Five reasons customer loyalty is decreasing - and what you can do about itby
The days of customers staying loyal to companies for long periods are numbered. The amount of trust consumers put in brands is decreasing all the time, and a typical consumer will now switch brands without hesitation if they get a better offer. The famous rule of 20% of customers accounting for 80% of the turnover has turned into more like 60/40 rule (40% of the customers generate 60% of the turnover) and it is slowly evolving towards a 50/50 rule where loyal and disloyal customers generate the same amount of income.
This behavioural shift is putting some fundamental, established marketing tactics in doubt, but are we as marketers powerless to stop it?
The brand paradox
Aside from a few odd exceptions, top brands are no longer able to retain their status as market leaders for such long periods. A once loyal customer base can easily disappear within twelve months – just look at how many of Nokia’s loyal customers jumped ship to Apple or Samsung without a second thought.
On the other hand, many consumers are willing to attach themselves to certain brands as long as they have an emotional attachment. Research has revealed that consumers are prepared to commit to up to five brands as longs as they believe the brand adds value to their lives or society in general. In other words, a certain brand paradox exists in the world today where people will wholeheartedly buy into specific brands, while putting less trust in brands in general at the same time.
Why customer loyalty has decreased
There are a number of shifts that go some way to explaining the decline in customer loyalty:
- Failing to keep up with consumer expectations: Declining customer loyalty has been an issue even for companies that invest heavily in improving their service. Customers don’t care that the service they are receiving is better than it was a year ago – they use other ‘best-in-class’ companies as a benchmark. If Amazon deals with a faulty product delivery immediately and without question, the customer will quickly expect the same level of service from their local supermarket.
- Failing loyalty programmes: Many companies saw the loyalty card as a shortcut to creating customer loyalty. In fact, latest studies agree that loyalty cards actually slash profit margins on existing customers, losing money rather than creating loyalty.
- Everything is now transparent: Smartphones and tablets have made the world more transparent than ever. More than half of consumers use their mobile devices to compare prices while shopping, making it easy to find a better deal elsewhere.
- Failing to focus on the customer experience as a whole: When companies are divided into various departments, each department is inevitably responsible for a different aspect of the customer relationship. Often there is a lack of contact between sales and after sales teams, while the finance team work three floors down. Research has shown that inconsistencies and lack of understanding across these various touch points can actually cause disloyalty, rather than customer dissatisfaction with one particular interaction.
- Lack of unique relevance to consumers. If a customer is disloyal, they are really saying that a product or service was not relevant enough for them to remain a customer. That particular product or service did not stand out from the competition because too little thought has been put into what role the brand should play in the customer’s life. The customer simply made a rational decision, rather than having any emotional attachment.
Everything is a commodity
In a digital world there is often a huge rift between consumers’ expectations and what the average company is actually offering. With ever-increasing transparency, nearly every industry is turning into a commodity industry, which consequently results in a strong focus on price. Some sectors have even found themselves competing against a free alternative, forcing them to consider the fundamentals of their business model.
The solution: Going back to basics
According to popular theory, businesses can succeed in a commodity market in one of two ways. Firstly, you can work more efficiently to make it possible to sell products cheaper. Alternatively, you can offer some unique added value to differentiate your product enough to justify the higher prices. The reality of today’s society, however, means that businesses really need to do both – if a company is going to survive it will not only have to work more efficiently, but also offer some unique to add value for their customers.
Studied have revealed that today’s consumers expect companies to act properly on the following three levels, ranked in order of importance:
- Be good to your customers: Customers firstly expect an excellent treatment and service.
- Be good to your employees: Companies that exploit their employees or place profits ahead of how they treat people can get into trouble.
- Be good to society: Customers like companies with a view on the world that reflects their own. This doesn’t mean giving all profits to charitable causes, but there is a level of expectation that it will aim to make a difference in a way befitting the company’s identity.
To really meet these expectations the story needs to be the same on all three levels. Take Ben & Jerry’s as an example – the quality of the product is good, their employees and customers are treated well, and they’ve proactively started promoting their fair trade principles. The overall picture is consistent, enhancing the brand’s credibility on the market, and unsurprisingly giving Ben & Jerry’s strong levels of customer loyalty.
Conclusion: the solution lies on a deeper level than just marketing
Unfortunately, a new customer loyalty card or a fancy new advertising campaign won’t solve the customer loyalty problem. Rather than just being the responsibility of the marketing department, the leaders at the top of the company should have a clear vision of how the company should work and the added value their company offers customers, and crucially, they should be able to communicate that vision clearly to their employees and their customers.