of customer loyalty usually take one of two directions: emotional or behavioral. Although each of these directions is valid, when used separately, they have different implications and lead to very different prescriptions for businesses. The most helpful way for businesses to approach the issue of improving customer loyalty is to rely on both these definitions simultaneously.
Emotional loyalty implies that the loyalty of a customer is in the customer's state of mind. By this definition, a customer is loyal to a brand or a company if they have positive, preferential attitude toward it. They like the company, its products, its services, or its brands, and therefore prefer to buy from it, rather than from the company's competitors. In purely economic terms, the emotional definition of customer loyalty would mean that someone who is willing to pay a premium for Brand A over Brand B, even when the products they represent are virtually equivalent, should be considered loyal to Brand A. But the emphasis is on willingness rather than on actual behavior. In terms of attitudes and emotions, increasing customer loyalty is virtually equivalent to increasing their preference for the brand. It is closely tied to customer satisfaction, and any company wanting to increase loyalty, in emotional terms, will concentrate on improving its product, its image, its service, or other elements of the customer experience, relative to its competitors.12
Behavioral loyalty, however, relies on a customer's actual conduct, regardless of the attitudes or preferences that underlie that conduct. By this definition, a customer should be considered loyal to a company simply because they buy from it and then continue to buy from it. Behavioral loyalty is concerned with repurchase activity rather than attitudes or preferences. Thus, it is theoretically possible for customers to be loyal to a brand even if they don't really like it, provided there are other reasons for repeat purchase. For instance, a discount airline with poor service standards but prices that are significantly lower than competitors might have customers who are behaviorally loyal but not emotionally loyal. (Some Londoners lament that they hate RyanAir every weekend they “had” to take it to Mallorca, for a no-frills airfare that is often less than $25 roundtrip!) Similarly, a business-to-business firm selling complex services may rely on long-term contracts in order to ensure it is adequately compensated for high setup costs. (We once participated in a meeting with high-tech executives at their headquarters in which one of the executives joked that their primary customer loyalty tactic was probably the lawsuit.) In its most raw form, behavioral loyalty is similar to what can be described as functional loyalty, in that there is no emotional content or sense of attachment to the company on the customer's part.
In the behavioral definition, customer loyalty is not the cause of brand preference but simply one result of it, and brand preference is not the only thing that might lead to behavioral loyalty. A company wanting to increase behavioral customer loyalty will focus on whatever tactics will increase the amount of repurchase. These tactics can easily include improving brand preference, product quality, or customer satisfaction, but they may also include long-term legal contracts or prices so low that service is almost nonexistent.
Behavioral customer loyalty is easier to measure because it can be objectively observed, while assessing emotional loyalty requires more expensive and subjective polling and surveying techniques. Positive emotions and attitudes do tend to drive positive behaviors, but even if a firm observes loyal behavior, if the customer has no genuine emotional loyalty, then the relationship will be highly vulnerable to competition. If a competitor enters the market at a comparable price, for instance, the customer once loyal to your discount product can easily disappear.13
The truth is, if an enterprise wants a clear and unambiguous guide to action, it needs to pay attention to both definitions of customer loyalty. Emotional loyalty without behavioral loyalty has no financial benefit for a firm, but behavioral loyalty without emotional loyalty is unsustainable. Defining loyalty purely as an emotional response is not very useful, because that attitude can exist completely apart from any continuing relationship on the part of a customer, and this simply flies in the face of the common English definition of the word loyalty. Customer A and Customer B might have an equally loyal attitude toward the image of a high-end perfume brand, but what if Customer A has terrible allergies to perfume, and could never consume the product, while Customer B has consumed it regularly in the past? Moreover, emotional loyalty and brand preference seem to be redundant, so why introduce a separate term at all? However, defining loyalty in purely behavioral terms is equally unsatisfactory. Case in point: Monopolies have behaviorally loyal customers.
Emotional loyalty without behavioral loyalty has no financial benefit for a firm, but behavioral loyalty without emotional loyalty is unsustainable.
A better insight into what customer loyalty really means can be gained by examining the policies companies introduce to improve it. A credit card company or mobile phone carrier, for instance, often concerns itself with reducing its customer churn rates. Churn is a term meaning defection or turnover. These companies often can count the customers who voluntarily elect to leave their franchises every month, and it is a legitimate and time-honored business practice to try to reduce this churn rate. A company usually tackles the churn problem with both reactive and proactive tactics. Reactive tactics can include predictive modeling to identify those customers who are most likely to try to leave the franchise in the near future and then trying to intercede in advance; or actively trying to persuade churning customers not to leave at the point they announce they want to defect; or perhaps attempting to win defectors back immediately with offers of special pricing or improved services. Proactive tactics, however, can include identifying as many of the service and pricing problems that cause customers to want to leave in the first place, and trying to fix them; or perhaps designing new, customized products and services that do a better job of locking customers in for convenience reasons; or improving service friendliness and competence to increase customer affection for the brand.
A company trying to reduce its customer churn—and thereby increase its customer loyalty—shouldn't think of customer churn as a disease but as the symptom of a disease, somewhat like a fever. If a fever is severe enough, the doctor will want to treat it immediately and directly, but they also know that the only long-term solution to reducing a fever is to cure the underlying disease causing it. If we pursue this analogy, we could visualize a lack of behavioral loyalty in our customer base as a fever that is affecting our company while the actual disease causing this fever is a lack of emotional loyalty.14
When dealing with the issue of customer loyalty, a firm should try to forge as direct a connection as possible to loyalty's actual financial results. That is, we ought to be able to connect whatever strategies and tactics we employ to increase our customers' loyalty with their actual economic outcomes. The customer-strategy enterprise will want to quantify the benefit of a customer's increasing loyalty, and the most direct and unambiguous metric to deploy for this task is the customer's lifetime value, as described in Chapter 6.
CUSTOMER RETENTION AND ENTERPRISE PROFITABILITY
Enterprises strive to increase profitability without losing high-margin customers by increasing their customer retention rates or the percentage of customers who have met a specified number of repurchases over a finite period of time. A retained customer, however, is not necessarily an emotionally loyal customer. The customer may give business to a competing enterprise for many different reasons. As far back as the 1990s, Royal Bank of Canada (RBC) developed superior computing and database power, along with sophisticated statistical programs, to analyze customer information and test specific actions it should take with specific customers. Only then could the bank's frontline personnel deliver more effective personal contact and attention to individual customers.
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