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 Men
do not always watch the same TV channel, do not dine
at the same restaurant, or, do not sip the same brand
of wine. Then how can they be expected to use the same
brand throughout and be loyal to it for life?
The virtue of loyalty among the mortals is fast fleeting.
Yet, it is this elusive factor that forms the fuel to
drive financial success of the corporate players - especially
in today's volatile economy. And as the companies face
the harsh realities of an economic downturn, they strive
hard to hold on to their customers and to earn their
loyalty with all their strength and might… to keep
their kitchen-fires burning.
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Perspectives
on customer loyalty
Customer loyalty presents a paradox. Many see it
as primarily an attitude-based phenomenon that can be
influenced significantly by customer relationship management
initiatives such as the increasingly popular loyalty
and affinity programmes. However, studies show that
loyalty in competitive repeat-purchase markets is shaped
more by the passive acceptance of brands than by strongly-held
attitudes about them. From this perspective, the demand-enhancing
potential on loyalty is more limited than might be hoped.
There are broadly three perspectives on customer loyalty
that can be best explained as three distinct models
as detailed below:
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Model 1: Loyalty as primarily an attitude that sometimes
leads to a relationship with the brand
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Model 2: Loyalty mainly expressed in terms of revealed
behaviour (i.e. the pattern of purchases)
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Model 3: Buying moderated by the individual's characteristics,
circumstances and/or the purchase situation
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Model
1: Loyalty as primarily an attitude that sometimes leads
to a relationship with the brand
Many argue that there must be strong "attitudinal
commitment" to a brand for a true loyalty to exist.
This is seen as taking the form of a consistently favourable
set of beliefs towards the brand purchased. These attitudes
may be measured by asking how much people say they like
the brand, feel committed to it, will recommend it to
others, and have positive believes and feeling about
it - relative to competing brands. The strength of these
attitudes is the key predictor of a brand's purchase
and repeat patronage. Analyses of cases such as Federal
Express, Pizza Hut franchises and Cadillac dealerships,
reveal that attitudinally loyal customers are much less
susceptible to negative information about the brand.
Moreover, the revenue stream from them becomes more
predictable and can become considerable over time.
An extension of the "attitudes define loyalty"
perspective is to suggest that consumers form relationships
with some of their brands. So much so that loyalty becomes
a committed and affect-laden partnership between consumers
and brands. It is a partnership that will be even stronger
when supported by other members of a household or a
buying group, and where consumption is associated with
community membership or identity. Examples in support
of this argument include Skoal smokeless tobacco among
some North American cowboys, the Beanie Babies craze
and the classic case of Harley Davidson bikers.
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Model
2: Loyalty mainly expressed in terms of revealed behaviour
(i.e. the pattern of purchases)
This is the most controversial, yet the best supported
by data. The controversy come about because loyalty
in this model is explained mainly with reference to
the pattern of past purchases with only secondary regard
to underlying consumer motivations or commitment to
the brand. Studies indicate that few consumers are "monogamous"
(100 per cent loyal) or "promiscuous" (no
loyalty to any brand). Rather most are "polygamous"
(i.e. loyal to a portfolio of brands in a product category).
From this perspective, loyalty may be explained as "an
ongoing propensity to buy the brand, usually as one
of the several".
In this case, the researchers tend to adopt a market
focus (e.g. key performance measures are brand shares,
penetration, average purchase frequencies, repeat buying
- for a defined period). Loyalty, here, is inferred
to operate in the following manner. Through trial and
error, a brand that provides a satisfactory experience
is chosen. Loyalty to the brand (measured by repeat
purchase) is the result of repeated satisfaction that
in turn leads to a weak commitment. The consumer buys
the same brand again, not because of any strongly-held
prior attitude or deeply-held commitment, but because
it is not worth the time and trouble to search an alternative.
