Don't Bank on Loyal Customers

I'm a loyal customer of a lot of companies. I love them, and I think they love me back—sometimes. But it means that when I'm disappointed, I'm really disappointed.

For example, I've been happy with my Acura for a long time. Great car. Love the gadgetry—voice recognition, hands-free Bluetooth phone support, GPS, XM radio. You name it, I got it. I have always been happy with the Acura Roadside Assistance, and the Acura service at my dealer is so good that I've actually paid the premium that you pay when you use a dealer.

But my expectations are high and my standards, stratospheric, and I expect to get a lot in return. Plus, though I've been extremely happy with my car, I've had enough problems with it to have used Acura Roadside Assistance three times. And the service costs are very high. And the other day, I had very bad roadside assistance, along with a marked lack of concern by Acura customer service people, which negated several percent of the positive good will Acura had built up with me.

So I don't talk it up that much. I don't advocate for Acura, but I'd buy another one. And I'd answer the Fred Reichheld "ultimate question," which is, "Would you recommend this company to someone you knew?" with a resounding YES!

But only if someone asked. I wouldn't make the effort without prodding.

And that is the difference between loyalty and actual advocacy.

Value of a dollar
But, you say, "Well, I'll take your loyalty dollars any day." To which, I'd counter: What are you really getting with those "loyalty dollars"? Both short and long term?

This is not same customer you were dealing with five years ago.

"Research today shows today's wired customer relies heavily on information from peers, rather than traditional media sources or from the seller, itself. This means that in order to attract quality suspects ... you must find ways to spread positive word-of-mouth through current customers and supporters," loyalty expert Jill Griffin said in a recent interview with The Wise Marketer.

Your future rests on your ability to recruit advocates to your company, because your customers listen to others like them. You know that's true, because you're just like that, yourself.

If you've read my article on PC and video games, you know that I think the industry is a forerunner for the new business models we need. In its MI6 2006 Consumer Research Report, IDG Consulting found that only 17 percent of gamers actually find the official game publishers' sites useful. Seventy percent of them told IDG that they rely on user forums, game specific fan sites and third-party news web sites for their information—a.k.a. knowledge—to formulate their purchase decisions and opinions.

Advocates—those who are proactively willing to tout your services and products—are now the kind of customer you don't just crave but need. You need to listen to those future customers, even though they don't know you, yet.

On the other hand, loyal customers simply aren't that profitable. The Mismanagement of Customer Loyalty, a study by the Harvard Business Review, basically says that loyal customers aren't necessarily profitable. In fact, their correlation to profitability is mediocre to weak.

Why? They expect more. They know how to work the system. And they don't feel that they have any obligation to advocate for the company that they are "committed" to. The commitment and continuous purchase decisions and occasional forgiveness for a corporate sin are enough in their eyes.

Loyalty, schmoyalty
Don't you feel that way? Me, I feel no responsibility to any corporate entity that I've "worked the system" with. What obligates me to say nice things about it? I'm empowered. I can go elsewhere easily to get the same products and services, and I often do.

I'm pretty typical, too. Studies done by Maritz Loyalty Marketing in 2004 found that the slower the rewards, the quicker the loyal customers are willing to defect. We aren't just talking satisfied customers here. The 1,047 folks surveyed were high-income customers (annual incomes averaging more than $125,000) who were building up points in loyalty programs more rapidly than other customers. But 59 percent of them said they would defect if they found a better program.

That deflates all the effort that goes into high-value loyal customers, doesn't it? There's not a lot of profitability long term in a loyal customer who is likely to leave, purchases and income levels included.

But what, then, does work? How do you create a customer who is proactively willing to sing your hosannas on high?

I can't give you numbers here, because not only would they would be inadequate, considering we are talking about something emotional, but also there aren't any. There are no emotional metrics out there that I know of—though, I'm working on them.

But J.D. Power and Associates has the closest thing to a number I've heard in its 2006 Office Solutions Study:

After all, our experience shows that the likelihood of creating a customer advocate triples as a company turns its "pleased" customers into "delighted" ones.

Yep, a delighted customer—that old saw—is the best seed to cultivate a proactive advocate. Do something good for the customer consistently and uniformly. Maintain the relationship in a way that the customer thinks not only provides great products or services but also is just plain "cool" and gives the person control over his or her own experience with you. That's how you get an advocate.

Consider Threadless. This is a T-shirt company that runs in a unique, successful and recently profitable (I hear) way. The company has a registered user community built of 300,000 T-shirt devotees. People with the chops and imagination submit their T-shirt designs to Threadless online. Users who haven't submitted designs vote on the ones they like the most. Threadless takes the winners, does a limited run of 1,000 shirts and then starts the contest all over. The designers share in the revenue. The buyers come from the community. The community, which was at zero when it began, was numbering 300,000 and growing just 18 months later.

Ever seen a Threadless ad? But the company is cool and it has advocates. And word of mouth is the best thing that was ever created for a business.