails recommending a competitor’s product. The hope is that this will earn greater levels of loyalty and spread positive word-of-mouth.

Find out more by dowloading this presentation on Customer Advocacy. (0.4 Meg, Powerpoint show format).