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Wunderman

Any company’s customers can be segmented into “loyalty neighborhoods” by working with ananalytic framework that includes behavioral and attitudinal components.

In the lexicon of business, the term “loyalty” is among the most frequently used and substantively misused. When customers who repeatedly buy a company’s products or services are for that reason alone deemed “loyal,” management runs the risk of assuming they are:

• Highly satisfied with the purchase;
• Impervious to switching to another brand or product;
• Willing to pay a premium price for that company’s brand; and
• Spending and buying more than other customers.

One or more could easily be true for an individual customer, yet that customer may not be at all “loyal.”

If marketers want to affect loyalty, they must define, measure and understand it. Equally essential is the obverse – lack of loyalty – and the ability to interpret customer behavior and attitudes that predict switching, defection and attrition. Fortunately, loyalty can be deconstructed into component parts – behavioral and attitudinal – in a manner that allows for precise activity to bolster it.

The Loyalty Framework™

Wunderman’s Loyalty Framework™ provides a unifying framework by defining loyalty as a complex of relationships between customers and the branded products they use. Specifically, it uses three distinct dimensions of customer relationships to define loyalty. By measuring each dimension, the model enables the identification of “loyalty neighborhoods” and the development of targeted programs for building loyalty that are more effective and efficient than “one size fits all” and “linear” approaches.

The three dimensions of loyalty are:

1. Desired behavior – capturing the total revenue-generating activity that arises from a customer’s use of a company or brand’s products or services. This dimension of loyalty is the one that most companies can track and understand, as it is comprised of quantitative attributes: frequency of purchase, monetary value, consistency of purchasing over time. However, even if a customer is behaving in Defining, Measuring and Managing Loyalty Any company’s customers can be segmented into “loyalty neighborhoods” by working with an analytic framework that includes behavioral and attitudinal components. the desired way, it may not translate into loyalty. If the purchase is subsidized or suitable alternatives unavailable, for example, repeat purchasing is misunderstood as loyalty.
2. Depth of involvement, representing the range and diversity of a customer’s contacts with the products or services marketed under a company’s brand. This dimension is measured by how many company goods or services the individual buys, how much and how often he/she uses that product and how often he/she interacts with the company, e.g., visits to the website or store. Obviously, some categories by their nature, like toothpaste and automobiles, demand high involvement because they are used daily or require regular service, upgrades, etc.
3. Commitment represents the customer’s emotional attachment or connection to a product or brand. This attachment is based on functional experiences as well as attitudinal perceptions. Commitment is the dimension most difficult to measure because it is attitudinal. It is based in both a rational assessment of the branded product or service as well as how an individual relates to a brand on an emotional level. It can be shaped by family traditions (what your mother used is often the determining factor for condiments) or cultural habits or brand positioning. Surveys or proxy variables such as tenure or customer satisfaction are usually used to measure commitment.

This model is used on a conceptual basis to develop strategies and tactics for building loyalty. It is also applied to customer databases to measure and manage loyalty at the individual customer level. When a customer database is profiled across these three axes, clusters of customers emerge. Figure 1 illustrates a high/low scoring on three axes. Specific communications investments can then be addressed to migrate them from lesser to more profitable “loyalty neighborhoods.”

In practice, the Loyalty Framework™ helps companies:

• Retain their best, most profitable customers;
• Make good customers better;
• Reconnect with lapsed customers; and
• Invest in vulnerable but potentially valuable customers.

Of course, implementing the Loyalty Framework™ requires data, and one can only preach the gospel of rigorous enforcement of best practices: data gathering at every point of customer interaction, investment in data updates and hygiene, and data analysis as a critical tool in understanding and managing a business.

More troublesome in implementation is the difficulty in measuring the commitment dimension with proxy variables such as tenure and customer satisfaction. To solve for the commitment dimension of the framework, a new model was developed.

Brand Experience ScoreCard®

One is loyal to one’s country, family, college or religion but few are loyal to the ketchup or the automobile they buy. Rather, consumers repeatedly purchase those products and services that create a series of predictably positive experiences. Accordingly, in 2001, Wunderman undertook consumer-based research to understand the experiences that generate attitudinal commitment.

Called Brand Experience Scorecard® (BES), it describes those factors that characterize customers’ experience with a branded product or service and how they feel about the brands they use. It is a quantitative study of hundreds of brands globally, and participants were limited to individuals who had personal experience with a brand.

