Sourced from The Giffin Group

Gurus say that loyalty explains why some customers buy more, refer others and will stick with you even when you screw up. Cynics say, “If you want loyalty, get a dog.”

Are You Building the Right Kind of Loyalty?

Sure, you want more customer loyalty. But are you building the right kind of loyalty?

When I first began researching loyalty in the early ’90s in preparation for writing a book, University of Texas Professor Robert Peterson generously shared with me a then-unpublished white paper by his colleagues A.S. Dick and K. Basen, noted academics and consumer behavior experts. The authors explained that the level of attachment a customer feels toward a product or service is a prerequisite to loyalty and that a second factor that marks a customer’s loyalty is repeat patronage.

The authors showed how attachment is shaped by two dimensions: the degree of preference (the extent of the customer’s conviction about the product or service) and the degree of perceived product differentiation (how significantly the customer distinguishes the product or service from alternatives). The highest attachment occurs when a buyer feels a strong buying preference coupled with a high degree of perceived product differentiation. Dick and Basen explained that four distinct types of loyalty emerge when low and high attachment are cross-classified with high and low repeat purchase.

As I read their paper, I can still recall that eureka!-like feeling that went off in my head. Loyalty, like many things in life, exists in grades. And just as with ice cream, premium is best.

Here’s how to identify each type:

  • No Loyalty

    For varying reasons, some customers do not develop loyalty to certain products or services. I know a manager of a travel agency who goes anywhere to get a haircut–just as long as it costs him $10 or less, the location is “on the way” to his next stop and he doesn’t have to wait long. He rarely goes to the same store two consecutive times. To him, a haircut is a haircut. (The fact that he is almost bald may have something to do with it!) His low attachment toward hair services combined with low repeat patronage signifies an absence of loyalty.Contrast this to a friend of mine who lives in New Jersey and drives two hours round trip every six weeks for hair color. Each trip costs her in excess of $90 for her hair and $22 for parking. While less expensive, more convenient hair care services are available closer to her home, she feels strongly about getting the “right” hair color service and perceives the Manhattan salon as clearly superior to other service providers.There’s no question you want more customers like my hair color friend and less like the travel agency manager. Generally speaking, businesses should avoid investing in “no loyalty” buyers, because they will never be loyal customers; they will add little to the financial strength of the business.
  • Inertia Loyalty
    A low level of attachment to your product or service coupled with high repeat purchase produces inertia loyalty. This customer buys out of habit. It’s the “because we’ve always used it” or “because it’s convenient” type of purchase. In other words, non-attitudinal, situational factors are the primary reason for buying. These buyers feel some degree of satisfaction with the company, or at least not real dissatisfaction.This loyalty is most typical for frequently bought purchases. It’s exemplified by the customer who buys gas at the station down the street, dry cleaning from the store down the block and shoe repair from the nearby cobbler. These buyers are ripe for plucking by a competitor that can demonstrate a visible benefit to switching. It is possible to turn inertia loyalty into a higher form of loyalty by actively courting the customer and increasing the positive differentiation he or she perceives about your product or service vs. the others available. For example, a dry cleaner could publicize the fact that it offers home delivery or extended hours.
  • Latent Loyalty A high relative attitude combined with low repeat purchase signifies high latent loyalty. When a customer has high latent loyalty, situational effects rather than attitudinal influences determine repeat purchase. I’m a big fan of Chinese food and have a favorite Chinese restaurant. My husband, however, is less fond of Asian food. So, despite my loyalty, I patronize the Chinese restaurant only on occasion, and we go, instead, to restaurants that we both enjoy. By understanding situational factors that contribute to latent loyalty, a business can devise strategies to help combat them. For example, the Chinese restaurant might consider adding a few all-American dishes to its menu to pacify reluctant patrons like my husband.
  • Premium Loyalty Premium loyalty, the most easily leveraged of the four types, prevails when a high level of attachment and repeat patronage coexist. This is the preferred type of loyalty for all customers of any business. At the highest level of preference, people are proud of discovering and using the product and take pleasure in sharing their knowledge with peers and family.Loyal Swiss army knife users are constantly telling friends and neighbors how valuable the knife is; how many handy uses it has; and how often they have used it in a day, a week or a month. These customers become vocal advocates for the product or service and constantly refer it to others.

Now that you know the breakdown, here’s how to apply that knowledge. To earn as much premium customer loyalty as possible:

  1. Attract and keep as few “no loyalty” customers as possible.
  2. Find ways to leverage latent loyalty.
  3. Upgrade customers with inertia loyalty into premium loyalty. To do this, you must find new and better ways to increase the degree of preference and the degree of perceived product or service differentiation.

Embrace these guidelines to build premium loyalty. It’s the kind of loyalty that drives more profit for your firm. And that’s the kind of loyalty you can bank on.