Customer loyalty?

Posted: Friday 29th May 2015 in Retail Strategy, Thought Leadership.
Brand Loyalty

Are you nurturing the relationships with your existing customers?

Loyalty.  A search in Google returned this definition – a strong feeling of support or allegiance’. It also returned these synonyms – allegiance, faithfulness, obedience, adherence, homage, devotion’.

I find all of these words fascinating because none of them closely resonates with how I associate my relationship with a majority of the goods and service providers I have been giving my business to for many years.

How could that be? I certainly don’t want to feel the way I do, but something has changed.

Exploring the change

Let me start by stating a rudimentary and timeless business principle that I hope no one will find objectionable:

‘If you look after your customers, particularly the good ones, and you do it right, there’s a chance they’ll stick with you’.

No awards for inspirational rhetoric there, but a useful scene setter all the same.  So why is it a lot of my recent experiences, and what seems to be increasingly the case, are so far removed from this basic principle?

Let me give you an example; I’ve been an AA member for as long as I can remember.  They recently wrote to me advising me that my annual membership was due for renewal. They sent me the most attractive mailer, the Direct Marketing department should be proud.  But what really got me to an almost hypnotic state was the brand new shiny silver membership card, explaining that I had ‘qualified’ for Platinum membership.  Great, I thought, I’m not sure what that means, but I feel good, and at the very least, the card is going to look far better in my wallet than that garish yellow card I’ve been carrying around all these years.

But little did I know that ‘disappointment’ was flying toward me at an unstoppable rate.  I scanned the well written body copy of the renewal letter, only to find the renewal premium buried two thirds of the way down the page, at which point little alarm bells starting ringing in my head.  Everything inside me wanted to trust the AA, surely the offer they’d given me was superior – a fair reward for the longevity of my custom.  And, why shouldn’t I? The AA is an institution – the fourth emergency service.

But curiosity was tearing away at me, so the inevitable happened – a quick look online.  I used a Google search as a stepping stone to a price comparison site, where the road breakdown cover market was presented to me in a very consumable way, conveniently ranked in low to high price order.

I double took.  The AA were rewarding my many years of loyal membership by charging me not a little bit more, but 35% more than if I had never given them a single penny.

How was that possible?

So I spoke to numerous AA representatives in their call centre, only to be told that what I was reading online was only available for new customers.  The story went on, but the end wasn’t a happy one for the AA.  I’m now a member of the RAC, with vastly superior cover and having paid a net amount (after cashback) of two thirds of what a new customer would pay to join the AA. I benefited from a new customer incentive. Just not from the AA.

Apologies to any AA readers; you’re not alone in what you’re doing.  The mobile phone market has been doing it for years.  As have most types of insurance companies, TV packages (such as SKY and Virgin), along with broadband and telephone services.  The gas and electricity market, and now the banks are on to it, all in a bid to steal each other’s customers.  And I’m sure there are many more examples, particularly in any market where membership is the heart of the model.

Of course, as marketers, we should know why this is happening.  Our transformation in to understanding how data drives marketing efficacy has led us to employ sophisticated models.  We have diligently analysed and segmented our customer databases to understand the average life and value of a customer, thereby enabling us to work out how much we are prepared to pay to profitably acquire a new customer.  Because the more new customers we get, the better the sales revenue looks, right?

Well, in the short term yes.  But I suspect something is changing that we need to be increasingly aware of.  By offering fantastic new customer promotions, designed to capture the attention of our competitors’ customers, which far outweigh the appeal of offers we present to our existing customers, we are driving a change in consumer behaviour.

We’re encouraging curiosity, provoking promiscuity and disincentivising trust. The exact opposite of the synonyms I stated at the beginning of this article.  As a result, the place where trust existed for me is now occupied by cynicism and suspicion, such that I have completely changed the way I shop.  And I don’t blame the ‘consumer me’ for this.  I blame the ‘professional me’, for contributing to a short term model that is unsustainable, decays loyalty and erodes profits.

Incidentally, I’m not demonising acquisition models or models per se, rather I am suggesting that amongst our marketing ‘sophistication’ we may have lost sight of some of what’s important, and if we don’t do something soon it’s going to be really difficult to ‘unteach’ what we have taught customers to do.

What next?

At Summit, our proposition is Changemakers in Retail. We’re not afraid to look at the world differently and ask ‘what if?’ By thinking and acting differently, we know that businesses grow and inspire people to get the most from life.

My advice?

So as a changemaker, I suggest that the industry turns its lens inward and starts thinking and acting differently. Start promoting a cost of retention model within your business.  And for clarity, I’m not referring to your current ‘CRM’ (customer relationship management) programme that is primarily designed to farm your customers for more revenue and is measured on an ROI metric.

I’m talking about a model that recognises there is a cost in nurturing the relationship with your existing customers, providing them with additional benefits that genuinely hold value, as well as continuously reminding them that their current choice of provider is completely and utterly the right one.

And how is it measured? Simply by whether the average lifetime of your customers goes up or down.


If you have any questions or want to know more about how we can help you make more money online contact Neil Collins on 0203 428 5307.