Are You Building Brand Loyalty or Customer Loyalty?

You could be building both--reciprocally. Loyalty guru Tim Keiningham reports on how brand-centric and customer-centric marketers are combining their strengths to drive sales.

Marketing has traditionally focused on finessing the marketing mix (commonly referred to as the "Four Ps": product, price, promotion, and place) to meet brand-centric objectives. With the addition of customer relationship and customer experience management (CRM and CEM) to the lexicon, marketing turned to improving customer satisfaction levels to drive brand loyalty (with the typical measure of brand loyalty defined as share of category spending).

An important distinction between the brand-centric and customer-centric focus was the primary user of the information. Simplistically, the thought leaders of brand-centric approaches tended to be product marketers. Frequently, these marketers did not have direct contact with their end customer. As a result, the brand was the primary controllable marketing element in fostering customer loyalty.

Most developed economies, however, are dominated by the service sector. For most of these companies, direct interaction with end customers is the norm. Therefore, efforts to improve customer loyalty in services naturally revolved around the customer experience as the interaction could naturally be thought of as a customer-firm relationship.

The goal of the two approaches is the same: to keep customers coming back. The metrics of success, however, are somewhat different.

Customer Retention: The Traditional Approach to Loyalty

Traditionally, brand-centric and customer-centric marketing operations would be enacted separately and independently. Brand-centric marketing metrics historically looked at the share of a customer's spending allocated to the brand, while customer-centric marketing metrics focused on customer retention as the measure of behavioural loyalty. See figure 1.

(Click to enlarge image)

As we discussed in Loyalty Myths, the platitude that it costs five times more to acquire a customer than to retain a customer (Myth 8) is patently false, as is the myth that a dissatisfied customer will never conduct business with an offending firm (Myth 21). The use of retention as a relationship metric has been falling from favour amongst customer-centric marketers since research and experience has shown that dissatisfied customers don't always defect, but will likely do less business with the company or brand, and retaining customers doesn't necessarily have the return on investment imagined.

Share-of-Wallet: A Joint Approach to Loyalty

Empirical evidence has shown that efforts to improve a customer's spending allocated to the brand in combination with customer retention management is as much as ten times more powerful than just keeping a customer's business. Thus increasingly, brand-centric and customer centric marketers are both working at developing ways to enhance customers' spending (or share of wallet) with the company. See figure 2.

(Click to enlarge image)

Relationships: A Converged Approach to Loyalty

While customer-centric marketers are adapting to the metrics of their brand-centric colleagues, brand-centric marketers are similarly sounding more like their customer-centric counterparts. Building relationships is now the talk of consumer packaged goods marketers throughout the globe. These marketers are seeking to engage their customers in a continuing dialogue by providing them with something of tangible value (information, rewards, etc.) in exchange for providing customer information. The goal is to modify customers' existing behaviour and build brand loyalists.

The convergence of brand-centric and customer-centric measures and goals was inevitable: they are symbiotic. No experience will compensate for a weak brand; likewise, no brand can repair a poor customer experience.See figure 3.

(Click to enlarge image)

Not only do satisfaction and share-of-wallet measures interact, our research has found that satisfaction alters the relationship between brand preference and share of spending. Brand preference and customer satisfaction each make distinct contributions to the understanding of customers' purchasing behaviour, with customer satisfaction modulating the form and strength of the relationship between brand preference and share-of-wallet.

It is no longer a question of building brand loyalty or customer loyalty. Brand-centric measures and customer-centric measures do not work best independently or in parallel, such as in traditional approaches, but symbiotically.

This unified approach enhances our understanding of customer behaviour, the link between the customer and the brand, enabling better tracking of marketing return on investment. But it only works if your brand-centric and customer-centric marketers are united operationally as well, sharing data and working as partners to enhance customer loyalty so that customers allocate more of their spending in the category with your brand.