But Do You Love Me?
Rick Ferguson, Aimia
What's more valuable to business performance: emotional or behavioral loyalty, and why?
There's a difference between capturing a customer's wallet and capturing his heart. Consider a diamond-level loyalty program participant. Brand managers may think they have his business sewn up. The customer presents little worry: he's profitable, perhaps a brand advocate, and at very least a minimal risk for defection.
Probably, maybe, and maybe not. Knowing whether a brand plays more strongly to behavioral or emotional loyalty is becoming increasingly essential.
Behavior-focused brands—those that maintain that loyalty can be evaluated solely through spending patterns—may not care that their customers aren't emotionally loyal.
These brands are focused on keeping customers shopping based on price, convenience, and in some cases inertia. But brands that integrate emotional components into their loyalty strategy have more opportunities for retaining their customers and expanding their value. They've built equity in consumers' minds through the emotional triggers of loyalty: the quality and selection of their offerings; the support service they provide; or even the brand's image as created through relevant, appealing marketing.
Consumers may not have frequent transactions with these brands—think luxury goods and services, or high-value consumer durables—but when there is a need in the product category, that brand is foremost in consumers' minds.
Both business models can work. The increased ease of comparison shopping, coupled with marketing efforts that focus on hard rewards such as cash back, have trained consumers to give greater weight to price as a loyalty consideration. But the behavioral-focused brand is more vulnerable to being undercut by new entrants in the low-cost category.
Unfortunately, marketers often don't have the external perspective, or haven't done a critical review of their position, which would allow them to determine where they fall on the behavioral versus emotional loyalty spectrum.
It's not that the clues aren't available. Consider social media, which has increased customers' ability to disseminate feedback, whether to a network of friends or to the shopping community at large. Dissatisfied individuals, who might have once suffered in silence, now have many forums to express their displeasure. If enough of them find each other, they might offer a competitor a ready-made focus group and insight into a new market move.
As it happens, emotion-focused loyalty does have an impact on the bottom line. Brands that have invested in emotional marketing can mitigate the need for discounting. Apple products, for example, are available through Amazon or Best Buy, often at prices lower than those posted by Apple's retail stores. Yet Apple's former SVP of retail operations Ron Johnson observed that consumers “flock to the stores to buy Apple products at full price.” The secret, Johnson added, was creating “a store that's more than a store to people.”
Granted, Apple has the advantage of a unique product suite. For marketers who offer less differentiated products, developing the tools and processes that facilitate emotional engagement can be a challenge—especially for those in low-margin businesses.
Smart marketers foster emotional loyalty by targeting the marketing and discount dollars they have more effectively. These are the marketers who don't give the same 20% off coupon to everyone who walks in the door (whether physical or online). Instead, they use analysis to identify customers with either high current or high potential value, and focus offers—even simple discounts—toward those groups.
Marketers willing to take the next step can customize those offers so they're more relevant, such as by using purchase behavior or other analysis that reveals the types of offers most attractive to those consumers. The additional relevance gives what had been a behavioral award—a discount or cash back—an emotional component.
With the right tools, marketers can measure the effectiveness of these engagement strategies by determining which non-transactional factors, such as spending time on a marketer's website between purchases, opening emails, responding to surveys, or recording a positive experience through other touchpoints, indicate a propensity to spend.
Conversely, customers not displaying engagement behaviors are possible defectors. They may look as though they're loyal, but they're not engaged. A marketer can focus retention efforts, and marketing dollars, on those customers.
In either of these cases, emotional loyalty can better predict a customer's future actions, as opposed to behavioral loyalty, which is limited to their past behavior. And by the time a customer has slowed down (or stopped) his transactional interactions with a marketer, retaining them becomes much more expensive—if doing so is possible at all.
Rick Ferguson, Aimia
Rick Ferguson is VP of knowledge development at loyalty management company Aimia, where he's responsible or the development and dissemination of loyalty marketing research, best practices, and thought leadership for an audience of loyalty marketers that spans the globe. A true jetsetter, Ferguson has spoken at industry conferences and shows all over the world, including Australia, Chile, China, Malaysia, South Africa, Singapore, and the United Kingdom. He's provided consulting services for such top brands as American Express, Procter & Gamble, and Visa. When not consumed by loyalty marketing, Ferguson—who jocularly describes himself on Twitter as an “author and public speaker, master of time, space, and dimension”—loves to listen to music. A particular favorite is jam band Phish.
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