Making the customer say the L-word

Aditya Mukherjee (PGDM 2016-18, IIM Ranchi)

"It costs five times as much to acquire a new customer than to keep an existing one" 1 is a famous
maxim in marketing. More enthusiastic proponents of customer retention have even ventured to
quote numbers higher than 5.2 Although the figure might be somewhat apocryphal, the essence is
true- it is way better to retain your existing customers than allowing high customer churn and
making up for it by acquiring new customers.

The practice of customer retention through the creation of customer loyalty should be the
cornerstone of an organisation’s marketing activities. However, such practices must come with
certain caveats. This article takes a look at how companies can engender a sense of loyalty among its
customers by creating more value for them.

Keep it simple
Customer loyalty is a simple concept. Many companies make the mistake of believing that the only
way to make a customer loyal is by delighting her. Exceeding the customer’s expectations every time
is a costly affair. Whatever delights the customer today will not delight her tomorrow as she gets
increasingly conditioned to the company’s efforts. While delighting is important in grabbing her
attention, a rather simpler yet more effective route to achieving customer loyalty is to ensure that
the basic satisfaction level is never breached. Market surveys by a host of agencies in the US have
shown crucial basic service levels are critical in shaping a consumer’s opinion about the brand.

Customer satisfaction and loyalty are

often not as strongly correlated as

57% of US consumers listed

many marketers perceive them. Rather,
customer dissatisfaction and customer
“having a negative review unaddressed churn are closely correlated3. According
while continuing to receive offers for to a report by Accenture, 81% of U.S.
similar products” as the top reason they consumers feel loyal to brands that are
would break up with a brand there when they need them, but
(Talend survey, 2017) otherwise, respect their time and leave
them alone4. Most consumers in the US
(and gradually in India) are becoming hard pressed for time. Hassle-free functioning of a product is,
therefore, a primary concern. When the product fails, they naturally expect the company to make
every effort to ensure that the situation is rectified at the earliest and without any significant
customer effort. This is an adequate service level expectation for most customers and even one
instance of failing to meet the adequate service level expectation (like failing to solve the customer’s
problem, excessive delay in solving the issue, the customer being directed to different service
operators for the same problem, being treated rudely etc.) might be enough to nullify the goodwill
generated by years of hard work in delighting the customer.

Failing to deliver on basic customer service is way more unacceptable to a customer than not being
delighted. The key, therefore, is to reduce the customer effort by understanding the customer pain-
points and delivering consistently reliable service. While ensuring the basic service level is a critical
yet mundane affair, certain innovative initiatives directed at reducing customer effort goes a long
way in creating loyalty.
Consider the case of Bharti AXA. While most of its competitors focused more on developing and
advertising new products, Bharti AXA has shifted
its focus to customer service5. In January 2017, it
launched the ‘Grief Support System’, a first of its
kind program through which they will ensure that
the family (of the bereaved) receives
psychological support through counselling
sessions with trained professionals, second
opinion on will, assistance in financial planning
and support in any other area they ask for.
Instead of trying to outdo its competitors in
delighting the customer in the same way
everyone else was trying, Bharti AXA identified an actual pain-point in the process and addressed it.
This is a significant step towards generating customer loyalty by differentiating itself from
competition.

Use Cumulative Advantage

Customers are creatures of habit. The more the frequency of purchase and lesser the purchase
involvement, the more pronounced is the role of habit in the purchase decision-making process.
Once customers develop a habit, they tend to stick to their choice unless there is a major
dissatisfaction. Until such time, customers will continue to selectively focus on confirmatory
evidences and selectively ignore disconfirmatory evidences in order to save the cognitive effort
required to evaluate all the brands before every purchase. Thus, the best way to ensure customer
loyalty is by achieving cumulative advantage6. Each time a customer buys and uses a brand with
results along the expected lines, it reinforces her belief in the brand, thereby
increasing the perceptual difference between your brand and your competitors’
brands cumulatively, with every purchase.

The best way to keep growing your (brand’s) cumulative advantage is to never
bring any major disruption in your brand image or the essence of your
marketing communication. For a high frequency, low involvement product, the
logo, the colour and design of packaging, the brand name as well as the tagline
matter a lot. This is how a customer relates to your brand in many cases.

