It's All About What Customers Value Most

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Matthew Shanahan, Scout Analytics
Matthew Shanahan, Scout Analytics

Which is the more powerful marketing asset, customer engagement or customer loyalty?

The marketing power in your customer base comes down to economics—or, in another word, value. When customers receive what they perceive to be of great value, they're willing to share that value proposition with others. Customers pride themselves on being skilled at putting investments into purchases with good returns.

When the returns exceed the investment, customers often like to brag. So, the simple economics of value is the reason marketers should leverage customer relationships. There is no escaping the need to deliver on customers' value propositions to maximize the marketing potential of those customers to a brand.

With this premise in mind, how do you answer the question regarding the relative power of customer engagement versus customer loyalty as a marketing asset for such activities as spreading word of mouth? Ultimately, the answer comes down to your definition of the words engagement and loyalty in terms of the value proposition to deliver to your customers.

Measure for measure: Engagement versus loyalty

If you measure engagement based on the amount of time a customer spends using your product, it would seem like that measurement translates into value. After all, the more someone uses a product, the more value they receive from it, right? Well, yes and no. The reality is that customers use products for different reasons and, therefore, derive value differently. For example, I rarely use but really like Uber, the on-demand black car service, because I can get timely transportation service when I have a tight business schedule to keep between remote locations. That's completely different from the value proposition of customers who use it frequently as safe, upscale transportation to go clubbing on Saturday nights. In these scenarios, the business traveler and the weekend clubber have radically different engagement patterns, but both are receiving value and are often advocates for Uber. The consequence is that measuring engagement alone is not a good measure of a value proposition and not a good basis for understanding the marketing power of your customers.

Loyalty is even trickier. First, you have to define what loyalty means. Is it the length of time of your relationship with the customer? Is it frequency of use or the frequency of purchase? The truth is that like engagement, loyalty may or may not be strongly correlated to value. For instance, I am a loyal customer of a particular grocery store but my loyalty is based on convenience more than anything else. While the location saves me time, there's no value for me in terms of unique food, prepared foods, and awesome prices—things that I would want to shout out.

A powerful combination

Rather than choosing between engagement and loyalty, the real answer is to combine the two. By understanding how engagement creates loyalty, and how loyalty is derived from a unique value proposition, you can build and maintain customer relationships that have true marketing benefit.

This is where customer segmentation and intelligence comes in. Understanding customer engagement means understanding how different customer segments gain value from your product or service; for example, Uber's business and club-going customers value its service for different reasons.

This intelligence allows you to optimize the customer experience and drive up engagement. Of course, the more engagement increases, the more loyal customers become. Ultimately, this leads to customers becoming advocates who spread the word and generate revenue growth. For each customer segment, optimal engagement and loyalty interactions will vary.

Additionally, understanding and analyzing engagement and loyalty are critical to uncovering the source of value for different customer segments and then building advocates and fans who grow your business. In fact, using engagement combined with loyalty for customer segmentation is the best way to uncover what customers value. In my case, Uber could use analytics to uncover that I (and, perhaps, others like me) always use its service during business hours and outside a major metro area—and that its reliability and convenience make me highly likely to tell others about it.

Customers' value proposition is the lead from which all other customer metrics follow. This is basic economics. Both engagement and loyalty are tied to the customer value proposition and are both vital indicators of what customers value. One does not have priority over the other.

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Matthew Shanahan, Scout Analytics

Matthew Shanahan has nearly 25 years of experience in the technology industry, recently serving as CMO of Teranode Corporation, where he helped to establish the company as a thought leader for informatics infrastructure in the life sciences industry. In addition, he was the original product manager at Documentum and spent 10 years in leadership roles until the company was acquired by EMC. Prior to Documentum, Shanahan was a manager at Accenture, specializing in advanced enterprise architecture. Shanahan earned a B.S. in electrical engineering and a Master of Science in electrical engineering from the University of Washington. If Shanahan wasn't working in marketing, he'd want to be the chief economist at an investment bank. “Understanding the source of value and customer purchase behavior is what is most intriguing to me,” he says.

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