Emotional vs transactional loyalty: Is it more important to win customer hearts or minds?

What makes customers loyal? It’s the billion dollar question that brands the world over would like to know. But the answer isn’t straightforward. Indeed, as decades and decades of research demonstrates, loyalty comes in several flavours – some seemingly more potent than others.

From Russell-Bennett & Hartel’s 2009 paper on the functions of emotional and cognitive loyalty, all the way back to the work of Daniel Katz in the 1960s and beyond, a large number of scientific models have been presented over the years that have claimed to crack the loyalty conundrum.

While these models have each had their own idiosyncrasies, there are often common components, of which they can be broadly grouped into the following categories:

• Behavioural loyalty. The consumer’s tendency to repurchase a brand, this is easy for brands to measure given the access to purchase information, but is not necessarily a good indicator of loyalty as repeat business could simply be a result of lack of alternatives or the effort required to change suppliers.
• Rational loyalty. Also sometimes referred to as functional or cognitive loyalty, this is where the customer weighs up the value of the product or service to make a calculated decision about the relationship with the brand.
• Emotional loyalty, a psychological preference and affective attachment.

Richard Madden, group strategy director at BBH, explains how these different components can interact to influence customer shopping preference.

“Leon Festinger proposed the theory of cognitive dissonance, which demonstrates that people will change their behaviour once because of some kind of physical or financial inducement, but in order for them to continue with that modified behaviour, they need to be able to rationalise that decision to themselves,” he says.

“Most people don’t think they can be bribed; most people can actually be bribed, it’s just that they don’t like admitting it to themselves. So the role of the emotional side of a loyalty communication is to provide people with a rationale as to why they have been motivated by a financial inducement to change their behaviour.

“So for example, I earn more points for drinking one kind of coffee than the other. At some point I’m going to wake up and realise that I am having my behaviour controlled by ‘the man’, so it’ll be great to know that the coffee I’m drinking is actually more tasty, that it is actually prepared with more love and that it’s actually more ethically sourced, to allow the other half of my brain to create permission for me to be bribed.”

Emotional impact

Of the three common components, it is widely agreed that emotional loyalty has the biggest influence on behaviour. Emotionally loyal customers are willing to spend with the brand even if meaningful and available alternatives are presented, and research by Gallup has demonstrated that consumers with strong emotional connections to retailers will visit their stores 32% more often and spend 46% more money than those without emotional bonds.

“The emotional component is so important,” agrees Susan Binda, an experienced head of loyalty marketing, who has worked for the likes of Barclays and Merlin Entertainments. 

“As an example, when I was 14 my mother gave me my first bottle of Oil of Olay. I have very fond, emotional connections with that brand as a result, because it reminds me of my youth and my mother, and I’ve used that brand ever since.

"The limbic part of our brain doesn’t have any capacity for language, but contains our emotions. And I struggle to articulate and rationalise why I have that emotional connection with that brand, I just have it. It’s a gut instinct that it feels right. And it’s very powerful for brands.”

In light of this, it is therefore perhaps surprising that loyalty programmes are almost universally geared towards punitive rewards and rational loyalty, as opposed to developing emotional attachment with the customers.

“The big mass market programmes appeal to consumers’ logical decision-making,” explains marketing consultant Jon Worley. “The recognition that there is value in discounts and rewards is a reasonable way to develop a long-term relationship with a consumer. Some programmes that have done very well are optimising that rational benefit to the consumer by using the data to give the right offer to the right customer at the right time. And that becomes a win-win for the retailer and the consumer.”

Loyalty programmes such as Tesco’s Clubcard have carved out a reputation for their sophisticated use of customer data to optimise their offerings. Analysing the shopping habits of millions of card owners, they have been able to successfully devise marketing campaigns and personalise discounts for their clientele for nearly two decades to create one of the most celebrated programmes in the world.

