Conventional loyalty strategies fail because they are one-sided and ignore critical loyalty drivers, according to Forrester Research, Inc. (Nasdaq: FORR). To turn the tide, brands need to build consumer trust by making emotive connections, actively cultivating endorsements, and minimizing costs by knowing when, what, and where to invest in loyalty ¿ and when to end unprofitable relationships. This is a concept that Forrester terms symbiotic loyalty*. Earlier this week, Forrester officially launched its Big Idea study ¿Symbiotic Loyalty: The Next-Generation Consumer Loyalty Strategy¿ at its Consumer Marketing Forum Europe 2004 in London.
Hellen Omwando, Consumer Markets Analyst at Forrester Research, explains: ¿Most consumer-facing firms ¿ including those in the retail, CPG, telecom and media industries ¿ face a growing problem: declining customer loyalty. Consumers have become less loyal because: they believe that most competing products offer the same value and that price is more important than brand; they trust their peers more than they trust companies; and push marketing no longer resonates with them. To compound the problem, the Internet has made it very easy for consumers to compare product pricing and switch accordingly.¿
The Forrester report describes how consumers of today have become promiscuous; most keep multiple email accounts from different providers and carry loyalty cards from competing stores. They shop with abandon for items in one category from different retailers and maintain simultaneous relationships with different mobile operators to suit their purposes. Technology has only exacerbated this trend: Armed with a remote control and 30 TV channels, nobody has to watch a TV ad; with a PC and modem, no one need be short of information.
Omwando comments: ¿One of the issues here is that a customer¿s and a firm¿s perception of what constitutes loyalty are often not in sync. While customers tend to think `Why does this firm keep sending me irrelevant messages?¿, a firm is more likely to wonder `What else can this customer buy from us?¿ Firms acknowledge that they have a problem if they can’t keep loyal customers, because loyalty is the key to sustained profits. But the problem is that the conventional methods they use to keep customers tend to focus on how much they can squeeze from their customers ¿ or they rely on consumers who can’t be bothered to switch to other suppliers because of inertia.¿
To thrive in the face of declining customer loyalty, according to Forrester, companies need a strategy that meets the requirements of both parties. Most firms should seek to win truly loyal customers ¿ those who buy stick with particular firms or brands because of their emotional connections ¿ rather than customers who stick to brands just because it¿s convenient or because a brand is cheaper. Also, firms can only attract truly loyal customers if they have a win-win association with their customers. In its reports on Symbiotic Loyalty, Forrester describes how firms can do just this; it also ranks brands in terms of competition and emotive connections, demonstrating that symbiotic brands lead in revenue growth.
Symbiotic loyalty rests on three pillars. First, firms must develop emotive connections with their customers in order to build trust. Second, they must be sociable and actively encourage their customers to recommend their products and services ¿ emotively connected consumers are more likely to recommend products and services to their peers, and are therefore growth engines for companies/brands. Finally, firms must be dynamic enough to know when to make investments in loyalty or when to break off relationships with unprofitable customers.
So what can firms do to achieve symbiotic loyalty? Omwando concludes with a few of the recommendations that are elaborated on in the report: ¿Firms need to find out who their emotively driven customers are. Measuring repeat purchases is just not enough. They need to start measuring the return on loyalty (ROL), which quantifies the value that loyal customers generate and will tell them when to invest in these loyalists ¿ or when it¿s time to break up.¿
* Forrester defines Symbiotic Loyalty as a dynamic win-win association where brands engage consumers emotively and consumers reward them with increased wallet share and peer recommendations.