If the usual brand is out of stock or unavailable for
some reason, then another functionally similar (or substitutable)
brand (from the portfolio) will be purchased. However,
with the over-repeated purchases, a weak commitment
to the number of brands purchased in a product category
can be formed. Those who subscribe to the "attitude
drive behaviour" and "relationship" approach
rule-out the revealed behaviour as a dominant measure
of loyalty.
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Model
3: Buying moderated by the individual's characteristics,
circumstances and/or the
purchase situation
Proponents of Model 3, the contingency approach, argue
that the best conceptualisation of loyalty is to allow
the relationship between the attitude and behaviour
to be moderated by contingency variable such as the
individual's current circumstances, their characters
and/or the purchase situation faced. That is, a strong
attitude towards a brand may provide only a weak prediction
of whether or not the brand will be bought on the next
purchase occasion because any number of factors may
so-determine which brand is deemed to be desirable.
Individual characteristics are reflected in the desire
for variety, habit, the need to confirm, the tolerance
for risk, etc. Purchase situation effects include product
availability, promotions/deals, the particular use of
occasion (e.g. gift, personal use, family use) etc.
A three-factor model emerges based on antecedents (including
weak prior attitudes and characteristics of the consumer),
contingency factors (including type of use of occasion
and the purchase situation) and consequences (up-dated
attitudes, intentions and the actual purchase behaviour).
The difference between this contingency perspective
and the attitude perspective is that the contingency
variable is elevated from the status of loyalty inhibitors
in Model 1 to loyalty co-determinants in Model 3. Attributes
of the individual and the purchase situation are conceptualised
as "nuisance" variables that inhibit the natural
evolution of customer loyalty whereas in the contingency
model these variables are seen as playing a primary
and inescapable role in explaining the observed patterns
of purchase behaviour. This is even more evident where
attributes are weakly held. Here it is repeated satisfaction
and weak commitment that together with other relevant
contingency variables co-determine future brand choices.
Conceptual
implications of the approaches
to loyalty
The aforesaid three perspectives of loyalty can be
related to a framework for understanding customer loyalty
that encompasses customer brand acceptance (CBA), customer
brand commitment (CBC) and customer brand buying (CBB).
All these loyalty patterns profile customers, not brands
per se, i.e. consumers are distributed across the curves
with respect to their loyalty to a brand. For instance,
most customers may accept a number of airlines while a
few customers may be committed to one or two airlines,
and some other may buy purely on the price/route combination.
These people's air travel schedules may result in them
having quite a few brands in their portfolio. The loyalty
patterns are elaborated hereunder.
Customer
Brand Acceptance (CBA)
Brand distinctiveness affected
The concept of Customer Brand Acceptance (CBA) is the
base case of customer loyalty in competitive repeat-purchase
markets. It draws heavily on Model 2, but also brings
together some elements of Model 1 and 3. The contribution
of Model 2 is that customers exhibit loyalty to a number
of brands because there is little reason to develop attitudinal
loyalty to any one of the brands purchased. A prime reason
for this is that a proliferation of brands in most markets
has destroyed one of the key reasons for exclusive loyalty
viz. brand distinctiveness.
Need
arousal is a trigger to purchase process
The concept of CBA can be well elucidated in terms
of the five-stage model of customer choice. (See box:
Customer Brand Acceptance) Need arousal is included as
a trigger to the purchase process - but this operates
mainly on product category decisions, not brand-based
ones. For instance, for a desire to stay sober, the need
is for low-alcohol beer, but not necessarily for any particular
brand of low-alcohol beer. Since this is a model of ongoing
CBA frequently purchased products, the (external) information
search and evaluation stages are assumed to have been
completed after the initial one or two purchases in the
category, and so are not explicitly included in the diagram.
Choice among the functionally equivalent alternatives
will reflect the accessibility, availability and conspicuousness
of the brand at the point of purchase. Most likely, this
will be seen as a set of acceptable brands that are ordered
as first favourite, second favourite, third favourite
and so forth. Typically, the relative likelihood of buying
each brand will endure over successive purchase cycles,
assuming the brands remain functionally adequate and accessible.