I struggle to articulate and rationalise why I have that emotional connection with that brand, I just have it. It’s a gut instinct that it feels right. And it’s very powerful for brands

But there’s a drawback to focusing purely on punitive rewards – the rationally loyal customer will only stay loyal as long as the business continues to provide the best value, and as soon as a better proposition comes along, it’s bye bye. And as Worley notes, big loyalty programmes such as Tesco Clubcard have to survive on transactional engagement as there is very little emotional attachment built into their initiatives.

Lack of emotion

So where is the emotional connection? Tim Keiningham, author of Why Loyalty Matters, believes that the focus on rational loyalty is a consequence of most brands being unable to generate an affective connection with customers. And loyalty reward programmes are unable to change that.

“Not all brands are going to be able to do it – I look at my grocery basket and most of those items I don’t think a lot about and it would be very hard for them to give me any emotional loyalty,” he suggests.

“For an affective relationship to be built, usually it is because your life has been improved in some way...or because it has been driven by human interactions. And it is very hard to have emotional loyalty without a human interaction unless there’s a very high involvement.

"Proctor & Gamble - with its products for mothers and babies; there is a high involvement, and they try to do anything to make life easier with information and high quality products and so on. Therefore, they can build loyalty. But it is much harder in more mundane categories – do you buy a particular detergent because you are emotionally loyal to it or because it cleans your clothes well?”

But even if loyalty reward programmes are unable to generate emotional attachment, surely bribery isn’t the only approach that can be adopted? Keiningham believes that brands are still able to finesse customers if they approach it the right way.

“You can’t deliver affective through a loyalty programme, but you can help them get to an experience. So you have to think about what is the emotional motivation for collecting these points. And that may be what you advertise and then maybe what you make the ultimate prize for them. People aren’t collecting points to have a hotel room. They’re collecting points so they can take their family some place.

"Even when you use the Hilton Honours programme, the advertisements aren’t about how you can get a great room, they are about how you get this great experience. And that is one of the reasons that loyalty programmes work so well in the hotel category.”

Worley similarly suggests that when building loyalty reward programmes, brands should focus on “experiences, prizes, things that generate excitement” and “create value in the golden moment of redemption” or provide a “privilege aspect” to appeal to the customer’s sense of self-worth.

Virgin Airlines, for instance, provides access to clubhouses, fast-tracks through security and extra baggage, while Starbucks introduced a personalised rewards programme a number of years ago, which included free drinks on birthdays.

Professor Chris Halliburton of ESCP Europe Business School adds: “Loyalty programmes work when it is genuine relationship marketing rather than just transactions. Singapore Airlines ran the Priority Passenger Service and not only did they know what their favourite drink is because of the customer data, they knew what brand to give them.”

Pitching the balance

But despite the power of emotional drivers in loyalty programmes, evidence indicates that rational value remains an important component of successful programmes.

Jude Thorne is CEO at environmental loyalty programme Ice, and the former MD of Air Miles. Her experience is that a transactional element remains vital: “Our research found that while emotional loyalty has a place - respondents could see that the programme would reflect well on them if they identified themselves as caring for the environment - what actually would drive that behaviour was the value and the fact that the points were worth something.” 

For an affective relationship to be built, usually it is because your life has been improved in some way...or because it has been driven by human interactions.

Indeed, while emotional loyalty has greater longevity, the impact of the challenging economic landscape on households has certainly given the rational side of the equation greater weight. “There is still room for emotional loyalty but the big programmes are certainly having to pander to the very logical need for discount and value,” says Worley.

So despite the complexities that are inherent in customer loyalty, there is a simple message to adhere to – if your brand wants to encourage customer loyalty, you should be trying to win both hearts and minds.

As Worley concludes: “It’s important to optimise both the transactional and the emotional aspects. Where you pitch the balance is very dependent on the sector in which you are operating and the nature of your offer to the consumer – supermarkets and DIY stores are more at the transactional end, while clubs and fashion retail has a bias towards the emotional engagement. But in all cases it’s important to think of both factors.”