Winning hearts and minds

Customer loyalty may be an emotional response but, as Neil Davey discovers, economic hardship can cause consumers to take a more rational approach

When queues of devoted Apple fans camped outside stores in anticipation of the new iPad last month, many brands will have been looking on with envy. What is it about Apple that turns normally sane people into disciples willing to undertake these pilgrimages with little thought of cost, comfort or personal hygiene?

Businesses have spent billions of pounds on programmes to generate such passionate loyalty, but few – if any – have succeeded. Nevertheless, the appeal is understandable.

Frederick F. Reichheld, author of the widely-read The Loyalty Effect, has demonstrated that achieving loyalty from just 5 per cent more customers could lead to an average increase in profit per customer of between 25 and 100 per cent. Little surprise then, that loyalty is at the top of the agenda for chief executives.

But if brands are going to achieve loyalty, first they must understand it.

From Russell-Bennett & Hartel’s 2009 paper on the functions of emotional and cognitive loyalty, all the way back to the work of Daniel Katz in the 1960s and beyond, a range of models have been posited over the years, the components of which can be broadly grouped into three categories.

Consumers with strong emotional connections to retailers will visit their stores 32 per cent more often and spend 46 per cent more money

There is behavioural loyalty - the consumer’s tendency to repurchase a brand - which is easy to measure given the access to purchase information, but not necessarily a good indicator of loyalty. Repeat business could simply be a result of lack of alternatives or the effort required to change suppliers.

The second category is rational (sometimes referred to as functional or cognitive) loyalty, where the customer weighs up the value of the product or service to make a calculated decision about the relationship with the brand.

And finally there is emotional loyalty, a psychological preference and affective attachment that represents the most powerful category. Emotionally loyal customers are willing to spend with the brand even if meaningful and available alternatives are presented, and research by Gallup has demonstrated that consumers with strong emotional connections to retailers will visit their stores 32 per cent more often and spend 46 per cent more money than those without emotional bonds.

In light of this, it is somewhat surprising that the majority of programmes are geared towards generating value and developing rational loyalty, rather than encouraging an emotional attachment.

“The big mass-market programmes appeal to consumers’ logical decision-making,” explains Jon Worley, principal consultant of customer interaction experts The Logic Group. “The recognition that there is value in discounts and rewards is a reasonable way to develop a long-term relationship with a consumer. Some programmes that have done very well are optimising that rational benefit to the consumer by using the data to give the right offer to the right customer at the right time. And that becomes a win-win for the retailer and the consumer.”

Introduced in the UK in 1995, the Tesco Clubcard pioneered this approach, analysing the shopping habits of millions of card owners to devise marketing campaigns, and develop personalised offerings and discounts.

Nonetheless, the rationally loyal customer is only loyal as long as the business continues to provide the best value – as soon as a better proposition comes along, it’s bye bye. And, as Mr Worley notes, when it comes to the big loyalty programmes, such as Tesco Clubcard, there is “very little emotional aspect… they survive on a transactional engagement”.

Even consumers themselves acknowledge that reward schemes are far from altruistic. A survey by Ipsos Mori on behalf of The Logic Group revealed that, while three out of five UK consumers use loyalty cards for discounts, they also believe the programmes benefit the brands more than themselves.

And some loyalty schemes attempt to tip the benefit even further in their favour. Jude Thorne, chief executive of environmental loyalty programme Ice, and former managing director of Air Miles, says: “Most loyalty programmes make a lot of money out of the breakage – the points not coming back. There is, therefore, a temptation to play the game on the breakage so that they are actually removing value.”

Such tactics include the introduction of points expiry and marking up products on exemption, both ploys that Ms Thorne warns could “destroy any chance of emotional loyalty”.

So where is the emotional connection? Mr Worley points to “experiences, prizes, things that generate excitement” and “create value in the golden moment of redemption” or provide a “privilege aspect” to appeal to the customer’s sense of self-worth.

Virgin Airlines, for instance, provides access to clubhouses, fast-tracks through security and extra baggage, while Starbucks introduced a personalised rewards programme, including free drinks on birthdays.

Professor Chris Halliburton, of ESCP Europe Business School, adds: “Loyalty programmes work when it is genuine relationship marketing rather than just transactions. Singapore Airlines run the Priority Passenger Service and not only do they know what their favourite drink is because of the customer data, they know what brand to give them.”

But despite the power of emotional drivers in loyalty programmes, evidence indicates that rational value remains an important component of successful programmes.

Ms Thorne explains: “Our research found that, while emotional loyalty has a place – respondents could see the programme would reflect well on them if they identified themselves as caring for the environment – what actually would drive that behaviour was the value and the fact that the points were worth something.”

Indeed, while emotional loyalty has greater longevity, the financial hardships that consumers are presently experiencing has given the rational side of the equation greater weight. “There is still room for emotional loyalty, but the big programmes are certainly having to pander to the very logical need for discount and value,” says Mr Worley.

So while loyalty remains a complex field, the underlying message here is simple – if brands want to achieve customer loyalty, they must win both hearts and minds.

As Mr Worley concludes: “It’s important to optimise both the transactional and the emotional aspects. Where you pitch the balance is very dependent on the sector in which you are operating and the nature of your offer to the consumer. Supermarkets and DIY stores are more at the transactional end, while clubs and fashion retail has a bias towards the emotional engagement. But in all cases it’s important to think of both factors.”