The Myth of Brand Loyalty
For branding and marketing leaders, loyalty is the holy grail, and for good reason.
Let us count the ways:
- Loyal customers have a larger lifetime value to the business’ bottom line.
- Loyal customers help create more consistent revenue over time.
- Acquiring new customers is far costlier than retaining current customers.
- Satisfied loyal customers are more likely to be brand advocates.
Luckily, brand loyalty can be good for people, too. There is an emotional satisfaction to loving a brand and sharing this great find with others. There can be a community component, a common connection with others who love the product or service. And having evaluated and chosen, there is great peace of mind in knowing that the brand will be the consistent quality and value you expect.
Perhaps the biggest benefit to brand loyalty for the customer is having one less decision to make. Studies show the human brain is not designed to process and store the volume of information confronting us today; after choosing what to wear, what to eat, which news story to read, and a million other small decisions along the way, we arrive at decision fatigue. It’s the reason it can be difficult to open the mail at the end of the day or decide what's for dinner. It’s the reason POTUS’ clothes are selected for him (or her) each day: Save the brainpower and decision-making for more important matters. Brand loyalty can serve this same purpose; make an informed decision once, and then stick with it moving forward.
So if brand loyalty provides benefits to both brands and customers, why isn’t loyalty the norm?
Reason #1: People seek variety, exploration and discovery, yet we define loyalty as a monogamous customer-brand relationship.
Asking customers to be 100% brand loyal is a very tall order, and using this definition for brand loyalty is extremely limiting. People like to try new things. We like to learn. We like to share new finds with others. And variety is indeed the spice of life. We get bored with the same thing every day, especially when it comes to products. For services, the ease of consistency and continued relationship are more desired, but customers will still consider alternatives on occasion. Variety and exploration go directly against the traditional definition of brand loyalty, a monogamous and committed relationship by the customer to the brand.
We need a new definition: Brand Loyalty is not a monogamous relationship; it is a successful open marriage.
Customers will explore alternatives every now and again. For many product categories, customers will use a competitor’s product side-by-side your own, or will switch back and forth for variety. Achieving a successful open marriage positions your brand as that closest to the customer’s heart, a commitment and preference that is always returned to as the trusted long-term relationship.
Think about what this would mean as you define loyal customers for your business. No longer is the goal 100% of their spend in your category. Let’s consider some examples.
- In the case of CPG (consumer packaged goods), consider shampoo. Assume people buy shampoo 5-6 times per year. Whether true or not, conventional wisdom says it is healthiest for hair if we alternate shampoo brands. Imagine if the goal is to be purchased three out of six purchase occasions each year, and that this is now the definition of your loyal customer.
- Or for a more frequent purchase, consider the beer category. Beer drinkers have favorites, but they also love to explore new products, especially with the growing craft beer market. Let’s say beer drinkers purchase 60 six-packs per year. Imagine the new loyal customer is one who purchases your brand 30 of those 60 occasions.
- Or even for services like credit cards, the goal is no longer to capture all customer spend, but to capture half of their spend over the course of years.
This is a new measure of loyalty that allows for human nature, and with a more inclusive definition of loyalty leading to a larger pool of loyal customers, even larger efforts can focus on retention rather than acquisition, driving the efficiencies of returning customers.
Reason #2: Business practices emphasize short-term goals over long-term gains.
We are shortsighted. Shareholders pressure executives, execs pressure leaders, leaders pressure staff, and everyone runs a mile a minute trying to drive revenue today. This pressure stresses everyone in the system, which inevitably creeps into the quality and spirit of brands, marketing, products and services.
Not only that, this pressure encourages short-term acquisition tactics rather than long-term market strategy. These short-term tactics directly oppose loyalty strategies from the customer perspective. Imagine you are a loyal cardholder and have been a customer for three years, and you see your bank release an acquisition promotion for new customers. How does that make you feel? Terrible. Why would you be loyal to a company that is not loyal to you? To a company rewarding new customers over you, who have been loyal for years? This brings us to...
Reason #3: Competitors change the value proposition with their own acquisition strategies, leading to a cycle of brand switching.
Continue considering the previous credit card customer. He signed up for your credit card with a promotion: $95 annual fee with the first year waived, and 100,000 points for spending $4k in the first three months. Well now he is on year number three, and a competitor card is offering a new acquisition deal. The competitor bank has changed the value proposition, and is now a more attractive credit card than your own (for the duration of their offer, which again is likely one year). This approach is standard in many industries and encourages people to take advantage of offers, switching back and forth between products. There is a better way.
1. Redefine loyalty as a successful open marriage.
Alter how your organization thinks about loyalty, from a monogamous brand-customer relationship to a successful open marriage. The goal is not 100% of spend in your category, the goal is a dominant share within a given time period relevant to your product/service purchase cycle. Your loyal customers will still seek variety and exploration from time to time, that’s only human. The goal is a dominant share of their spend and for them to always return to you as their trusted, tried and true brand preference.
2. Reward long-term loyalty over short-term acquisition
Adjust or create your loyalty program to reward this newly defined loyal behavior over the long-term, and be sure rewards for loyalty always exceed rewards for acquisition. Consider using the first loyalty reward as the acquisition promotion: Join us for one year and receive 200,000 points; at year two, receive 300,000 points; and so on. This will create brand advocates, customers enamored that they are treated well for their loyalty year after year, purchase after purchase. At year five, if a customer does not achieve loyalty status, they will begin again at year one. This isn’t meant to punish, it is meant to reward loyal customers and to encourage customers to remain loyal within a fair, liberating definition of loyalty.
This approach rewards customers for long-term loyalty, allows for naturally human tendencies toward brand variety and exploration, and still drives long-term revenue gains and creates a significant barrier to switching.
Go get ‘em…and keep ‘em.