Friday, August 17, 2012

Some Thoughts about the Meaning of Loyalty

As I read many blogs and articles in the journals and the newspapers the loyalty is used often incorrectly. I would like to spend several paragraphs offering several possible definitions for customer loyalty. Often the word loyalty is used with the intent that the customer will always purchase the product or service from a specific vendor. This is a leap of faith when one believes that customer will never stray. Consider the following possible definitions for loyalty that, in my mind, make the most sense.

Using the logic of the previous paragraph every purchase that the customer makes will be with a specific vendor. Thus a sequence of purchases To Vendor A would be described as the following sequence: A, A, A, A, etc. This scenario will almost never happen in the real world for many reasons. Some reasons include:
1. Vendor A has an inventory stock out.
2. Vendor A has introduced a significant price increase.
3. Vendor B has introduced a significant price reduction.
4. Vendor B has introduced a replacement product with greater performance.
5. The customer does not want to become restricted to one vendor.

Consider variation on a definition of loyalty to include the possibility that not all product and/or services will be purchased from one vendor. In that case the customer might be considered loyal to vendor A with the following purchase sequence: A, A, B, A, B, A, etc. Under the circumstances the customer is providing major share of pocket to vendor A, but should customer B considered loyal. to vendor A?  Even though vendor A does not capture 100%,  both customersA and B may still be considered loyal.

How about the measure of customer loyalty that considers a customer to be loyal if the customer scores a 9 or 10 on a 0 to 10 satisfaction scale.  What is the logic that supports the notion that because the customers are satisfied the customer must also be loyal?  The NPS Measurement system would identifya customer scored either at nine or 10 as a promoter .   A promoter, according to the NPS system, is a customer who acts like a loyal customer in that the customer promotes the company or product for which he has scored a 9 or 10.

There is another indication of loyalty that is often used. In this process a loyal customer is defined as a customer that scores a 10  on a 10 point satisfaction scale,  a 10  on another 10 pint scale that measures the likelihood the customer will buy again, and a 10 on still another scale that measures the likelihood that the customer will recommend the company or product.  If the customer scores the maximum value of 10 on all three scales the customer is considered a loyal  customer.

The bottom line is there is no one definition in the market today that everybody agrees defines a loyal customer.  As noted in the preceding paragraphs there are many ways of defining loyalty.  The conclusion at this point in time is that customer loyalty is something that every company strives to achieve for those customers that represent value for them. The next several blogs will focus on the other customer states noted previously.

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