Wednesday, July 18, 2007

The four dimensions of loyalty

I have pointed out in previous blogs that there are four dimesions of customer loyalty; namely product, process, relationship and reward. I have also made the point that the first three dimensions are natural because they reflect the company in one or more ways. I refer to the reward dimension as unnatural customer loyalty because it has nothing to do with the company and everything to do with the reward.

In this blog I would like to address the four dimensions in terms of their long-term impact. In other words, how much does each dimension impact loyalty. While it can be said that each dimension has a long-term effect, I am suggesting that each dimension contributes but not equally. Each dimension will individually provide some level of customer loyalty, however, I believe that long-term customer loyalty will be enhanced when more than one dimension has a positive effect.

I would hypothesize that the four dimensions are not orthogonal; that is, they are not directly additive. One way to understand this hypothesis is that customer loyalty is not four times greater when all four dimensions are positive than if only one dimension is positive. The problem that arise from this observation is how should customer loyalty be measured. Our current methods of measuring loyalty no longer make much sense when thinking abou these four dimensions. The subject of the measurement will have to wait for another blog.

For now, consider the four dimensions (product, process, relationship and rewards) in terms of how much each will impact long term loyalty.
1. Product - loyalty based on product is only as good as the product and lasts only as long as the product continues to maintain its performance. For example, Lexus has been consistent in providing a quality product and continues to maintain customer loyalty and has one of the highest (if not the highest) percentage of return customers.
2. Process - loyaly based on process lasts only as long as the process performance is maintained. Federal Express is an example of a company that consistently maintains its service level and now has added ground service as well. It's process performance has been so good that the phrase "Fed Ex it" has become almost as popular as asking someone to "Xerox" this for me.
3. Relationship - loyalty based on personal relationships lasts as long as the relationship is maintained. The benefit of relationship dimension is that customer loyalty may be able to survive some mishaps in product and process whereas the product and process loyalty are more vulnerable when mishaps occur.
4. Rewards - this dimension of loyalty is based on the perceived value of the reward with respect to rewards being offered by competitors. Customer loyalty becomes vulnerable as the competitors increase the perceived values of their rewards.

Obviously, this first quick review of the four dimensions needs further discussion. Experientially, I would expect the relationship dimension to have the greatest impact on long-term loyalty and rewards to have the lowest impact.

My closing thoughts are whether or not one can truly have lasting customer loyalty with only one dimension positive and how much does each dimension add to the strength of customer loyalty.

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