Buying Loyalty?

Marketing executives can take better decisions and achieve results if they have access to the right information. They can classify lists of customers, households, job titles, cellular phone models, and so on and send messages to those more likely to respond. They have more of the right data about customers, past and present, than about strangers. With big data analytics, they are winnowing through the ranks of their company’s customers, treating each according to her current and future value. This seems to be the picture of loyalty in today’s business. The reality is much different.

In practice, many marketers are busy removing their worst customers. Using statistical tools to score their lists for probability of response or purchase, they cut from the bottom. Of course, deleting customers from any list is always the right thing to do. It’s almost certain to increase response rate and/or decrease cost. Even so, it does not necessarily generate additional revenue, and it is a one-time trick. Once you lop off the very bottom, you will soon start cutting into valuable customers, past and present. Some, with the right treatment, could become more valuable. At best, this is low-hanging fruit. Too many marketers are just catering to their most-demanding customers. They buy those customers’ propensity to repurchase with incentives, rewards, privileges, and other benefits. Marketing has trained consumers well. A few have become quite savvy; some have become demanding. There is a large segment of customers in every category whose propensity to repurchase is for sale. What many marketers call loyalty is factually a cost of reacquisition.

The relationship between marketers and responsive customers is something of a self-fulfilling romance. Marketers spend time and money peddling co-branded credit cards, own loyalty cards, company magazines, private mailings, and special events tailored to those who respond to such attentions.

Some customers do respond and sign up because they expect, and get, benefits. Too many marketers ignore customers who are actually most loyal.

Few marketers can totally ignore the actively loyal. Ironically, the passively loyal contribute disproportionately to the ranks of every company’s most profitable customers. They typically pay the manufacturer’s suggested retail price without discounts, incentives, and reductions and without getting spiffed with frequent-flyer miles, cell phone minutes, hotel nights, and other redeemable points. The indifferent, lazy, and stupid are low-maintenance and highly profitable customers but are ignored by the companies that have them.

For that reason, they are vulnerable to the blandishments of others. It is no secret but not said often enough: The lion’s share of all the hundreds of crores spent on marketing is spent teaching and encouraging consumers to be disloyal. Unless the target is a first-time buyer in a category, every acquisition campaign targets some other companies, customers and explains why they are better off switching from their current brand to some new one.

For every pitch to buy the latest and greatest, one company’s acquisition is some other’s betrayal. Letting the worst customers go at one extreme, catering to the more demanding customers at the other, and ignoring most of those in-between: Loyalty practices are a mess. But three principles can effectively guide through any set of particulars.

The first is about acquiring customers with the intention to retain, and retaining with the intention to grow. Intention over time has implications.

Perhaps most relevant to this relationship, patience, respect, and discretion in the solicitation and use of data are appropriate to and best practices for a relationship. They also would constrain aggressive marketers.

The second principle concerns a company’s relationship-focussed behaviours – responsiveness (reactive) and attentiveness (proactive) – to its customers.

In research, responsiveness to customer-initiated contacts is responsible for the largest part of what customers score as a positive brand relationship.

Those scores soar when responsiveness is combined with a small amount of unprompted and unexpected attentiveness. Honing and mixing responsiveness and attentiveness is the path to building a relationship, one that is greater than the sum of its parts.

Third, relevance is key. Building relationships and always being responsive, occasionally attentive, and usually relevant are attributes of a company everyone likes to do business with. Such principles infuse human meaning into abstract buzzwords and gee-whiz technologies. They bring loyalty programs to a very practical ground. In landing them there, we also hope to abolish the term. People are loyal to their country, religion, or family – not to an automobile or toothpaste. Perhaps it is time for us marketers to start focussing on the more plainspoken task of increasing propensity to repurchase.

(The author spearheads execution and innovation for clients @CustomerLab)

M Muneer