While “commitment” is not an absolute, and depends on the category and individual, we learned that customers describe their commitments in terms of three levels.

• Uncommitted: “I use this brand – but I have minimal emotional attachment or commitment. I would buy another brand if this one were not available.”
• Preference: “I prefer this brand – I use it whenever I can. I generally do not buy another brand to meet my needs.”
• Committed: “I love this brand – I have a strong emotional connection and would miss it if it went away. I would not buy any other brand to meet my needs.”

Of course, all marketers want to have “committed” customers because they appear to be more immune to defection and are more willing to pay a premium. In fact, 32 percent of our respondents who claim to be committed to a brand also say they are willing to pay a premium price for it (see Figure 2). But what drives their commitment? What makes customers “love” a brand and accept no substitute?

BES uncovered three factors that drive customers’ brand experiences:

1. Performance: Does the brand meet my expectations? Does it do so better than alternatives?
2. Treatment: Does the brand know and recognize me when I make the contact? Does the brand contact me for additional business in a way that respects me?
3. Community: Do I feel part of a community with other customers – real or symbolic?

These three factors come into play in sequence. Performance is the price of entry. If the product does not meet expectations, and better rivals do, there can be no commitment. Treatment – the qualities of the customers’ contacts with the company, whether initiated by customer or company – comes next and is the most literally experiential. The last and most elusive, community, has been achieved, but largely by brands that consumers use to define lifestyle and articulate identity, such as Apple, Harley Davidson or the National Football League.

Industry averages on the experiential pillars provide the benchmarks for an individual brand’s score (see Figure 3), and scores on each pillar can be improved to varying degrees by communications. Expectations of product performance can be improved, largely by brand and competitive positioning.

Treatment – how a brand reacts to its customers and solicits additional business – is the easiest to improve, largely by reengineering call centers, websites and sales contacts and by empowering customers to control the content, frequency and channels of the brand’s communications to them. Community, although still elusive, is being pursued by many brands today by stimulating Web-enabled virality and hosting peer-to-peer relationships.

Brand Experience ScoreCard® – Business-to-Business

The factors that contribute to brand experience among consumers cannot, however, be applied to business customers. Whether replenishing office supplies or purchasing capital assets, a business-to-business relationship is a more complex matter and required a new instrument.

Twenty-one attributes were used to define brand experience in a business context. Some were the same as those in the consumer study, but others were context-specific, such as “easy to do business with,” “has knowledgeable sales reps,” “has knowledgeable support staff,” “understands my industry,” etc. In addition, a fourth “negative” level of commitment was included: “disaffected – supplier of last resort, not satisfied with experience.”

The initial field research was conducted within the IT industry: 800 purchase decision makers at large enterprise and midmarket companies rated 54 IT suppliers. Their ratings clustered the attributes into four pillars of brand experience:

• Trusted partner;
• Customer-centric;
• Sales and service; and
• Industry leadership.

Similar to the consumer study, higher scores on brand experience correlated with higher levels of expressed commitment, and higher levels of commitment correlated with greater willingness to pay a premium price and lesser susceptibility to dealing (see Figure 4).

However, several results were different and surprising. In contrast to the high scores achieved in many consumer categories, overall performance of the IT industry on all pillars of brand experience was at or below half of potential, indicating multiple opportunities for improvement. Notably, only 25 percent of IT brand experiences were rated as “customer centric,” suggesting that IT suppliers should rethink and reengineer their business. Having a “trusted partner” was more important than using an “industry leader” (see Figure 4). Also interesting, brand experience was stronger among respondents who viewed IT as a driver of their companies’ success and weaker among those who did not.

To assess whether the instrument could be successfully applied in other industries, it was used as the basis for one-hour interviews with purchase decision makers in three other industries – medical devices, power generation and automation systems. The directional findings from these soft soundings were congruent with the statistically significant survey findings. A work in progress, a reformatted version of the quantitative instrument will next be fielded in several industries to generate a data set useful for benchmarking and diagnostic analyses.

Although a complex set of relationships, loyalty is no mystery. Working with an analytic framework that includes and combines behavioral and attitudinal components and with a set of complete and clean data to process within that framework, any company’s customers can be segmented into “loyalty neighborhoods.” Then they can be prioritized for investment and addressed with communications that will move them from lesser to more attractive neighborhoods. Everyone talks about optimizing customer value. This is a way to do it with an estimatable ROI on the spend and results in measurable increased revenues, margins or both.