Loyalty Derided: It Pays to Look Before You Leap!

“No thanks. We are completely happy with our current provider.”

It’s a loyal sentiment that stops many sales conversations cold.

If my customers always swatted down every competitor’s sales overture that way, it would make me very happy. But the ties that connect customers to vendors are under stress from every direction, and it’s a Herculean task to preserve customer loyalty status quo. So, every day we strategize about how to undermine customer loyalty from our rivals, and our rivals focus on doing the same to us.

Today, ephemeral customer loyalty is reality for most firms, creating a contradiction of terms that should make perfect sense to those who sell for a living. In order to minimize the revenue valleys that occur when loyalty wanes, organizations commonly engineer a pseudo-loyalty, through switching costs—business-speak for the technological and financial handcuffs a vendor embeds into products. But such techniques make it impossible to discern where resistance to switching costs ends and loyalty begins. More than once, a prospective customer has told me “I’d throw every bit of this hardware out of here if it wouldn’t cost me so much to do it.” Based on that, does low customer churn equal high customer loyalty? Talk to Joe the Corporate Decision Maker, and you’ll know you can’t get to the answer by looking at churn rate alone.

But what makes a customer loyal, exactly? Whatever terms you use to describe loyal attachments, there’s one consistency: the more loyal the customer, the more close-minded he or she is. Clearly, for customers to willingly shut off new ideas from competitors while remaining open to hearing new ideas from us requires an extraordinary combination of trust, commitment, great customer experiences, and more that marketers and academics continue to study and debate. In fact, this week on Amazon.com, my search on customer loyalty returned 8,993 results.

But are we deluding ourselves about what makes loyalty valuable—or whether it’s valuable? Do we really understand what our customers are loyal to? Does investing in customer loyalty programs always align with corporate objectives? Can high customer loyalty be counterproductive for sales? We make many assumptions about loyalty, and we should know whether we’re chasing a loyalty mirage. After all, do we really know if what we’re investing in customer loyalty is worth it?

Do we really understand what customers are loyal to? Is it our products or services? Our sales or support team? Our unique customer experience? Our brand? All of these? None of these? Rob Walker, author of Buying In explains by citing a study in which consumers were asked “What are the things in your home which are special to you?. . . Part of what the authors found was that—not surprisingly—the most meaningful objects were rarely chosen on the basis of some intrinsic, rational property, like marketplace value, cutting-edge quality, simple aesthetic pleasure, or anything else that an economist might describe as ‘utility.’ They were chosen instead for connections to something else: family or social ties, a particular episode in the narrative of the subject’s life, perhaps religious faith or some other belief system affiliation. That is to say, their meaning tended to be a function of what the thing represented.”

This finding suggests that one object of customer loyalty might be as intangible as a meaning or idea, and that discovering what customers are actually loyal to will identify different pathways for creating and selling products to those customers. The book describes many modern examples in which companies have appealed to customers by “not . . . simply infusing some company’s material objects with fresh meaning, but creating meaning by creating objects—branded objects.”

Does investing in customer loyalty programs always align with corporate objectives? Not necessarily. David Corkindale debunks the loyalty yields value idea in his article Mistakes Marketers Make (The Wall Street Journal, October 20, 2008). “Studies have found that the individuals who are totally loyal buyers of a brand tend to make up only 10% of all buyers, and they buy it less frequently than others, too . . . A company that focuses on gaining and retaining such customers isn’t doing the smartest thing commercially.”

Can high customer loyalty be counterproductive for sales? Yes, when that loyalty is placed only on a physical product—as many salespeople responsible for upgrading products at installed accounts will attest. At one company I worked for, many customers maintained my company’s machines well beyond their useful, fully-depreciated life. Why? Because they were loyal to the equipment—so much so that they were close-minded to the economic benefits and other advantages of replacing it.

When it comes to customer loyalty—whether preserving your own, or undermining someone else’s—what’s the best strategy? First, understand how customer loyalty fits in the context of your company’s overall business strategy. Moving customers up the loyalty continuum might not be the best use of resources if there’s little or no strategic value. Although few will argue that having customer loyalty isn’t a useful or valuable outcome, Mr. Corkindale stresses that “there is really only one way for a company to achieve lasting growth in sales, and that is to increase its customer base, by either reaching new customers in existing markets or entering new markets. That doesn’t stop some marketers from trying to do the impossible.”