Thanks to advancements in e-commerce, social media and cloud technologies, today’s customers have access to more options than ever before. In the current retail landscape, customers can easily switch brands. More than ever, retailers know that customers are buying from more brands; they know that customers aren’t as loyal as they once were.
But the need to strengthen brand loyalty has never been more critical. Retaining your customers can drive revenue and decrease the costs of doing business. Loyal customers can also act as advocates for your brand.
To strengthen brand loyalty, many companies rely on the transactional data they get from customer relationship management (CRM) systems to make business decisions. While data from CRM systems certainly has value for companies, the information that comes from these tools isn’t sufficient for driving brand loyalty in the long-term. The difficulty of building loyalty poses a significant problem for companies: it has never been easier for customers to switch brands.
CRM data can’t help drive customer loyalty because it doesn’t provide crucial insight about customer behavior. Here are three questions about your customers transactional data alone can’t help answer:
- How much are your customers spending with your competitors?
One common misconception about customer loyalty is that it is directly proportional to spend. Research shows that it’s not necessarily the case.
In 2014, consulting firm McKinsey & Company found that many retailers’ “best customers” (defined as the top 20 percent of customers by spend) are far from loyal. These high-spending customers are as just likely to shop at a competitor.
Scott Cameron, a partner at McKinsey & Company, says the assumption that customer spend and loyalty are connected is costing companies money. “Retailers are losing millions because their loyalty spend is being allocated to customers who aren’t loyal,” he says, “and other marketing spend is not targeting customers effectively.”
The bigger problem is that companies that rely solely on CRM data have no idea how much customers spend at competitors. Transactional data tells you how much customers spent on your products—but it can’t reveal how much they spent elsewhere. Because CRM systems can’t reveal your brand’s wallet share, it lacks a crucial piece of the customer loyalty puzzle.
- Why are your customers shopping elsewhere?
To convince customers to stay with your brand, you need to understand what your competitors offer that you don’t. That requires an understanding of why your customers do what they do. But your CRM data only provides the what, where and when of customer behavior. Brands need to engage directly with customers to fully grasp why customers don’t remain loyal.
Understanding the why is particularly critical because people’s buying decisions are often driven by emotions, not by logic. Forrester Research Analyst Anjali Lai, who is a guest at our April 9 webinar on customer loyalty, says research has consistently shown that “reason leads to conclusions; emotion leads to action” when it comes to buying behavior. She adds, “The need to develop the emotional intelligence of frontline employees is not a nice-to-have but a must-have, as it is essential to satisfying and retaining customers.”
To fully grasp the emotional side of the purchasing process, companies can’t rely on numbers alone. You need to understand the emotional factors that drive the decisions of your customers. More importantly, you need to uncover what actions you can take to influence or shape those factors. This insight can only come from talking directly with your customers.
- How can you improve the customer experience?
Another common misconception about brand loyalty is that it’s a marketing job—that clever campaigns or advertising are enough. But because of the complex customer experience, building brand loyalty is no longer simply a marketing function.
In a MarketingProfs article, Vision Critical CMO Tyler Douglas explains:
Research shows that 73 percent of consumers agree that the journey to their final purchase is less direct than before. Moreover, our own investigation shows that the paths to purchase differ by category shopped—with gender, age, store shopped, and other variables further complicating the processes within each category.
Given that complex path to purchase, marketing is just one of the many points of contact in the customer journey. To drive loyalty, brands need to provide a great experience at each opportunity, not just when they come in direct contact with marketing.
So to improve brand loyalty, the critical question that companies need to ask is this: how can we improve the customer experience?
Providing a seamless experience requires empathy for your customers. It starts by vicariously understanding your customers and working hard to serve their needs.
“Creating strong, personal relationships is the key to customer loyalty,” offers Seth Bailey, CEO of tech support provider ITOK, in an Entrepreneur article about loyalty. “This starts by understanding the customer's needs, providing meaningful communication and maintaining trust.”
The cost of failing to understand what’s important to your customers is high. Retail giant JC Penney painfully learned this lesson in 2013 when it rolled out marketing tactics that turned off its core customer base.
JC Penney’s mistakes had catastrophic results: millions of losses in 2013 and 2014, followed by layoffs and store shutdowns. The lesson from the JC Penney experience is to get closer to your customers and improve their experience or risk losing their business.
Given the amount of choices available to today’s customers, expecting loyalty might be too much to ask. CRM data alone certainly doesn’t have all the answers. But the stakes have never been higher for retailers. The companies that successfully build loyalty through collaboration with customers are set to thrive in the decades ahead.
To learn a better approach to getting customer intelligence beyond CRM data, watch a 4-minute demo of the Vision Critical’s Retail Intelligence Suite.