Should we care about customer loyalty?

Marketing Automation Expert
Valtech DK

July 05, 2019

Retention is key. Keeping your customers happy is key. Creating brand ambassadors is key. Do everything you can to make your customers loyal ‘cause that will drive your business. Heard that before? Probably. But there’s a new claim in town that retention is majorly overrated. So, where does the truth lie?

As a Marketing Automation Specialist, my metier is taking strategy and turning it into a set of rules a computer can interpret. And as such, I am pretty obsessed with rules. Not only in the small ecosystem of a communications schema/structure, but also on a wider scale.

To create the most effective rules for a computer, you need to know what works and what doesn’t. Therefore, I’m very drawn to "truths" - insights for putting actions and reactions into boxes based on what is proven to be true. I am always searching for rules that can function as truths to live by and make everything more comprehensible. Making order out of chaos is a pretty human thing to do, so, I know I’m not alone. But my world of truths was recently shaken.

The general ’truth’ in Loyalty Schemes

In my line of work, there is a lot of talk about loyalty, retention, churning and the like. I have been involved in quite a few projects where my specific discipline was utilized with the intent of increasing customer loyalty for companies/brands. Loyalty schemes are everywhere and a lot of e-mails have been sent as part of this understanding. It has always felt like a rule that retention (loyalty) is key. Even the Adobe CEO preaches this idea and McKinsey seems to consider it a key measurement tool for success when it comes to creating customer experiences. And seemingly with good reason. It is seen as a truth because I, as many others, have seen it work in projects (albeit those within a limited timeframe).

But along came Byron Sharp

With the introduction of his scientific, evidence-based, law-like patterns (almost rules - yay!) for marketeers to follow, Byron Sharp debunked the supposed "myth" of customer loyalty… and kind of rocked my world.

What does this mean for what I’ve always believed to be the on of the core strengths of Marketing Automation: Using profile data to get closer to the customer and drive retention efforts?

The other truth, as argued by Byron Sharp

Let’s look at some of Byron Sharp’s evidence-based claims which I’ve conveniently removed all creative focus from, because I'm a techside automation nerd, and thereby paraphrased a bit:

  1. Every brand loses customers
  2. Rival brands sell to the same people
  3. If a customer uses a product frequently, he or she will of course have a positive attitude towards that product - not the other way around
  4. Because a customer bought a lot of stuff from you the last month does not necessarily mean that  they will continue buying loads of stuff from you next month
  5. Making it easy to buy is key
  6. Targeting a smaller portion of the entire possible customer base will only limit the potential revenue – so go for intelligent mass marketing instead of targeting small segments.

    And the show-stopper:
  7. Never stop focusing on reaching new buyers. Don’t concentrate your efforts on loyal buyers because growth is particularly due to high acquisition, not retention.

So what does this mean?

Arguably, the people buying from you, do so because they like your product/offering. And these people will continue to buy your product (and the product of your competitors) in the same pattern as they have always done - if the product/offering or the price does not change significantly. In that respect, it does not make sense to push your product cheaper to your loyal buyers. Selling it cheaper will only decrease your revenue, not increase their “loyalty” towards your product or decrease “loyalty” towards your competitors’ products. Instead, you should focus on reaching as many buyers as possible, as that is the key to increase your market share, says Sharp.

While I am very much into the data-perspective of marketing, this is pretty interesting! Does that mean we should abandon the focus on retention and start building acquisition programmes instead? Just massive lead-gen and sales e-mails from here until eternity? It does not feel quite right.

So, where does the truth lie?

I believe that convenience, making it easy for people to buy/engage, is a key driver for enabling people to like your product/service/offering/brand. I actually see it as an essential driver for the entire customer experience. But convenience is also more than making it easy to buy. It is making it easy to continuously be a customer, or stop being a customer, or change the type customer you are. But what does that have to do with loyalty schemes?

Well, let’s pretend for a second that we drop the term ‘Loyalty’ and instead look at it as a way of creating easier and more smooth interactions between customers and businesses. Making it convenient for existing customers to be your customers.

In these regards, automation has a natural part to play, because It can all be automated. Automating key moments in a customer journey not only allows you to “be in contact” with a lot more of your customers, it will also be cheaper the more customers are sent through these automated journeys. Every time a customer is going through your automated communication system, it becomes a little bit cheaper, because the money has already been spent up front, but the machine just keeps on running, giving everyone in contact with it a better experience than you could ever do manually. Even more so, it provides you the option of understanding your customers’ behavior better by looking at what they do – or simply asking them questions along the way to show your engagement and improve your efforts. And while the machine runs, you can do other important work.

Loyalty Schemes - a Do, or a Don’t?

So, what about all this whole “loyalty”-thing. The jury is still out, as far as I am concerned. They have left the room searching for more information, more knowledge, and preferably more truth!

I do think though, that there is some value in dropping the term “loyalty”, but urge you not to give up on providing people unprecedented experiences when being in contact with you, even if you believe that increased growth is not based on loyalty programs. Then just drop those “loyalty schemes” that decrease your revenue by giving (arguably) unnecessary discounts, and instead simply focus on making it easier for your existing client base to buy your product or use your offering.

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