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By John Kane, Senior Vice President, Account Management, and Jonathan Honiball, Associate Vice President, Research
Even if your brand is as innovative as any market entry in its class, the competitive landscape is sparse and all the stars are aligned properly, your brand can’t be a true success without a loyal customer base.
In this article we will examine the customer loyalty quotient, its implications for profitability and how it should be measured.
One timely and compelling reason for understanding the impact of customer loyalty on your brand is the state of the current economy that demands marketers be more competitive than ever before. With the decrease in product differentiation and limited number of new products entering the market, customer loyalty is a key battleground among those in the health care industry, in particular. Any method of differentiation that could positively impact sales must be fully explored.
To that end, the customer’s relationship with your brand is critical. Enough dissatisfied customers can turn your power brand into an also ran in the marketplace, thus diminishing your bottom line. In essence, goodwill does ultimately lead to more total spend and greater profitability.
It’s the element beyond transactional loyalty, or the frequency and value of total spend for your brand, that influences a purchasing decision. It is often described as an emotional bond between a brand or company and the customer.
At some level, companies track elements of transactional loyalty including:
- Win/loss rate and reasons
- Transaction value
- Percent of total spend
- Competitor performance
- Customer satisfaction
If, for instance, you analyze data on percent of total spend, it will become readily apparent that it is much higher in some customers. What is it that creates this difference? Customer loyalty.
If you consider the standard product life cycle curve, some customers will adopt faster, will have higher usage during maturity and will hang on much longer during the decline phase. Within a competitive market where other products are introduced that are superior, a customer that exhibits these behaviors is considered to be loyal.
Ultimately, the benefits of customer loyalty are:
- High profitability
- Lower sales costs
- Decrease in product switching
- Less impact from market events
- Quicker to adopt new products
It is necessary to first understand the transactional loyalty metrics that are used within a business to create the best loyalty model possible. After a survey is conducted, an iterative process occurs where the best measure of loyalty is determined. This process ensures that any discussions of loyalty have the most direct link to transactional loyalty.
While some measures are better than others, it is really best left to the client to determine which transactional measures are most crucial within its own business. This helps create the internal buy-in to the customer loyalty metric, without which it’s virtually impossible to proceed with research.
Most marketing research companies define loyalty in terms of their predetermined set of “loyalty” questions, either presented as a single question or as a composite variable that seeks to define loyalty as a mix of different predetermined questions. But here is the caveat: To pre-identify the exact question(s) that is the appropriate construct of loyalty is to deny that there is not only a difference that exists between different industries, but more specifically differences between direct competitors within the same industry. Given these differences, the best measurement of loyalty is to identify the question(s) that best relates to a specific company’s transactional loyalty measures.
Instead of focusing on a specific question or set of questions, it is best to focus on the process:
- How much can loyalty be influenced by your company?
- Should it be on the brand or the company?
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- Define data elements that influence business outcomes
- Measure stability/impact and refine
With this information, health care companies can adapt, refine and reshape their customer loyalty programs with a greater potential business outcome.
The customer loyalty quotient is complex. Even when three typical elements used to measure customer loyalty (satisfaction, retention and advocacy) exist, customers still defect. Given that this occurs, these elements cannot be the sole measures of customer loyalty.
Instead, if you separate those customers that are your highest performers and compare them to customers that are flat, declining or abandoning, you can identify what elements contribute to this behavior. This functional analysis creates a much more precise/stable measure of customer loyalty that does not have the defections present in predetermined models.
Loyal employees help create an environment where customer loyalty can be generated. Any company looking to address customer loyalty must also be serious about including employee loyalty in the mix.
There are two other best practice recommendations not mentioned previously:
- If you are unwilling to enact changes to your business as an outcome of the research, then don’t bother starting down the path of loyalty research.
- Measuring loyalty just once is not enough. You need to know if the actions that you have taken have had an impact. This means that the best approach to loyalty includes an ongoing tracking study.
In the end, as you customize your brand to meet the demands of the marketplace, you should also customize the metrics to determine your customer loyalty quotient for your brand.
 
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