Fair & Lovely is a great example of how to develop cumulative advantage. Not
only has HUL maintained Fair & Lovely’s theme colours, the font of writing the
brand name and the background score in their ads, they have launched all their
successive fairness products under the “Fair & Lovely” brand name, using the
cumulative advantage of the brand. Today, more than four decades after its
launch, Fair & Lovely is valued at over INR 2000 Crores with a market share of
50-70%.

Design the right Loyalty Program

Loyalty programs aren’t new. Back in 1793, a merchant in the U.S. started issuing copper tokens to
his loyal customers which could be exchanged for items in his store. Yet, marketers still struggle with
designing the right loyalty programs. Large number of loyalty programs are started every year and
killed off before they reach their 5th year. Can a brand expect long-term loyalty from their
customers if the brand can’t even design a long-term loyalty program?
The right loyalty program design starts with asking the question “What do I wish to achieve through
the loyalty program?” If the motive is to turn the heavy users of a product category into loyal
customers of your brand, the loyalty program should not focus on providing bulk discounts, since
bulk discounts are primarily aimed at boosting consumption. For a heavy user, whose consumption
is already high, there is little scope for bulk discounts to increase consumption any further. Such
heavy users appreciate special gestures by the company that make them feel valuable; like co-
creation and first trials of new products, being accorded special facilities etc. Airline companies and
hotels have been pioneers in extending such benefits to loyal customers. Loyalty programs for heavy
users should also encourage them to act as brand champions on different public platforms like social
media etc.

Delta 360 is an interesting

example. Delta Airlines’ elite
loyalty program Delta 360
offers customers with
especially tight connections
to be picked up by a Porsche
and transported across the
tarmac to their next flight at
select airports7. Great, huh?
They were addressing a
genuine problem and also
according special treatment
to their most valued
customers.

However, it was reported

that the benefit has
sometimes been extended to
members of lower loyalty
program segments while
many Delta 360 members
complained about the
service not being available
many a times. Delta botched up by failing to realise the real attraction of services like the Porsche
pickup, to the Delta 360 members- the simple senses of exclusivity and reliability. While the
exclusivity is what draws the customer towards the Delta 360 membership in the first place, it is the
reliability that saves the customer cognitive effort every time she has a connecting flight on a tight
schedule, thereby becoming a part of her habit and ensuring she continues as a member of Delta
360. Although a great initiative, the erosion of exclusivity and erratic nature of services has
somewhat reduced the appeal of the Delta 360 club membership.

On the other hand, a loyalty program for the light users of your product or service category, should
be aimed at enticing customers with rewards wherein the financial value of the purported benefits
to the customers should be much more apparent to the customer. Bulk discounts or step discounts
are quite common in this regard. The primary aim for the brand in this case is to increase its share of
the customer’s wallet. In order to do this, the loyalty program should be so simple that it becomes a
part of the customer’s buying process; it should stick to her memory and prevent her from
evaluating different brands afresh the next
time she makes the purchase (help develop
cumulative advantage).

However, just like “Money can’t buy love”,

discounts can’t engender a sense of true
loyalty in a customer. Discounts are great for
disrupting the customer’s existing habits and
nudging them towards developing a new habit,
one that includes higher consumption of my
brand. However, the brand must offer a
significantly higher CPV (Customer Perceived Value) than its competitors to hold on to the customer.
And this difference in CPV needs to be something more sustainable than discounts (which only leads
to price wars). In case of low involvement products and services, the focus should be on minimizing
the customer effort involved in the customer’s buying journey.

In the end, customer loyalty is a vast field and there is no one-size-fits-all solution for brands to
achieve this holy grail. Customer loyalty is about keeping things simple8. Customers don’t like loyalty
programs where the redemption process is highly tortuous or brands that over-promise and fail to
deliver on basic expectations. Perfecting the art of instilling loyalty in the minds of the customers is a
continuous journey of better understanding the consumer and learning from past mistakes
(preferably at the cost of others).

References-

1. https://www.invespcro.com/blog/customer-acquisition-retention
2. https://hbr.org/2014/10/the-value-of-keeping-the-right-customers
3. https://info.talend.com/datadividesurvey.html
4. https://www.accenture.com/us-en/insight-customer-loyalty-gcpr
5. https://www.bharti-axalife.com/claims/GSP
6. https://massolutions.biz/make-habit-gain-cumulative-advantage-competition
7. https://www.loungebuddy.com/blog/secret-airline-loyalty-programs-ultimate-guide
8. http://go.colloquy.com/2017-colloquy-loyalty-census?utm_source=us&utm_medium=media