With recent focus on loyalty rewards programs, it’s easy to see that repeat purchases are quickly becoming a key metric for many organizations. However, it might not always be an accurate measure of the health of your customer relationships.
Ask yourself: When a customer purchases from you on a repeat basis, does that really make them a loyal customer?
The answer is not necessarily!
Loyalty is more than just a behavior, it’s a preference for your brand above all others. While consistent purchasing is certainly an aspect, there is depth to the relationship beyond the transaction. Loyal customers are more likely to see the value in your products/services. They also tend to recommend you to friends and colleagues when the situation arises. Loyal customers also foresee purchasing from you again in the near future.
Why might a customer purchase from you consistently – exhibiting “loyalty-like” behaviors – without being loyal? Here are a few of the common reasons we see:
Think about what the mobile wireless space looked like 5-10 years ago. There were two major players – AT&T and Verizon. You were locked into long-term contracts. Most of the time, if you wanted to switch, you would pay a significant fee to break the contract. On top of that, the cost of switching increased when your cell phone number didn’t carry over.
It’s only recently that competitors have started offering to pay for their customers’ switching costs, offering short-term or pay-as-you-go contracts, and lowering plan prices in general. Phone numbers are now carried over more often, reducing that barrier as well.
This is changing the game for the mobile industry – now companies are struggling to offer more and more to keep up with the competition. For instance, Verizon finally caved to the pressure from Sprint and T-Mobile to offer unlimited data plans amidst low Q1 profits. AT&T acquired DirecTV and is acquiring Time Warner to out-sell the competition in multiple verticals with a bloated wireless product portfolio.
Rather than building loyalty to their brand 5-10 years ago, both AT&T and Verizon focused solely on new contracts and locking customers into renewing contracts. Now they’re scrambling.
On a more personal note, a family member recently related his experience with his home and auto insurance agent. He’s been with this agent for several years, but absolutely hates the guy. Beyond bad customer service, this agent has fallen through on a few issues over their time together. He even called up this relative the day his first child was born, quoting infant mortality rates and trying to sell a life insurance policy. As this relative says, “I hate this guy.”
But he continues to stay with the agent. Why? The perceived switching costs. The process to switch agents but stay within the insurance company family is long and tedious. Not to mention any potential rate increases. So they stay.
Loyal customers do not see you as a transaction, a contract, or a “necessary evil.” To build true loyalty, consider focusing on what matters to your customer base and execute well in those areas.