Marketing

4 dangerous myths about customer loyalty

4 dangerous myths about customer loyalty

One of the most important tasks for marketers today is to know what makes customers tick. If you know your customers, you can better attract and retain new business. Customer understanding leads to better business decisions.

In a recent Vision Critical webinar, The New Rules of Customer Loyalty, we explored how business leaders can build customer understanding in a way that leads to brand loyalty. The webinar featured Anjali Lai, an analyst from Forrester Research, and Bruce Warren, senior vice president of product marketing at Vision Critical.

The webinar addressed the complexities of building customer loyalty in the age of the empowered customer. During the one-hour webinar, the speakers addressed these four critical myths about loyalty.

  1. High-spending customers are loyal.

Customers that retailers assume are most loyal are spending a lot of their disposable income elsewhere. A 2014 study by the management consulting company McKinsey & Company found that close to half of spending by a company’s best customers goes to other retailers.

Warren says companies who rely on spend to measure loyalty need to wake up to the reality of doing business today. Since your company’s best customers are just as likely to shop elsewhere, their average spend isn’t a good indicator of their loyalty. Companies need a more sophisticated way of measuring loyalty.

  1. Demographic data provides sufficient insight on loyalty.

Lai says we are now living in the post-demographic age—an era when traditional demographic models no longer apply. People today act in ways that are not consistent with their demographics and traditional attitudes. For instance, Twitter’s fastest growing demo between 2012 and 2013 was the 55 to 64 age bracket—a demographic that is not traditionally seen as social media-savvy. Another example: of the lowest income online adult consumers in the U.S., more than nine in 10 have a cell phone, and more than one in four has a tablet.

This shift is in part due to digital disruption, which has made technology more affordable and accessible and has eliminated barriers to adopting products and services across all demographics. While demographic data used to provide valuable insight on customer behavior, that’s no longer the case. Customer research approaches that rely on demographic data alone are already outdated, according to Lai.

  1. Historical data tells you everything you need to know about the customer.

The transactional data that companies get through their CRM systems is, by definition, historical data. Historical trends about consumer activity over time have business value, but they must be interpreted within context, says Lai. Transactional data only provides insight into the “what, when, and where” of consumer behavior. To get an accurate view of loyalty and predict what they will do next, retailers need a 360-degree view of their customers. In order to understand the “why” of customer behavior, retailers need to use attitudinal and emotional data, which are better indicators of shopping habits. Unfortunately, historical data doesn’t reveal the attitudes of customers.

  1. Qualitative measures aren’t as critical as quantitative data.

Studies show that customer emotion and attitudes—information quantitative data alone can’t provide—are key predictors of customer loyalty. According to Lai, Forrester’s Customer Experience Index illustrates that “emotion” is a stronger driver of loyalty than “ease” and “effectiveness” across 17 major industries.

Qualitative data is important because loyalty patterns are not linear. Marketers need to capture customer attitude and emotion, account for unexpected nuances and add context to quantitative data. Lai recommends using qualitative insight gathered through insight communities to bring the humanistic elements of understanding into the customer research practice.

Conclusion

Warren and Lai make a compelling case for the need to stay in tune with customer values and emotional motivations to drive customer loyalty. They argue that a community-driven approach to customer research is the best way to do this, as it allows companies to sustain a dialogue with their customers. Insight communities allow companies to build a relationship with their customers, and gain a better understanding of the deep-seated values that their customers hold. This insight is critical to making business decisions that support customer loyalty in the long run.

Watch the webinar recording to learn about the new rules of customer loyalty.

How to keep customers from cheating on you - customer loyalty e-book



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