Loyalty Isn't Bought... It's Built.

One of our areas of focus is loyalty management.  We will spend some blog bandwidth covering this topic because it's a common inquiry in our work.  And turns out, "loyalty" seems to be something often confused in its application. 

A common mistake is mixing up "loyalty" with "rewards."  Wherever possible we believe loyalty should be about commitment, not points.  In our 7-stage model of the customer life cycle (not unique to us; many marketing experts have suggested a similar thinking), "loyalty" is the sixth of seven stages. And while tracking loyalty should begin from the very first moment a consumer becomes a customer, we believe there is a distinct "loyalty" phase of the customer relationship life cycle that deserves particular treatment in retention marketing.  Depending on the brand position and a foundation concept set out below, "loyalty" may be addressed by a specific set of marketing initiatives, programs, and investments, or simply managed inherently to the on-going brand-customer conversation.

[NOTE: "Advocacy" is the seventh and final stage in our model, which we talk about elsewhere.  Some marketers prefer to model loyalty as a combination of advocacy and commitment; we believe advocacy is not an ingredient of loyalty, but rather a distinct stage of the life cycle, and commitment is a characteristic of both stages.]

Over the course of blogging we will share more thoughts about loyalty marketing, but let's start here with (in our model) a foundation concept.  We encourage you to think of Loyalty Management as Brand Management.

The first step in thinking about loyalty is understanding your brand positioning.  What your brand is about and how it is positioned almost dictates the kind of loyalty program you can institute to ensure success while not diluting your brand.  Before we drop into a rabbit hole about loyalty as a directive of brand, let's conisder the driving principle for this assertion, which we suggested above is the foundation concept.

We believe that loyalty marketing is required to drive retention, and retention is a function of several things, but for loyalty, the primary driver is (wait for it)...

Switching Costs

Yup, it depends on how easy it is for your customer to simply switch to your competitor (e.g., assessing the alternative goods/services opportunity).  Here is a high-level test you can use to determine right away the potential value of a loyalty program to your brand and business (notwithstanding what kind of program would work best for your brand).  The test is based on this principle:

There is an inversely proportional relationship between the potential value of a loyalty program and the customers' switching costs of your product or service.

So the test simply is to ask what the "switching costs" are for your customers to leave your brand for an alternative. 

And the potential value of a loyalty program then is measured this way: as switching costs decrease, the value (and importance) of loyalty programs increases, and as switching costs increase, the value (e.g., return on investment or "ROI") of loyalty programs decrease. 

Next up on this topic, we'll look at some of the fundamental concepts of loyalty marketing programs.