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Total Customer Value Trumps Simple Loyalty In Digital World

by Samuel Greengard
Contributing Writer
CMO.com

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Article Highlights:

  • The concept of measuring loyalty and total customer value requires fundamentally different thinking--and techniques.
  • It is critical to identify influencers, brand advocates, and extremely loyal customers in order to incorporate them into a digital marketing model.
  • The most successful brands develop a unique identity and culture while stepping outside the bounds of predictability and risk avoidance.

Customers are not equal: Throughout the long history of business and marketing, that has been accepted wisdom. Some buy more products than others. Some spend more money than others. Some are more loyal than others.

However, in the predigital past, assessing customer value typically revolved around some combination of financial and transactional metrics. "A lot of organizations still focus on frequent buyers rather than the total value of the relationship," noted Kurt Carlson, professor of marketing at the McDonough School of Business at Georgetown University and co-author of the book "Contemporary Brand Management."  

But now, thanks to new technologies, measurement tools, and real-world thinking, the way CMOs and other business executives assess customer value and loyalty is undergoing a fundamental change. Instead of focusing on repeat purchase behavior and how much money a customer spends in a given year, some organizations are attempting to understand who is fiercely loyal, who influences others, and, in the end, who is responsible for building a more prestigious brand.

"It's about taking the concept of customer lifetime value to a new level and understanding customer engagement in a different way," Carlson explained in an interview with CMO.com.

CMOs should take heed and begin thinking about the concept of total customer value. It's critical to understand customer touch points holistically and put the right tools and measurement techniques in place to measure key factors. However, the challenges are formidable, said Scott Clarke, head of digital customer experience at Capgemini Consulting.

"In the digital age, there is a plethora of issues to address," he told CMO.com. "Customers are becoming more fragmented and demanding. The way they interact with companies is changing. Businesses and marketing executives need to fundamentally rethink the way they approach customer relationships."

Dollars And Sense
The role of the CMO has always been to dial up customer loyalty. After all, when a customer identifies with a company or brand, he or she is far more likely to buy its products and serve as an evangelist. Research shows that the same person is likely to overlook minor flaws or problems with a brand they identify with--while revoking the free pass for other products or companies they are less enamored with.

Carlson pointed out that over the past couple of decades, most companies and CMOs have honed in on the concept of customer life time value. "The goal is to acquire customers that provide a long and large stream of profits. This means keeping acquisition costs down, retention high, margins at an optimal level and reducing churn. Businesses are looking to upsell, cross-sell, and understand where a customer fits into the lifetime value equation," he explained. But all of that is only part of the overall picture. "There's a need to expand the concept to understand customer engagement and what it means to be fiercely loyal," Carlson added.

To be sure, loyalty is far more than a customer buying the same product or brand over and over again. In reality, Carlson said, two different scenarios exist: customers who buy a brand repeatedly because they believe there is no better alternative and they are stuck with the product or service, and those who identify with the brand and buy the company's products eagerly--even when viable alternatives exist. In fact, the latter group tends to overlook lower-priced competitors. These fiercely loyal individuals frequently serve as brand advocates--even ambassadors or so-called superfans. A handful of companies, such as Apple, Sam Adams, Ben & Jerry's, Patagonia, and Costco, have clearly mastered the concept.

Yet, remarkably, the most valuable brand advocate may not be a customer. "Today through social media, online discussion boards, and elsewhere, we see thought leaders and influencers that play an entirely different role in the business and buying continuum," Clarke explained. "They may never actually buy a product--or they may own only a single product, such as a BMW or Audi--during their entire lifetime. But they are extremely knowledgeable about the product and promote the brand. We now see people on message boards and support boards that are champions of a product. In many cases, they play a key role in marketing and customer service."

When Carlson and a colleague, Ishani Banerji, associate research director at the Georgetown Institute for Consumer Research, examined customer thinking at a more granular level, they found that individuals think about brands in one of two basic ways. The first category--Frequently Bought (FB)--refers to brands that consumers habitually purchase. The second group--Extremely Loyal (EL)--refers to brands that consumers feel a great deal of loyalty toward. The researchers then asked participants to rate a favorite brand against another brand by these two categories, using various positive (happy, love, excited) and negative emotions (disgusted, irritated, hate).

