How Customer Loyalty Differs Online
By Michael Greenberg, CEO, Loyalty Lab
Customer loyalty in the online world is not the same
as offline. Substitutes are just a click away vs.
down the street offline. Customers expect you to
know everything that’s ever happened between you
online, while they accept anonymity offline.
Understanding how these differences impact marketing
is crucial to the right approach to developing more
customer loyalty in an online world.
Customer loyalty is a reflection of preference and
choice. Rational loyalty reflects the rational
decisions to choose one provider over another for a
given purchase. This is best observed in share of
wallet, which reflects the choices a consumer makes
Emotional loyalty reflects the attachment a consumer
has to a brand, regardless of their spending on that
brand. This is expressed via word of mouth,
referrals, and participation in engagement programs
Looking at value and loyalty separately shows why
spending magnitude is a poor measure of loyalty: It
is easy to conceive of a high-value, low-loyalty
customer, and just as easy to visualize a low value,
high loyalty customer.
In today’s socially turbocharged world, high-loyalty
customers may have low direct financial value, but
high indirect value. But fundamentally, marketers
understand that loyal customers are predisposed to
become high-value customers, and generally are
higher value than similar customers who are not
The major difference online is the ability to track
nearly all customer behavior and transactions. In
the multichannel world, this can be difficult.
Without this limitation, online sellers can focus
entirely on the driving customer value and loyalty
This changes strategy in two important ways. First,
multichannel retailers tend to focus on the customer
experience and customer engagement before eventually
moving on to increasing levels of data-driven CRM.
Online rarely does this sequentially – customer
experience, customer engagement, and data-driven CRM
tend to evolve together, which has profound impact
on the sophistication level needed for any given new
tactic or capability.
Second, online lacks the built-in loyalty that
location affords. Multichannel merchants can depend
on natural foot traffic to account for a substantial
portion of revenue – online must fight for every new
customer on equal footing with competitors. This
pushes frequency much higher on the list of needs
for online merchants.
When you combine the need for thoughtful integration
of experience, engagement, and CRM with the need for
frequency combined, this can be a tremendous
challenge for marketers. Any effort that can improve
customer loyalty and sidestep the comparison
engines, coupon aggregators, and affiliate malls
that erode profitability can produce tremendous ROI,
but will not be easy to pull off.
Every business is different. Increasing “devoted
attachment” typically involves the following areas:
Improve the experience: As merchants get
better at the shopping, purchasing, and fulfillment
experience, customer loyalty improves. Enhancements
to the experience stay on-brand, delivering faster,
richer, and more informative sites.
Reward loyalty: A large portion of the
population responds to rewards for their loyalty.
This appeals to the rational loyalty element, in
which a customer given two similar options for a
product will tend to consolidate their wallet share
with the one providing the most compelling financial
reason to do so.
Clarify the brand: A portion of the
population still responds to brand attributes, so
ensuring your brand message is consistent will make
it easier for customers to gravitate towards your
Listen and respond: We're seeing faster
response to individual customer issues as a driver
of customer loyalty. This is partly due to avoiding
customer sharing of bad experiences with their
friends and coworkers. The social network explosion
has put customer care squarely in the middle of
marketing – good marketers will now watch complaint
rates and monitor social media for poor feedback.
Enable community: Allowing customers to share
their experiences with others through reviews and
forums increases the trust in your company and
improves your site as a resource.
Communicate relevantly: Customers have less
patience for irrelevant communications from online
merchants, given exact knowledge of transaction
history. Offers, promotions, new releases, events,
and other content should be relevant, timely, and
useful. Assume your competitors have started such an
effort, even if you haven’t seen erosion in revenue
Minimize negatives: Often your best
improvement is to “get to zero” in an area of
weakness. Since bad experiences can spread far
beyond the initial customer, working to avoid those
poor touch points can result in good ROI. Improve an
unpleasant experience so that it is neutral in its
impact – or no longer the source of negative
interactions – and you’ll shift emphasis toward your
areas of strength.
Our experience with loyalty to online merchants
suggests a strategy that incorporates all of these
improvements – use a reward program as glue.
The most successful programs connect various loyalty
drivers together into one comprehensive program.
They aren’t frequency programs with a tiny link on
the home page, or an e-mail program, or targeted
offers on the site.
Rather, they incorporate all of the interaction
media and engagement touch points with a point of
view. They reward reviews, purchases,
recommendations, referrals, visits, and other
activities that are relevant to customer loyalty –
not just customer value.
A holistic approach is a crucial step toward
building long-term customer loyalty in a world where
competitors, comparison engines, and substitutes are
a click away. Online retailers must improve the core
of what drives customers to think first about coming
back directly – to build the devoted attention
leading to greater value.
---Source: i-merchant Aug. 25, 2009 (www.multichannelmerchant.com).
Michael Greenberg is chief operating officer at
loyalty marketing firm Loyalty Lab. Reach him at
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