Satisfaction with past purchases and any consequential
habit formation explain most of a person's ongoing propensity
to buy one or a number of acceptable brands.
Unexpected purchase situation circumstances (e.g. an existing
brand being on sale) may influence the actual brand chosen
on a specific purchase occasion (drawing on Model 3).
The introduction of new brands or the reformulation of
current brands may alter the purchase propensities although
the aggregate impact on short to medium-term brand loyalty
is likely to be marginal.
Similar
attitudes reported for descriptive
ttribute beliefs
This is not to suggest that attitudes will not form
towards these brands over time (Model 1), but they will
be of secondary importance to functional adequacy of the
brand. Indeed, for the markets which are the focus here,
research shows that this belief may simply be a playback
of the message content of the brand's advertising or publicity
i.e. simple learning. This can be seen in the very similar
attitudes reported for descriptive attribute beliefs (for
example, "Volvos are safe," "United Airlines
is friendly," "Woolworths offers fresh food")
by both brand-users and non-users.
Customer
Brand Commitment (CBC) Brand component that drives choice
and
commitment
The first exception to Customer Brand Commitment
(CBA) concerns those consumers who value psychological
and social value more than function. This is easiest to
see when these consumers are buying high-identity products
(luxury goods, expensive cosmetics etc) and thinking of
life choices (education, sporting allegiances etc). Here,
there may be a brand component that drives choice and
commitment for a significant number of customers, especially
the initial adoption of some distinctive brands such as
the Apple Mackintosh, the Sony Walkman and Harley-Davidson
motorbikes. This is what CBC is all about. In this situation,
attitudes, values and social norms are seen as having
a major influence and the consumer can develop a relationship
with the brand - in keeping with Model 1. These relationships
defined in the consumer's mind may help to differentiate
one brand from another and the buyers end up supporting
a price premium for that brand.
Allegiance,
however, is never assured
The aforesaid commitment is, however, not guaranteed
- especially when the focus is on frequently-bought brands.
First, even for cases where the level of consumer involvement
is high, differentiation among brands may be relatively
low (such as with most airlines and hotel chains) - resulting
in the type of behaviour best described by CBA. For example,
frequent fliers tend to use a number of different airlines;
research on international travellers indicates that these
people are typically members of multiple frequent-flier
programmes and therefore show multi-brand loyalty to both
the airlines and their programmes. It is mainly the infrequent
flyers who are loyal to a single frequent-flier programme,
but invariably, these are the less profitable customers.
In most markets, the socio-psychological elements of competing
brands may, in fact, offer limited scope for creating
meaningful differentiation.
Even
loyalty leaders cannot be complacent Even where a relationship
develops, it may not be the only one in a particular product
category.
For instances, customers who have "compartmentalised
friendships" with different brands of coffee, say,
Starbucks in the morning and Folgers in the afternoon.
Moreover, with CBC, while the non-functional sources of
value may be strong, they will not eliminate the need
for the brand to "do the job". Harley-Davidson,
one of the strongest personality-relationship brands,
was forced to instigate a quality improvement programme
to save the brand from Japanese competition.
Customer
Brand Buying (CBB)
The other exception to CBA concerns those consumers
who exhibit very low levels of loyalty. Their choices
are shaped by considerations of immediate availability,
price promotions etc. and - at most - weak attitudes (for
e.g. users of an online travel agency may express liking
for it because it obtains for them best price airfares).
The concept of ËB is closely allied to Model 3, where
contingencies are co-determinants of choice and not simply
nuisance factors.
Thus, CBC and CBB are the exceptions rather than the rule
in most repeat-purchase markets. One way to see this is
a sampling problem. Consider the example of car rental:
if we were to draw from a large sample of the population,
most customers of avis or Hertz would be characterized
by CBA, and only a few by CBC (committed to Hertz) or
CBB ( renting from literally any car hire firm that happened
to be discounted at the time of purchase).
