Customer Loyalty: Is It an Attitude Or a Behavior?

Customer Loyalty: Is It an Attitude? Or a Behavior?

from Strategy Speaks: a Peppers and Rogers Blog by Don Peppers

The people who've tried to define customer loyalty have usually approached it from one of two different directions - attitudinal and behavioral. Although each of these directions is valid, they have different implications and lead to very different prescriptions for businesses. (This is analogous, but I don't think it is precisely aligned, with Estaban Kolsky's distinction between "emotional" and "intellectual" loyalty.)
The attitudinal definition of loyalty implies that loyalty is a state of mind. By this definition, a customer is "loyal" to a brand or a company if they have a positive, preferential attitude toward it. They like the company, its products or its brands, and they therefore prefer to buy from it, rather than from the company's competitors. In purely economic terms, the attitudinal 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, is "loyal" to Brand A. But the emphasis is on "willingness," rather than on actual behavior, per se. In terms of attitudes, then, increasing a customer's loyalty is virtually equivalent to increasing the customer's preference for the brand. It is closely tied to customer satisfaction, and any company wanting to increase loyalty, in attitudinal terms, will concentrate on improving its product, its image, or other elements of the customer experience, relative to its competitors.

Is Lifetime Value a More Useful Metric than Loyalty?

Is Lifetime Value a More Useful Metric than Loyalty?

from Strategy Speaks: a Peppers and Rogers Blog by Don Peppers

 

 

Let's grant that behavioral loyalty is what pays the bills, but that attitudinal loyalty is also important, especially when it can be used as an indicator of higher behavioral loyalty. I think that's the general, if not unanimous, conclusion of the discussion on this topic.
And when it is positioned as a straight yes-or-no proposition, the concept of customer loyalty, as a behavior, is relatively easy. A magazine subscriber who elects to renew her subscription at the end of the first year is engaging in loyal behavior.

However, the real world is rarely described adequately in strict yes-or-no terms. If the magazine subscriber renews her subscription again in the third year, and perhaps again in the fourth, fifth, and sixth years, doesn't her behavior exhibit a greater and greater degree of "loyalty?" In other words, loyalty is not simply a yes-or-no proposition at all, but is a matter of degree.
And it can get more complicated than that. Consider a new car buyer. The owner of a Brand A car who buys another Brand A when he retires the first one would be said to be loyal, of course, but what about when he chooses to use his dealer's service area, or to get his car financed from Brand A's financial services division? Or what if he owns two cars, but only one of them is Brand A?
The "loyalty" concept is equally difficult to deal with in other categories - most categories, actually. Because most business categories are not simple subscription businesses. If a breakfast cereal consumer buys one box per month of Brand B for her family, and then begins buying two boxes a month, does this mean she is twice as loyal as before? What if she also went from buying one box a month of Brand C to buying three boxes a month? Would that mean she is LESS loyal to Brand B? (Note that we are still describing her behavior, here, even though we might be inferring her attitudes.)
The fact is, a much more useful concept than "loyalty," when thinking about desirable customer behaviors, is probably "lifetime value." The net present value of the expected stream of future profits attributable to a customer is a much more rigorous and useful variable, simply because it is a vector: it has both a direction AND a magnitude. In its ideal state (a state that can never actually be measured precisely, of course), lifetime value would capture all the various behaviors and activities of a customer that have any bearing at all on the enterprise's profit from that customer.