The Customer Loyalty/Customer Experience Conundrum
Marketers and marketing consultants all too often make the mistake of equating customer loyalty with customer experience. Whether out of laziness or sloppiness, this is a critical miscue in the measurement, analysis, and management of customer loyalty and experiences.
Loyalty is a relationship concept. While abstract, that concept is made tangible in the form of loyalty behaviors, the actions through which customer express their loyalty and which create value for a company. For any given customer, they express their loyalty to and generate value for a company by
• continuing to be a customer, which creates retention value
• buying more (or more expensive) products and services and giving the company a larger share of their spend, thus increasing cross-sell or upsell value and
• recommending the company to others, which drives referral or positive word-of-mouth value.
Companies want to connect with the rational and emotional dimensions of human decision making to cultivate a sense of loyalty as a means of increasing the likelihood that customers continue to display these behaviors, thereby maximizing the share of customer lifetime value captured by the firm.
Customers express their disloyalty by doing the converse of these things. Consequently, for any given customer, their lifetime value to a company is significantly greater if they behave loyally than if they behave disloyalty. (Others have argued that loyal customers also pay a price premium and are less expensive to serve, but the case for a loyalty price premium/cost savings is far too muddled by counter examples to include them as a general assumption. Certain sectors also can realize a risk reduction value from loyal customers, but this generally is limited to those extending credit and insurance coverage.)
Every experience, every customer touch, and interaction is an opportunity to deliver on the company's value proposition and reinforce the relationship, as well as a risk of failing to deliver on customer expectations and weakening the glue of the relationship. Experiences matter because they affect and are part of the gestalt of the customer relationship. But the experience is not the same as the relationship, and loyalty is more than the sum of the customer's experiences.
The customer experience can range from the fleetingly transactional, such as a stop at an ATM, to something far more planned, lengthy, complex, and multisensorial, such as the periodic trip to the supermarket. The experience, however, is but a link in the relationship chain. Ever wary that the chain is only as strong as its weakest link, companies must attend to every aspect of the customer experience. But they also must recognize that, with few exceptions, they need to manage the experience as a means to the ends of solidifying the customer relationship.
Most companies--both B2B and B2C--need to focus on investing in customer experiences and processes that pay dividends by building and reinforcing customer relationships. Great customer experiences can become key differentiators from the competition, ways to attract customers and enhance customer loyalty. But firms must understand the difference between customer experience and loyalty before they can make the tactical and strategic decisions necessary to design customer experiences that have a positive payoff by building customer loyalty.
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About the Author Howard L. Lax, Ph.D.
is vice president GfK Customer Loyalty
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