But Carlson and Banerji didn't stop there. They also asked participants to rate the extent to which they believed various statements about the brand (“This brand has unique features not present in other brands”) and their attitude toward the brand (“I like the personality of this brand”). The result? Participants in the EL group showed a big split in their positive and negative emotion levels. While they reported high levels of positive emotions for their brands, they also showed high levels of negative emotions for the main competitor. In contrast, the FB group lacked strong emotions about their brands and the competing brand. They also didn't identify with belief and attitude statements surrounding brands.

For CMOs, gaining insight into loyalty is relatively straightforward. Said Banerji: "A very simple, quick, and easy way to figure out how to help identify which customers are fiercely loyal is to ask them two basic questions: How likely are you to recommend our brand, and how likely are you to recommend the competitor's brand?"

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Building A Better Marketing Model
Obviously, the concept of measuring loyalty and total customer value requires fundamentally different thinking--and techniques. According to Matthew Rhoden, a partner in the Telecom and Media Practice Group at Peppers & Rogers Group, business executives must move past isolated metrics, such as customer satisfaction. In a 2011 Harvard Business Review blog post, he referred to that as a lagging indicator. "You can’t build a forward-thinking strategy based on historical data. Instead, companies need to take satisfaction to the next level and create advocates," he explained.

Among other things, Rhoden suggested that marketers create an environment where customer advocates can support, promote, and attach to a brand. Consistent and coordinated messaging and interactions across channels are a key component. The goal, he said, is to ensure that customers are satisfied at every interaction point. In some cases, this may mean going above and beyond customer expectations through offers, incentives, and rewards--or simply going the extra mile to solve problems.

Georgetown’s Banerji said it is critical to identify influencers, brand advocates, and extremely loyal customers in order to incorporate them into a digital marketing model. "If you rely too heavily on easy-to-observe behavior--such as buying frequency--you may be doing some of your best brand advocates a disservice," she warned.

Meanwhile, Carlson cautioned against building a framework of rewards that's too general and untargeted. While best customers should enjoy perks and rewards, "You don't have to spend a lot of effort retaining top brand advocates because you already have them," he explained. "They love you and they hate the competition. They really don't think there's a viable substitute to your brand,"

Instead, it's wise to focus marketing efforts on the group that isn't in the Extremely Loyal category--and look for ways to bring them into this camp. Typically, this means identifying brand advocates through social media and customer support boards; inviting them into a community and allowing them to interact more closely with the company--by receiving unique offers or early announcements about products; understanding what makes them tick and what they like; and, ultimately, finding ways to make them part of the brand mechanism, whether it's posting on social media, participating in customer support forums, or engaging in other activities.

Carlson said that the most successful companies and brands display a few key qualities: they develop a unique identity and culture while stepping outside the bounds of predictability and risk avoidance. "Many of these companies create their own platform and personality," he told CMO.com. "In order to stand out and develop fierce loyalty, you cannot ultimately be everything to everybody. You have to be willing to leave some potential customers behind."

Likewise, success doesn't stem from trying to grab unlimited market share; it results from gaining maximum mindshare with a highly engaged group of customers and evangelists.

Michael Maoz, a vice president for CRM Research at Gartner, told CMO.com he believes that empowering customers also means providing them with the tools to solve problems and even create new products through crowdsourcing and other techniques. For example, Unilever's Axe body brand has cultivated the thoughts, ideas, and preferences of influential young men--and used them to shape products--by creating private and closed online communities and even taking field trips and shopping expeditions. There's no reason that companies can't make greater use of these techniques to define and refine everything from product development to customer service, he noted. "There are now powerful ways to interact with customers," Maoz said.

In order to fully tap into this evolving digital environment, Clarke said that CMOs must work with other business leaders and other departments to fully integrate customer data. This often requires a deeper use of analytics and a more creative approach to marketing.

"It's important to take a 360-degree view of customers and understand where they are at in the marketing and buying continuum, " he said. "It's important to think about every interaction and how it creates an opportunity to better educate, inform, and involve a customer in the business and the brand. When customers feel empowered and involved--and when they closely identify with a brand--they are likely to display a high level of loyalty."

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