Customer loyalty is disappearing in a hurry. Consumers put less trust in brands and tend to switch brands a lot faster.
The famous 80/20 rule (20% of the customers account for 80% of the turnover) has turned into a 60/40 rule (40% of the customers generate 60% of the turnover) and is slowly evolving towards a 50/50 rule. In the latter case, loyal and disloyal customers generate the same amount of income. This shift is putting quite a few established marketing tactics in doubt.
The brand paradox
Apart from the odd exception, top brands aren’t able to retain their status as market leaders as long as they used to. A loyal customer base can melt away in 12 short months. Many of Nokia’s loyal customers switched to Apple or Samsung without a second thought.
On the other hand, consumers do tend to attach themselves to certain brands. Research shows that consumers are prepared to commit to up to five brands as long as they provide a clear added value.
Consumers have an emotional attachment to these brands. As a result, loyalty to these brands is almost self-evident. In other words, there exists a certain brand paradox in the world today. People like specific brands while putting less trust in brands in general.
Why customer loyalty is down
1 - Companies can’t keep up with rising consumer expectations. Declining customer loyalty has been an issue for most companies in spite of heavy investments in service improvement. Consumers don’t compare a company to where they were a year ago; rather, they compare companies to the ‘best-in-class’. If Amazon doesn’t question a faulty delivery and deals with the problem immediately, consumers will expect the same of their local supermarket
2 - Loyalty programs are missing their mark. Many companies thought there was a shortcut to creating customer loyalty: the loyalty card. However, all the latest studies agree that loyalty cards slash profit margins on existing customers. Instead of creating loyalty you’re really losing money.
3 - Digitisation makes everything transparent. The fast adoption of smartphones and tablets has further enhanced transparency. Today, more than half of the consumers use their mobile devices to compare prices while shopping. The online world has made price transparency very accessible, a trend that spells danger for any company out there.
4 - Focus on individual touch points instead of on the customer experience as a whole. Companies are divided into various departments, with every department being responsible for the customer’s experience of one specific aspect of the customer relationship. There’s hardly any contact between the sales and after sales departments and invoicing is housed three floors down.
5 - No unique relevance to consumers. When customers are disloyal, they are really saying that a product or service was not relevant enough for them to remain a customer there. Too little thought is put into the role a brand has to play in consumers’ lives. The relationship is too rational in nature instead of emotional.
The solution: back to basics
According to popular theory, there are two ways to escape the commodity market. On the one hand a company can work more efficiently, making it possible to sell its products cheaper. On the other hand, you can offer a unique added value, thereby reestablishing differentiation so you can charge higher prices again.
Those on the highest rung of the corporate ladder should have a clear vision of the added value their company has to offer.
In today’s society, though, this theory should be revised. Rather than an ‘or’ question, we are now looking at an ‘and’ question. If companies are to survive, they will not only have to work more efficiently; they will also have to build a unique added value for their customers.
Modern consumers expect companies to act properly. This means treating customers well, treating employees well and doing good for society.
To meet this expectation, the story needs to be the same on all three levels. A company like Ben & Jerry’s is a prime example: the overall picture fits, which enhances the brand’s credibility on the market.
Customer loyalty is declining and we’re not going to solve it through marketing. The solution lies on a deeper level. A new customer program is not the answer and a new ad campaign won’t solve the problem either. The solution is not to be found in the marketing department (alone).
Instead, we should look to the company’s top echelon. Those on the highest rung of the corporate ladder should have a clear vision of the added value their company has to offer and they should be able to translate that vision for their employees and customers.