This above notion of a loyalty continuum with the three
anchor points of customer brand acceptance, customer brand
commitment and customer brand buying provides the necessary
basis for evaluating the aims and potential commercial
effectiveness of loyalty programmes in terms of customer-related
issues.
Loyalty
programmes and their implications
Loyalty programmes are schemes offering delayed,
accumulating economic benefits to consumers who buy the
brand. Usually this takes the form of points that can
be exchanged for gifts, free products or aspiration rewards
such as air-miles. Airline frequent-flier programmes have
been a prototype for many of the schemes. Affinity programmes
are a specific type of loyalty programmes as well, which
are designed to enhance the emotional bond between the
customer and the brand. Mechanisms are set up to enhance
two-way communication for the customer to get to know
the brand better and for the company to learn more about
the customer. Examples include telephone helplines, club
membership, alumni associations, newsletters, website
"chat" groups etc. Hybrids also exist. For instance,
where the focus is on enhancing the emotional bond between
customer and brand, and a third party (e.g. a charity)
receives a financial benefit; or the establishment of
a club, where consumers pay for membership in return for
access to special events and offers. This latter format
is prevalent in countries like Germany where trading laws
prohibit incentive based schemes (for instance, Volkswagen
Club, Swatch the Club, Mercedes Mastercard etc).
Loyalty
resembles habit
What gives poignancy to the concept of customer loyalty
is the supposed justification it gives for managers to
spend dollars on CRM programmes and the costly customer
databases that support these. However, the critics argue
that loyalty, both attitudinal and behavioural, for most
customers is quite passive and resembles habit rather
than serious commitment. And also, they assert, that there
is little or no evidence that any changes in customer
behaviour justify the enormous expenditure on these programmes.
Supporters of loyalty programmes have in mind Model 1,
where the programme is seen to reinforce CBC-type outcomes.
Or they envisage a combination of Models 3 and 1, where
consumers with no loyalty (CBB-types) are converted into
single-brand loyal (CBC-types) because of the customer
benefits of the programme. Critics favour the multi-brand
divided-loyalty model (Model 2) and assume that most of
the customers are CBA types who are not strongly swayed
by the programme.
Loyalty
programmes from an individual's perspective
l It can be seen as a vehicle to increase single-brand
loyalty, decrease price sensitivity, induce greater consumer
resistance to counter offers or counter arguments, dampen
the desire to consider alternative brands, attract a larger
pool of customers.
l However, most of the customers are multi-brand loyal
and loyalty schemes cannot turn them single-brand loyal
overnight.
l Most people buy only what they need and are not usually
carried away by the schemes.
l Loyalty programme is seen as a brand extension aid (for
e.g. Tesco attempts to expose its Clubcard members to
high-margin wines, financial services and electrical goods
as well as lower margin groceries).
Loyalty
programmes from a market perspective
At an aggregate level, repeat-purchase markets typically
have a well-defined structure - viz. most brands exhibit
a double jeopardy effect whereby small brands have fewer
buyers who buy them less often than bid brands. Whatever
their market shares, it is to be expected that, for all
brands, there will be some CBB and CBC buyer and a majority
of CBA buyers. This market structure gives rise to three
strategies for enhancing the observed level of repeat-purchase
or loyalty of a brand. A possible fourth strategy is also
considered in this regard.
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Strategy
1: Grow the size of the brand
This can be achieved by making the brand acceptable
to a large number of potential customers (See box: Tesco
Clubcard Scheme) - in keeping with the focus on CBA.
Tactically, this means exposure at the point of purchase,
offering greater perceived value, gaining wider distribution,
suggesting more usage occasions etc.
