Are Companies Overly Obsessed with Customer Loyalty?

I had an interesting conversation this morning with a customer who is currently in the process of reengineering the way in which it measures and processes customer feedback. Value-based metrics can be misleading, and it seems too often companies are making the mistake of misinterpreting or overvaluing, as this business discovered, customer loyalty and other related metrics.

What we measure as loyalty is not always real loyalty. And while there are countless studies that correlate loyalty and re-purchasing, wallet-share, increased value, etc., I think many businesses make the mistake of tracking two distinct metrics and establishing a nonexistent relationship between them.

Customer segmentation across different demographical, sociological, or behavioral buckets can often mislead analysts about the true correlation between customer loyalty and profitability. CRM has always been good at tracking and correlating transactional and behavioral information, but attitudinal data, which is what customer loyalty seeks to capture, is a very popular, but still very separate measurement that the industry is still figuring out how to add into the analytical mix.

When it comes down to it, I don’t believe there’s a concrete, proven method that can denote whether a specific customer will continue to do business with a company, at least not for the broad range of businesses out there. Segmenting your customer base, finding the key metrics for each, and co-relating those based on historical actions…with customer loyalty acting as a sort of third-party opinion…seems the best route to go.

3 thoughts on “Are Companies Overly Obsessed with Customer Loyalty?

  1. Dear Colin,

    We at the Brookeside Group have spent 10+ years studying this, and have developed a process by which we can predict with 88% certaintly, which clients will leave. Our process is generally most effective in situations that are b2b, and where the clients have something vested in the relationship. What we are actually measuring is the clients will to further develop the relationship. The results of our survey are put through an algorithm we have developed, and the outcome is provided.
    Initially, each client is given a number score, and place in 4 buckets, Level -1 through Level 3. Level 3 clients are highly motivated to continue to maintain the relationship, continue to buy, and open to cross-selling and up-selling opportunities. Level -1 clients are looking to replace you as their vendor, and will do so with 88% likelihood within 6 months.

    I know I have probably overwhelmed you with my response. Please feel free to contact me at 978-266-9876 ext 231 if you would like to speak about this in greater detail.
    If you are attending CRMevolution in New York, our founder, Tom Cates is speaking and we would relish the opportunity to speak there as well.

    Thank you.
    Regards,

    Bill Glencross
    VP of Sales and Marketing
    Brookeside Group

  2. Colin,
    Interesting points you bring up here. As somebody who has over 10 years managing call centers and other CRM-related initiatives, I would agree and disagree.

    First, companies can certainly make the mistake of “establishing nonexistent relationships” between loyalty metrics and profitability figures. It’s a common mistake made all the time, and is usually the result of misunderstanding your customer base in relation to a company’s business model, services, and or products. Companies start measuring and looking at the wrong metrics at the wrong time. Analytic software packages can do a great job correlating these different data sets, but it’s never as easy as vendors make it sound, and more importantly, the software is only as good as the statition/analyst working it.

    But on the flip side, it’s important not to overlook the value of customer loyalty. Measured accurately and used correctly, it can be an invaluable tool in measuring and even predicting actions across different segements of your customer base.

    The key is understanding which customer metrics are the most important to your business and across different segments. Obviously, they differ greatly from industry to industry and business model to business model. Once you have that solidified, leveraging analytics to crunch the numbers becomes the easy part.

    So as is usually the case with anything CRM related, it’s more about the people and less about the software.

    David Sublinsky
    Director, Customer Service

  3. I’m with David.

    The fact that a company is even gathering, much less analyzing customer loyalty metrics, can be a huge win for the company. Over time, these miscalculated metrics should be found out but let’s not get ahead of ourselves.

    Mark

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