A better grasp of loyalty

09 July 2009

I read “Building loyalty schemes with lasting power” (MW 2 July) with great interest. Loyalty is an over-used soundbite and misunderstood by many who work in sales and marketing. Loyalty schemes are transactional and sales oriented by design and on the whole they fail to grasp customer loyalty.

Service Dominant Logic (SD Logic) is taking hold as a way in which to view business and marketing in a complex market, where there is little product and price differentiation. There are eight fundamental principles of SD Logic, but here are the two main ones: goods are distribution mechanisms for service provision; the customer is always a co-creator of value.

In a recent study using SD Logic as a guiding principle, customer loyalty was found to have at least eight influencing factors which shape a customer’s and organisation’s understanding of loyalty, of which CRM is only one. Briefly, these eight are:

Relationship. Loyalty requires a relationship built on trust and commitment over a period of time. Not all customers want a relationship.
Value. It is important to understand a customer’s definition of value to grow a relationship.

Brand. Loyalty can occur on an emotional level and brand influences this.

Internet. Allows customers to give feedback (not always good). Blogging is a form of value co-creation, as are reviews.

Advertising. Develops relationships at an early stage through brand and value messages.

CRM. Your article recognises the dangers of a poor or under-invested loyalty programme. Not all organisations should develop a loyalty programme and can profit from the mismanagement of customers.

Employee loyalty. According to SD Logic, all economies are service economies - in which case, employee loyalty needs to be established before a customer relationship can develop.

Measurement of loyalty. Frequency of purchase measurements are at best acceptable. Purely measuring behaviour may reflect customer inertia rather than commitment. Satisfaction surveys are widely derided while the Net Promoter Score, where the ultimate act of loyalty is to recommend to a friend, will struggle to identify genuine ROI.

Understanding and using this framework will help organisations develop successful loyalty programmes and CRM techniques.

Alex Blaikley