We continue our Mythbusters series by examining the validity of the widespread marketing belief that if customers are satisfied, they are loyal. (As a refresher, Mythbusters is a Discovery Channel television show that determines if a commonly held myth can be confirmed, is plausible or is busted/not true). While it may seem counterintuitive, we found that satisfaction does not always correlate with loyalty. Nor does loyalty always lead to higher spending and increased wallet share. Here is our evidence…
In a global survey of retail banking customers, Capgemini and the European Financial Management Association (Efma) found that less than half of respondents said they were likely to stay with their banks. In regions where customers reported higher levels of positive experiences, that percentage improved. Positive customer experience, the survey found, was a stronger predictor of retention than satisfaction.
Similarly, for retailers, the Harvard Business Review article “Customer Loyalty Isn’t Enough. Grow Your Share of Wallet” reported that common gauges of loyalty such as satisfaction metrics correlate poorly with share of wallet. The authors warned: “Customers may be very satisfied with your brand and happily recommend it to others—but if they like your competitors just as much (or more), you’re losing sales.”
How customers rank your brand in relation to other brands they use in the same product or service category is a more accurate metric, according to this article. In fact, based on a two-year longitudinal study of 17,000 consumers across a dozen industries and nine countries, the authors devised a “Wallet Allocation Rule” (combining ranking order and the number of companies in the ranking) that did correlate with wallet share consistently “from company to company and industry to industry.”
Essentially, banks, retailers and other businesses need to consistently give customers reasons to buy more, along with delivering a customer experience that stands out from the crowd. Leaders also make heavy use of email, mobile and web channels, to reach customers through their communication channel of choice.
We’ve seen this at play with our own clients. We are working with a leading North American supermarket chain to create a “breakthrough” loyalty program in a market full of them. The program relies on analytics, including thousands of propensity models, which predict products individual customers are most likely to purchase, and time-to-event models, which predict the week they’re most likely to do it.
With these insights, the retailer delivers fully personalized packs of discounts to its best customers. Customers also receive recipes featuring the discounted items and an updated shopping list with all the ingredients needed to prepare each dish. While a customer’s package may include some “try this” offers in new categories, the focus is on the products this individual already purchases frequently—making sure these sales don’t go to a competitor. And because the analytics learn from every purchase, the offers become more and more tailored to the individual over time. While the program is still being rolled out, preliminary results include a 150 percent lift in average visits per member for redeemers over non-redeemers.
So in our assessment, customer satisfaction doesn’t always correlate with loyalty – this myth is busted. Businesses need to continuously give their customers reasons to buy. Did we convince you? For more mythbusting, check out our Insights paper titled: Marketing Mythbusting—Six Maxims Get put to the Test (No. 73; log-in required)