With all the data security talk as of late, we must address another security aspect – namely customer security. Marketers start measuring customer loyalty and spend considerable time and resources, attempting to understand and master it. It has been going on for as long as there has been competition. As a topic, customer loyalty has been thoroughly researched by academics and practitioners alike. A few things that we know about loyal customers:
1. Sharing their experiences with family, friends, and colleagues is not an issue
2. Once they find a vendor they like, they will come back time and time again
3. They know what they like and are satisfied with their choice
On the point of satisfaction: customer loyalty and satisfaction are not the same constructs.
Customer Loyalty vs. Customer Satisfaction
Customer satisfaction is a component of loyalty, but it is not the totality. As a customer, you can be satisfied with a product or service but chose not to continue the business relationship. Alternatively, you may make the conscious choice to share your wallet with someone else. Customers may likely have more than one provider in their consideration set, and they may be satisfied with all of them.
Profitability, as far as loyal customers are concerned, is muddied as well. An in-depth analysis may lead you to find that a portion of your loyal customer base is not profitable. They “reward” you with their loyalty but may very well be eating away at your bottom line. Identifying this group and creating efforts to move them up the profitability chain is a topic marketer should be discussing.
How To Measure Customer Loyalty
Bringing the discussion back to how to start measuring customer loyalty, we can turn our eyes to a process developed by the market research firm Burke, Inc. Researchers have developed an index called the Secure Customer Index or SCI for short. It is survey driven and can easily be deployed in any customer satisfaction study. For measuring customer loyalty, the SCI uses three questions to comprise its index: overall satisfaction, a percentage that would repeat purchase, and a percentage that would recommend (also known as Net Promoter Score).
A secure customer is very satisfied, would repurchase definitely, and definitely would recommend. Customers that fall outside of this nexus are more vulnerable to churn. Isolate all respondents that score in the top-two box for each of the three indicator questions and label them secure. Respondents that score 7 or 8 on an 11-point scale (0 – 10) could be considered loyal but need something ‘extra’ to move them into the secure zone.
Those that score less should be viewed as open to churn. If you can track profitability, then you can tie a customer’s security score to their profitability and further assess loyalty’s impact on the bottom-line.
Getting to know your loyal customers is worth the time. They will exhibit those behaviors that keep a company growing even in less than stable times. Loyalty measurement is pertinent to both consumer and B2B marketing efforts. If it can be tied directly to profitability or indirectly via a proxy variable, it provides a powerful guide to growing the business in a profitable direction.