(Copyright PR Loyalty Solutions, 2011)
Customer loyalty is critical for business profitability.
Customer loyalty is both an attitudinal and behavioral tendency to favor one brand over all others, whether due to satisfaction with the product or service, its convenience or performance, or simply familiarity and comfort with the brand. Customer loyalty encourages consumers to shop more consistently, spend a greater share of wallet, and feel positive about a shopping experience, helping attract consumers to familiar brands in the face of a competitive environment.
Types of Loyalty
To understand customer loyalty one must recognize there are different types and degrees of loyalty. There is monogamous loyalty and there is polygamous. There are also behavioral and attitudinal aspects. A look at these concepts will clarify what “customer loyalty” really is, and this is important because having a solid understanding of the concept is critical if one hopes to design a reward program where loyalty enhancement is the primary objective.
Monogamous vs. Polygamous Loyalty
We live in a world of polygamous, not monogamous loyalty. For example, a person might shop at Safeway, Thrifty Foods and Save-on-Foods and unfailingly shop at all three. The person is then loyal to them, but not to others, and yet 100% loyal to none. In their book Loyalty Myths, Keiningham et al. (2005) suggest that “loyalty can in part be thought of as the probability a customer will purchase a brand on any particular purchase occasion. For example, a customer may tend to purchase Brand A 70 percent of the time, Brand B 20 percent, and Brand C 10 percent of the time” (p.90). The point here is that, in the real world, 100% loyal customers are rare. In the majority of cases, attempting to make customers completely loyal is unrealistic. A more realistic goal for businesses is to make customers as loyal as possible – to maximize customer share of wallet, frequency of purchase and overall profitability. The objective of businesses, and therefore loyalty programs as well, should be to make the organization’s share of customer loyalty as high as possible.
According to Dowling and Uncles (1997) from Australia, “‘polygamous loyalty’ is a better description of actual consumer behavior than either brand switching (a conscious once-and-for-all change of allegiance to another brand) … or promiscuity (the butterfly tendency to flit from brand to brand without any fixed allegiance).”
Behavioral and Attitudinal Loyalty
In the past, many scholars defined loyalty in behavioral terms. If a person made most purchases in a given product category from one supplier, regardless of the reason, the person was defined as loyal. As Kumar and Shah from the University of Connecticut’s School of Business (2004) point out, “a majority of existing loyalty programs follow these measures to reward behavioral loyalty. That is, the more you spend with the company, the more rewards you earn”.
A second element of loyalty is attitudinal loyalty. Like behavioral loyalty, attitudinal definitions have existed for a long time. This second element of loyalty focuses on how strong the psychological commitment or attachment is to the brand. By itself, it too has limitations. For example, how loyal are people who rave about a product and promote it to their friends, but then for whatever reason fail to buy it regularly themselves?
In the opinion of many scholars, as a minimum, an adequate definition of customer loyalty includes the history of actions plus feelings and intentions toward the brand or commercial relationship. Loyalty action and talk (i.e., promotion to others) are both valuable to businesses, but in different ways.
(For more on attitudinal vs. behavioral loyalty, click here).
Types of Customer Loyalty Program Users
Never, Light, Heavy & Extreme Reward Program Users
Consumers can be divided into four categories of loyalty program user: Never, Light, Heavy and Extreme. The following is a description of typical or commonly observed characteristics of each user type:
Never customers are those who are not affected by loyalty programs and their reward incentives in any way.
Light loyalty program users are ones defined as having reward program memberships and being influenced by their incentives, but only moderately.
Heavy loyalty program users are consumers who are active and highly influenced members of reward programs.
And finally, extreme loyalty program users are those consumers who are virtually addicted to or obsessed with loyalty programs.