The modern marketplace is not for the faint-hearted. At every turn there are competitors vying to steal your customers, while consumers themselves become evermore savvy, checking out products in store while comparing prices on smartphones or bypassing the high street entirely to go online.
This state of affairs underlines the importance of customer loyalty for any type of business in the 21st century. No longer can an enterprise expect consumers to keep coming back simply because they once chose it to make a purchase.
Another illustration of just how crucial customer loyalty is comes when you consider that it is thought to be roughly ten times cheaper to retain an existing customer than acquire a new one. That means any business failing to retain customers faces an uphill battle for profitability.
However, there is considerable evidence that many companies do not fully understand just what customer loyalty is. According to Thomas Brown, associate director of research and insights at The Chartered Institute of Marketing, the concept of loyalty has changed considerably over the past decade and is now far less about a promotional-led approach. He says it should be thought of in terms of getting closer to customers to gain a deeper understanding of who they are and what they want.
To that end, the “customer experience” has replaced more traditional customer service departments in many companies. Mr Brown explains: “Having absolute clarity of responsibilities within the business is key, but I don’t think it’s a case of determining where things sit. I think successful organisations recognise that collaboration across different parts of the enterprise is far more important than delineating who has responsibility for elements of the customer journey.”
In his view customer retention and loyalty require lining up all the moving parts in a business – or “the ducks in a row”, as he puts it – so that every member of staff understands the role they play.
BMW is one example of a company that understands the customer loyalty concept. Mr Brown says that although some 12,000 people work for the German car maker in Britain, only 900 to 1,000 are BMW staff. The company has a “brand academy” near Reading where dealership staff and others are trained to explain the role they play in delivering BMW’s “brand promise”.
Many companies still misunderstand the complexities of customer loyalty, which means that it becomes the responsibility of the customer loyalty manager – typically a mid-level role – says Vince Mitchell, professor of consumer marketing at City University in London. That results in confusion about the purpose of typical loyalty schemes such as Nectar or Tesco Clubcard.
Collaboration across different parts of the enterprise is far more important than delineating who has responsibility for elements of the customer journey
“They think that loyalty is about rewarding purchases and thus you can increase it by encouraging customers to buy more – that’s a fundamental misunderstanding of what creates loyalty. It might not be giving people 1 per cent back – it very rarely is,” he says. Far more important, Professor Mitchell argues, are factors such as product quality, convenience, identity and what they say about the consumer.
Some companies have realised from the outset how to keep customers coming back time and again, he says, with the Body Shop as just one example: “Understanding your loyalty drivers right from the very beginning can result in massive growth very quickly.”
Conflicts can arise when finance directors, faced with the prospect of falling profitability, might decide to reduce spending on the factors that can drive loyalty, which he believes ultimately weakens sales.
Key to customer loyalty is accurate, informative data, Mr Brown adds. “There are some relatively straightforward ways of doing this, but it requires time and analysis, and there is a cost. For some businesses, that can be a challenge.” The good news is that the advent of cloud computing and software-as-a-service is making such number-crunching much more affordable, putting it within the reach of even small and medium-sized businesses.
Digital in general is having a profound impact on the field of customer loyalty, Mr Brown says. Consumers know they now have more choice and therefore have become slightly less loyal in general. As well as being more price sensitive, they are taking into account reviews and recommendations of other buyers, which are trusted far more than advertising. “Smarter organisations have recognised this trend and embraced it because it’s not going away,” he says.
Professor Mitchell also highlights loyalty scheme fatigue among consumers now that almost every retailer, bank and mobile phone operator has some sort of incentive plan. Even John Lewis department stores and Waitrose have succumbed to the lure of the loyalty card. “You start thinking about the value of your data much more because you realise that all companies want it – therefore it must have more value,” he says. “And you do begin to expect more and it’s right that you should because it’s largely for the benefit of the company than the consumer.”