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Strategy
2: Create a niche brand
This can be done by aiming to keep the number of buyers
relatively low but at the same time increasing the average
bought by these buyers. This could be achieved by reducing
the distribution coverage of the brand and using the
money saved to better support or promote the brand to
current customers. This strategy implies a higher proportion
of behaviourally-loyal and committed buyers for the
level of market share than predicted by the DJ effect.
In its early years, the Body Shop was a successful niche
brand.
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Strategy
3: Become a "super-loyalty brand"
Here a brand is expected to become a "super-loyalty
brand". These are brands that exhibit signs of
strong commitment and that have higher than expected
repeat purchase (i.e. an above average number of CBCs
at a high-level of market share). During the early 1990s,
icon-status Nike appeared to be such a super loyalty
brand.
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Strategy
4: Exploit the desire of customers for change-of-pace
A fourth strategy implied by the DJ effect is to exploit
the desire of customers for change-of-pace. Here the
penetration is higher and the repeat-purchase rate lower
than predicted by the DJ effect. Some imported and premium
beer brands fall into this category, though the typical
beer brand of this type is really very small. This is
primarily a penetration effect and cannot be seen as
loyalty building unless an organization offers a portfolio
of these brands.
Reasons
behind this thrust on loyalty schemes
In spite of all the negative reasons, the fact remains
that more and more loyalty programmes are being introduced.
And the reason for so much momentum behind these programmes
is as follows:
Vehicles
for maintaining customer loyalty
It is possible to see loyalty programmes as vehicles
for maintaining customer loyalty (i.e. for keeping the
brand in the customer repertoire) or for maintaining brand
share (where the programme works in combination with other
valued enhancements, including product and service improvements).
Here, rather than trying to induce single-brand loyalty
from customers who previously have exhibited divided brand
loyalty, a more realistic aim is to build on existing
levels of CBA. If the customers feel the need for affinity,
or desire an explicit reward for their loyalty, they will
join the programmes of the brands they buy. The critical
issue then is for the programme to reinforce the value
proposition of the parent brand - enhancing brand equity,
not just building loyalty programme equity. The critical
task for the programme manager is to design a cost-effective
scheme to achieve this aim.
Improves
brand accessibility and market conspicuousness
Another role for loyalty programmes can be to improve
levels of accessibility and market conspicuousness for
a brand. This can manifest itself as a more credible proposition
to retailers in order to secure more shelf space and benefit
from "retail push". In other cases it may provide
more opportunities to talk with customers and, perhaps,
more opportunity to sell brand extensions to customers.
In their case, the aim of the programme is to get the
brand into the customer's set of acceptable brands. This,
however, is not a substitute for the inherent functional,
psychological and economic value designed into the brand,
but rather it simply makes the brand easier to consider.
If for some people the programme provides additional emotional
value, then this is a bonus.
"Me-too"
pressure
There is always a "me-too" pressure to
follow others who have embarked on this path. Moreover,
once this programme has been introduced, managers seem
very reluctant to cancel them - even if their claimed
benefits are not being realized. For instance, there are
persistent rumours that many airlines would like to end
their frequent-flier programmes if they could find an
acceptable way to do this. So far, that goal has proved
elusive, although the need to respond to deep discounting
by companies such as Southwest and Virgin may force the
hand of some operators. Just as there may have been first-mover
advantages in creating a loyalty programme, there also
might be first-mover drawbacks from snatching away much
heralded customer benefits. However, there are instances
of card-based loyalty programmes having been dropped (e.g.
schemes operated by the DIY group Do-it-All and the grocery
store Safeway in the UK, also Ford USA withdrew its credit
card reward programme).
Many organisations have clearly benefited from the implementation
of the customer loyalty schemes. However, for many others
they have become a necessary toolkit for doing business.
Most schemes do not fundamentally alter the market structure;
they might help to protect incumbents and might be regarded
as a legitimate part of the marketer's armoury, but at
the cost of increasing market expenditures. Hence, even
as a large number of companies continue to show an
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