Is Loyalty Dead?

Companies are now looking ever more closely at their customer relationships. This is because they recognize the value of things that can endure -- especially during uncertain and turbulent times.

But in today's "new normal" economic climate, customer loyalty can no longer be taken for granted. And while it may not be dead, customer loyalty shows all the signs of becoming an endangered species. One study from Catalina Marketing reports that more than half of the average brand's highly loyal customers became markedly less loyal in 2008 than they had been a year before. That's a scary figure because, as the study also notes, the defection of loyalists has already resulted in some severe drops in company revenue. When a company's once-reliable fountain of sales and profit shows signs that it's running dry, there's reason for real concern.

The question, of course, is whether this is a reflection of the current economic climate -- or an underlying characteristic of an emerging new-millennium consumer with a decidedly different mindset. That consumer places little value on brand relationships and will never demonstrate the sort of steady habits and loyalties that marked preceding generations.

Maybe customer loyalty is simply a relic of the past, something that won't return when the economy rebounds, and a notion that today's marketers can only view with wistful nostalgia. But perhaps an answer can be found in a deeper dive into the concept of what loyalty really is and what it represents.

More than a behavior

When we see evidence that customers have changed what they've regularly been buying, we assume that means they're no longer loyal. But maybe they never were.

We shouldn't confuse "habit" with "loyalty." True loyalty represents a deeper customer connection, a fully engaged relationship. If a habit has no real grounding, or if it lacks a vital emotional bond, it's merely a current behavior that's subject to change when circumstances vary or new options appear.

What's more, habits reflect past behavior, but what companies should be concerned about is future behavior. So companies ask customers about their intentions and about what they plan to do. But intentions aren't the same as actions, and customers' stated intentions often contrast sharply with what they subsequently do.

Gallup research has shown that customers' intentions are only weakly related to behavioral outcomes such as continuing to buy, shop, visit, or spend -- unless those intentions are also accompanied by strong feelings of emotional attachment to what they're purchasing or using. In fact, customers who say they definitely will continue to buy a brand but have no emotional bond with that brand wind up behaving little differently from those who say they're uncommitted or they might not continue to buy the brand.

True loyalty entails more than intention and habit. It involves an underlying psychological state, a strong bond of emotional engagement. Without that essential bond, there's no real relationship. Just because the customer has been shopping at your store, flying with your airline, or using your credit card does not imply that she will continue to do so -- at least not without a feeling of personal commitment to the relationship.

A need to be engaged

Consumers' shopping and buying habits are subject to change, but that doesn't mean they have no desire for lasting relationships. In fact, some behavioral economists contend that the desire for real relationships -- ones you can always count on -- is essentially innate. Consumers value trust-based relationships even though many don't feel high degrees of trust and confidence in a lot of the companies whose products and services they routinely use. That's why their relationships and their habits are volatile.

Customers want to feel good about what they buy and where they shop, but they don't necessarily experience those positive feelings with all brands. But why? Perhaps it's because a healthy relationship is mutual and, for it to endure, both parties must feel rewarded by its continuation. Relationships shouldn't be taken for granted, yet too frequently they are.

Emotionally grounded relationships, like friendships, can't be bought and sold like property assets. But that's exactly what companies try to do when they acquire other companies; they assume that by doing so, they've also acquired the associated good will that stems from the acquired company's customer relationships. Companies are purchased not primarily for the value of their locations or their manufacturing facilities but rather for the value of their customers.

Kraft has recently shown interest in acquiring Cadbury, for example, in part for the company's prowess and expertise in making chocolate but even more importantly for Cadbury's strong customer connections, both business-to-business (retailers and grocers) and business-to-consumer (chocolate lovers), that have been nurtured over the years.

Kraft may well be able to maintain Cadbury's recipes and quality standards and thus continue to deliver on one crucial aspect of the Cadbury brand experience. However, brand relationships in other aspects are often far more complex, driven not just by the product and packaging but by the people who define the brand experience. To cite an example from another industry, can China's Nanjing Auto deliver the total ownership and driving experience that once characterized the MG brand it acquired? Or can a big bank deliver the personal in-branch experience expected by customers of the small regional bank that the larger entity recently absorbed?

Banks acquire other banks and retail chains acquire other retail chains hoping that they're buying a good deal more than locations and inventory. They're buying access to the customers who patronize those locations. They shouldn't assume, however, that they have also purchased the strength of the emotional bond that may have linked those customers to their previous provider.

If true loyalty is grounded in customers' feelings, are companies paying enough attention to them? If customers feel they are being bought and sold like commodities, it shouldn't be surprising if they feel their loyalty isn't being reciprocated -- and it shouldn't be surprising if their habits change.

You can buy a brand, and you can own the brand name. But you can't simply buy the relationships. Customer engagement must be earned. It can't be assumed.

So in recognition of this need for mutuality and reciprocity, certain actions are essential if your company seeks enduring, engagement-grounded loyalty from its customer partners. You need to:

• Talk to your customers. Maintain an ongoing dialogue. When your customer partners need to talk with you, make it painless for them. Respond. Don't leave them confused and guessing as to what you're doing and why you're doing it.
• Keep your customers' needs -- and their feelings -- foremost in mind. Do this consistently and continuously, whenever and however you come in contact with them.
• Recognize and reward your customer partnerships. Let your partners know you love them. Remember their anniversaries; thank them for their business; surprise them with evidence that you care. Little things can mean a lot.

If customer loyalty is dead or dying, it may well be because companies are letting it happen. If marketers take their customers for granted, customers will likely return the favor and look elsewhere for the appreciation and recognition they seek. Reciprocity is essential for a lasting connection. Loyalty is, after all, a two-way street.