I don't know about you, but being greeted at the end of a long commute home by my dog Lucy's grinning face (yes, I swear she can smile), wiggly tail, and jumps for joy is, as they say on the MasterCard commercials, priceless. A dog's devotion is the epitome of true loyalty. You always know it'll be there, and it won't trade you for a new owner, no matter how many times you scold it for begging or refusing to throw the Frisbee for the hundredth time. Now if only consumers had that level of loyalty to retailers. It probably won't surprise you to hear that customer loyalty is declining. Discount stores, clubs, and airlines are stealing away cost-conscious customers; technologies like TiVo are giving consumers the power to skip annoying commercials; and the onslaught of online information is helping consumers compare retailers and make more educated decisions, rather than default to the retailer that they've been going to for years. So how should retailers respond?

The first step is to re-evaluate your loyalty metrics. Firms typically equate loyalty with retention; they argue that the lower the churn or defection rate, the higher the number of loyal customers. This means that the measures they take to counter declining loyalty focus on either churn analysis or product portfolio. But these measures are short-sighted because they discount loyalty drivers, overlook changing consumer preferences, and depend on poor indicators like satisfaction inquiries.

The next step is to build a loyalty strategy that meets the requirements of both the retailer and the consumers, something we call symbiotic loyalty. Symbiotic loyalty is:

1. Emotive. Instead of just focusing on the rational aspects of loyalty, firms should draw on attitudinal loyalty drivers by making emotive connections with consumers.

2. Social. Instead of just focusing on individual customer satisfaction, firms should actively cultivate consumer endorsements via offline and online peer networks and develop offerings and content to nurture brand advocates.

3. Dynamic. Instead of expecting lifetime loyalty, firms should invest in and harvest customer loyalty over definitive phases, with explicit entry and exit moments.

So what about technology enablers for building loyalty? Those are the next steps, which will only work if you have the right strategy and metrics in place.

Clearly, CRM and integration technologies for consolidating customer, order, and inventory data are required. Once those are in place, retailers can take it to the next level by implementing merchandise management solutions. My colleague, George Lawrie, recently caught up with three retailers, Marks & Spencer, House of Fraser, and Woolworths, that are actively implementing these tools to uncover best practices, including mapping product segmentation to customer behavior, gathering customer intelligence for predictive analytics, and deploying visualization tools for better decision-making.

Building consumer loyalty is a huge topic that I can't do justice to in one First Look, but hopefully this will whet your appetite for much more to come. Keep your eyes out for upcoming retail loyalty research. And as always, please email me at sharynleaver@forrester.com with your suggestions for future research topics

With kind regards,


Sharyn Leaver
Vice President, Research Director
Consumer Markets

Research Referenced In This Issue BJ's, Costco, And Sam's Club Win Loyalty With Price (33810) Retailers That Win Consumer Loyalty (34647) Symbiotic Loyalty (34253) Trends 2005: Data Integration (35460) Trends 2005: Predictive Analytics (35434)

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