A Primer on Loyalty

It Ain't What It Used To Be!

The History of Loyalty Instilling loyalty among their followers has been the goal of armies and societies throughout the history of our civilization. This quest for commitment from followers has carried over to the global business enterprises of today, which strive for the loyalty of their customers. The study of customer loyalty reaches back to the very beginnings of American marketing research. One of the first references to customer loyalty is in the writings of an American social scientist, Melvin Thomas Copeland, who in 1923 discussed a type of consumer behavior he called `brand insistence.'185 Some of the most widely discussed early explorations of loyalty were those studies conducted by George Brown with the Chicago Tribune panel. American scholars joined the discussion in 1978 with the publication of the book Brand Loyalty by Jacob Jacoby and Robert W. Chestnut. In this pioneering work, the authors identified over fifty-three different operational definitions of brand loyalty!

Today, loyalty has become an even hotter topic, mainly, we believe, because so many customer satisfaction programs have failed to demonstrate a correlation with business outcomes; that is, as satisfaction scores have increased, there has not always been a subsequent increase in sales or profitability. These failures have caused some to abandon customer satisfaction and focus instead on customer retention or loyalty--the desired consequences of satisfaction.

How Loyalty Works To explain loyalty's importance to business, most theorists subscribe to a `hierarchy of outcomes' model. This hierarchy starts with the performance a company delivers to its customers. If performance is superior, then customer satisfaction results. If customers are satisfied, logic suggests the company will retain its customers. And higher levels of customer retention trigger several outcomes (such as reduced marketing costs, increased share of spending, and further customer acquisition from referrals), which ultimately provide an organization with increased profits. This progression has been variously referred to as the Service-Profit Chain (Sasser et al.) or the Satisfaction-Profit Chain (Rust et al.).

If one accepts this model, loyalty becomes a strategic goal (and bellwether) for management. Loyalty, because of its position in the hierarchy (approximately mid-way), serves two very useful roles:

  1. Loyalty can be used to track improvement over time, preceding improvement's impact on profitability.
  2. Loyalty can also be used to guide improvement initiatives by directing attention to issues where customer perceptions correlate highest with expressed loyalty (so-called `drivers of loyalty').

A measure of loyalty, therefore, serves as both a key indicator and a road map for improvement.

The Concept of Loyalty Personally, I like to think of loyalty as distinct from satisfaction in the following way: consider satisfaction to be driven by judgments of the functional characteristics of a product or service--how well the product lives up to its specifications or promise--in other words, conformance. More simply, does the product or service do what it was supposed to do? Accepting this definition of satisfaction, loyalty can be thought of as the emotion that exists between a customer and a supplier; the emotional glue.

This semi-autonomy of the two constructs helps us understand otherwise paradoxical behavior. There are situations in which customers continue to repurchase a brand (or conduct business with a vendor) despite inferior performance because they like affiliating with the brand or vendor. In the same vein, customers may continue to repurchase simply because breaking the association involves some risk (e.g., the quality performance of alternatives is not assured). Conversely, customers can seek out a product or brand that offers superior performance even though dealing with its vendor is not a totally pleasant experience.

By defining satisfaction and attitudinal loyalty as somewhat independent, we have successfully mapped customers in a loyalty-satisfaction space. There are many satisfied customers who consider their relationship with a supplier weak or non-existent. Similarly, many loyal customers continue to buy a product they acknowledge has certain shortcomings, simply because they like conducting business with the supplier--they are emotionally bonded.

In a current television commercial, IT directors are shown discussing their software vendors. One director expresses his willingness to continue buying from his vendor (apparently the result of superior servicing). He asks another director what his vendor-relationship is like, to which the IT director responds: "We're more like contractually inseparable!" The lesson here is that far too many customers who continue to buy are exhibiting loyalty-like behavior but are really trapped. Either their relationship with the vendor is structure-bound or they may have insufficient alternatives. Should the bonds be relaxed or alternatives suddenly appear, such customers can be expected to defect immediately.

Unless supplying organizations truly understand the nature of their customers' repurchase behavior, the activity may be incorrectly interpreted as loyalty. To begin to help proper classification, it is critical that organizations segment their current customers. Segmenting by reasons for repeat purchasing gives an organization potent competitive insight. Not all repeat purchasing is indicative of truly loyal customers!

185 It seems ironic to us that today the insurance industry actually defines customer loyalty or lifetime as ` persistence. ' This implies, as many of us experience first-hand, that dealing with this industry often requires a customer to overcome significant obstacles.

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