Loyalty. All brands want it. Many chase it. But it’s incredibly illusive and isn’t always what it appears to be.
Brands know the importance of customer loyalty, spend millions of pounds trying to build it and measure it, but in reality, for most, true customer loyalty is far beyond reach.
The fact is, most customers are not loyal, and have no inclination of being loyal, to any brand or business they use. Just because a customer regularly buys or uses a brand’s products or services, or recommends them to someone else, doesn’t mean that they are loyal.
Far from it.
Their reasons for staying can be, more often than not, down to familiarity, convenience, habit or inertia.
For many businesses, that’s good enough, but the downside is that, if a better option comes along, the decision to switch, is pretty easy for a customer to make.
This lack of loyalty also appears to be on the increase. Over the last year, customers have been re-evaluating who they shop with. McKinsey recently reported that over 60% of shoppers changed their brand preferences amid the Covid crisis.
This willingness to switch and try out other alternatives, not surprinsingly, has a material impact on business finances. Studies at Harvard have shown that a 5% increase in customer retention rates increases profit by over 25%.
So, what does being loyal mean?
Being loyal is defined as ‘giving or showing firm and constant support or allegiance to a person or institution’. It often suggests faithfulness or a feeling of obligation, to someone or something.
That definition goes way beyond what most businesses would define customer loyalty as, and way beyond what most people feel about the brands they use.
Loyalty is, in fact, a very human, messy, emotional thing.
And because it is fundamentally based on emotional drivers, loyalty from customers definitely isn’t easy to find, gain or maintain.
But some brands and businesses do it — big and small. They build a base of loyal followers, and as a result build up a solid commercial premium, because of it.
What drives loyalty?
I’ve said it isn’t easy to build loyalty, but it is possible. Strategies can be developed that go beyond the basic transactional benefits of repeat business into the building of deeper emotional connections between a brand and its customers, emotions that we might interpret as feelings of loyalty.
So, how can we build these emotional connections?
Ultimately, for customers and brand relationships, it can all come down to value — and I don’t just mean value for money.
Thanks to the French philosopher and cultural theorist Jean Baudrillard and his ‘Object Value System’ we have the perfect way to define value.
Although Baudrillard’s value system is not specifically designed to explain drivers of loyalty, I’d argue that it’s a great way for us to explore how different drivers of value can influence feelings of loyalty.
In his system there are four types of value:
1. Functional or utility value — the purpose of the product or service and how effectively it solves a problem for a user, or enables you to do or achieve a goal;
2. Exchange value — what a customer has to provide in exchange for that product or service — normally money, but for many brands now, it can be personal data;
3. Symbolic value — something within the brand, product or service that has personal meaning and significance to you;
4. Sign value — what the brand, product or service says to others about you, or how it resonates with you personally, for example, through shared social or environmental values;
Can loyalty be built through great utility and price alone?
First of all, let’s look at ‘utility’ value.
‘Utility’ value is determined by how well a product or service is able to provide a solution to a task or need, far more effectively than anyone else.
Some may suggest Apple falls into this camp of ‘utility’ and product differentiation, primarily because of their product ecosystem, however, whilst their products do have strong ‘utility’ value, I’d argue they have also developed a powerful dose of ‘sign’ value in their proposition — so get the best of both worlds. (More on ‘sign’ value — in a minute).
For many brands however, points of difference between products can be marginal, and therefore, focusing on ‘utility’ in the value proposition has its limitations. If someone else is also able to meet a customer’s functional needs — but deliver other parts of the value system better than you, then a customer can easily justify switching. Think of telco providers, insurance companies or banks as examples of this.
This situation is even more pronounced when it comes to ‘exchange’ value. If you’re providing something at a lower price than others, unless you retain that price advantage, there’s very little emotional currency in the relationship. Customers stay with you because you provide a ‘utility’ at a price that suits them. If someone comes along and delivers the same ‘utility’ for a lower price, or a better ‘utility’ for the same price, you’ll soon see how ‘loyal’ your customers actually are. Examples of this are businesses that trade primarily on price, such as low-cost airlines and, in some cases, supermarkets.
It is of course possible to deliver products and services with far greater ‘utility’ and ‘exchange’ value than competitors (for example, by creating an ‘economic moat’ around you, where your business model or product is extremely hard to mimic or replicate). However, under most circumstances, repeat purchase is probably down to convenience, habit and inertia, rather than any real emotional draw. I’d argue brands such as Amazon and Netflix fall into this group. What they do, they do very well — but how emotionally connected to them are you?
Deeper levels of loyalty require something else
In order to create a deeper relationship with customers, one that could be truly expressed as ‘loyalty’, generally requires brands to go beyond ‘utility’ and ‘exchange’ value, and instead to the worlds of ‘sign’ or ‘symbolic’ values.
With ‘sign’ value, customers feel a connection to a brand, either because owning or using the brand says something about themselves to others, or because the brand has a purpose, and stands for something that they themselves value.
‘Sign’ value is particularly strong in premium, aspirational and lifestyle brands — think Louis Vuitton, Porsche and Nike. It can also exist in brands who clearly align to a customer’s personal values — think Patagonia, Beyond Meat or Lush.
Brands who understand what motivates their customers and can tap into their desires and aspirations, are therefore able to build emotional bonds which can be hard to break.
Of course, these bonds are not unbreakable and, given the wrong move, can easily be damaged— think Volkswagen and the diesel emissions scandal.
Finally, with ‘symbolic’ value, through the brand, product or people of work for that organisation, may hold some significance of a personal nature to a customer. For example, the customer could have experienced a positive event in the past, which created a strong emotional connection, such as a particularly memorable interaction with one of their employees.
Because of this reliance of personal connection, building ‘symbolic’ value at scale, can be particularly illusive, but by making customers feel understood, valued and supported, businesses can go along way to achieving this.
So, if you are to build brand loyalty, think beyond ‘utility’ and ‘price’ — explore ‘sign’ or ‘symbolic’ value as well.
Either that, or cross your fingers that your ‘loyal’ customer doesn’t catch the eye of a newer, shinier version of you.