Thursday, July 12, 2007

Natural and Unnatural loyalty

When companies in the industry think of loyalty, they generally believe that loyalty is one dimensional. From the customers I have dealt with, this is the only way they can see it. They see a loyalty scale and are concerned about where their score is on the scale. They become particularly concerned if their score on the scale is lower than in was in the previous measurement period (which could be a day, week, month or quarter). A typical industry scale combines the scores of satisfaction, likelihood of recommending the company or product to an associate, and the likelihood of buying again from the company. Of course, there are other measures of customer loyalty but they all come back to a scale (usually linear).

The problem I have with these measures is they measure loyalty as if it had only one dimension. I believe the measures of loyalty are biased on the high side for the following reasons:
1. The measure was developed from one or more customer measures that may not accurately reflect loyalty. (I admit this is somewhat circular, but I need a place to start).
2. The measure does not differentiate between natural and unnatural loyalty. I believe that the only persistent measure of customer loyalty is natural loyalty. There has not been any published articles, to my knowledge, that has attempted to quantify or qualify the differences. A more accurate measure may require a two dimensional scale that would measure natural and unnatural customer loyalty separately.

Thus, the current measurement includes a component that may not accurately reflect customer loyalty and since it is included provides a positive bias to the measurement.

I think the following points are valid (although untested):
1. To my knowledge there has been no effort to separtely measure these two components.
2. I am using this blog to begin a discussion of the differences between natural and unnatural loyalty.
3. An initial definition of natural customer loyalty as that loyalty that is derived through personal relationships. This leaves as the definition for unnatural loyalty as that loyalty derived NOT through personal relationships.
4. Some of the obvious examples of processes that develop unnatural customer loyalty might include: mileage reward programs, discount coupons, gifts, invitations to special events, etc.).
5. My hypothesis is that natural customer loyalty is more important in reducing customer defection than unnatural customer loyalty.
6. The problem associated with the unnatural customer loyalty is that it is subject to being out-bid. On the otherhand, it is difficult to out-bid a relationship between two people or a person and a company that has demonstrated trust over time.
7. So, the first difference between natural and unnatural customer loyalty is that unnatural customer loyalty is subject to market and/or competitive situations and the natural customer loyalty is not.
8. The second difference is relationships in natural customer loyalty are reciprocal but there is no reciprocity in unnatural customer loyalty.
9. The third difference between them is that natural customer loyalty takes time and hence is more resilient to problems, whereas, unnatural customer loyalty has little or no resilience when a problem occurs between the customer and the company.
10. The fourth difference between them is natural customer loyalty has a high cost to develop (consider the investment in time to build the relationshiop with the customer) and unnatural customer loyalty has a low cost (the cost of the instituting a "rewards" program).
11. The fifth difference between them is unnatural customer loyalty programs or processes can be started and stopped quickly while natural customer loyalty may out last any formal program.

One of the symbolic analogies I use to describe natural customer loyalty, is the concept of using a string to connect a company to a customer. This string is initiated at the time of the first intereaction. Each time thereafter that a positive interaction occurs, another strand is added to the string connecting the customer to the company. As more and more positive interactions occur, the string becomes a rope which binds the customer to the company so that over time the thickness of the rope grows such that the customer is no longer vulnerable to be taken by competition.

The BOTTOM LINE is that customer loyalty needs to be examined beyond the one-dimensional plane if it is to provide an accurate assessment of customer loyalty.

The next step is for someone to initiate a research program to validate this hypothesis. If this hypothesis is true, there may be a lot of companies being misled by their current loyalty measurement.


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