What is customer loyalty in the online world?

One of my predictions for this year is that retention marketing will increase it’s importance in the online marketing mix. My thinking is that acquisition marketing activities through channels such as affiliates and search is becoming increasingly sophistacted. The tools are out there, the skills are out there and the improvements in efficiencies are beginning to tail off. That’s not to say that there aren’t improvements to be made. It’s just not the low hanging fruit for most organisations these days.

At the same time, conversion optimisation is gaining momentum. There has been a lot more focus on what actually happens when someone gets to the site over the past couple of years, spawning the growth of web analytics and multi-variate testing services. There is still probably a lot of mileage to be gained for most organisations through site improvements but generally the process is underway.

However, from the work we have done with a number of organisations it seems to me that companies generally heave a sigh of relief when they make the sale as if the job is done. Having been through the effort of creating awareness, acquiring the traffic and converting it on the site, the important asset that has been created, ie the customer, is then neglected and the organisation sets off in pursuit of new ones. The result is most customer databases are littered with customers who have only transacted once. For more, the definition of retention marketing is converting someone twice without having to acquire them twice. You don’t want to have to go through all that heavy lifting again!

So as part of this increased focus on retention marketing there’s going to be an increased emphasis on customer loyalty. Over the next few weeks I’m going to be taking a look at issues around customer loyalty such as “what is customer loyalty?”, how do you measure loyalty and how can you use data and insights to manage the retention marketing process more effectively.

What do we mean by loyalty?
What do we mean by customer loyalty? For example is it a state of mind or it is a set of behaviours? How can we really establish whether a customer is loyal or not? In our multi-channel world is the notion of loyalty even valid or useful?

These are tough questions that have been debated for many years and, of course, there are arguments on all sides. If you look up the definition of loyalty is usually describes loyalty as being a “quality” which suggests it’s more attitudinal than behavioural. However in our marketing world we’re generally interested in outcomes, like someone buying something. But are behaviours actually always the best indicators of loyalty.

As part of my MBA I did a lot of research into store loyalty amongst supermarkets in the UK. I measured how much people spent in each of the grocery stores that they shopped in over a 12 week period and created a metric to measure how loyal they were to various retail brands. What I found was that most people spent most of their weekly shop in one supermarket. So you could argue that most people seemed to be “loyal”. But what is the context to this behaviour? Are they only loyal to that store because it happens to be the closest or the most convenient? Would they in fact rather shop somewhere else if it was more convenient?

Another example can be found in financial services. People can appear to be behaviourally very loyal to their bank. If I look at my own behaviour I have had my main account with my bank since I was a student. So I must be very loyal, right? Well if I was asked whether I considered myself to be a loyal supporter of my bank I would say that I wasn’t. I’m behaviourally loyal but I don’t consider myself to be a loyal customer. The problem is that the pain of switching accounts to another bank is just too high at the moment. There are inertia effects at work and there is a great deal of inertia in financial services.

Of course, the internet is a technology that can break down inertia. There is the famous saying that “your competitor is only one click away”. I can now choose to get my groceries delivered by whichever supermarket will deliver to my area. I am actively encouraged to use shopping comparison sites to get the best deal from a selection of stores.

However the technology can also create barriers to switching which means for example, that our household generally get’s all it’s online groceries from one supermarket chain because all our orders are stored there. Similarly Amazon get’s a significant chunk of my expenditure in certain categories mainly because it’s so easy to buy, not because they are necessarily the cheapest.

So how do we measure customer loyalty? Do we look at behavioural indicators or should we be concerned about what our customers think of us? Or both? This is something I’ll be looking at next time. Till then…

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