2.1.2. Measurements of loyalty

To understand customer loyalty one must recognize there are different types and degrees of loyalty.  There is monogamous and polygamous loyalty. There are also behavioral and attitudinal aspects.  A look at these concepts will clarify what “customer loyalty” really is, and this is important because having a solid understanding of the concept is critical if one hopes to design a reward program where loyalty enhancement is the primary objective.

Monogamous vs. Polygamous Loyalty. We live in a world of polygamous, not monogamous loyalty.  For example, a person might shop at Safeway, Thrifty Foods and Save-on-Foods and unfailingly shop at all three.  The person is then loyal to them, but not to others, and yet 100% loyal to none.  In their book Loyalty Myths, Keiningham et al. (2005) suggest, «loyalty can in part be thought of as the probability a customer will purchase a brand on any particular purchase occasion.  For example, a customer may tend to purchase Brand A 70 percent of the time, Brand B 20 percent, and Brand C 10 percent of the time».  The point here is that, in the real world, 100% loyal customers are rare.  In the majority of cases, attempting to make customers completely loyal is unrealistic.  A more realistic goal for businesses is to make customers as loyal as possible – to maximize customer share of wallet, frequency of purchase and overall profitability.  The objective of businesses, and therefore loyalty programs as well, should be to make the organization’s share of customer loyalty as high as possible.

According to Dowling and Uncles (1997) from Australia, ««polygamous loyalty» is a better description of actual consumer behavior than either brand switching (a conscious once-and-for-all change of allegiance to another brand) … or promiscuity (the butterfly tendency to flit from brand to brand without any fixed allegiance).»

Behavioral and Attitudinal Loyalty. In the past, many scholars defined loyalty in behavioral terms.  If a person made most purchases in a given product category from one supplier, regardless of the reason, the person was defined as loyal.  As Kumar and Shah from the University of Connecticut’s School of Business (2004) point out, «a majority of existing loyalty programs follow these measures to reward behavioral loyalty.  That is, the more you spend with the company, the more rewards you earn».

A second element of loyalty is attitudinal loyalty.  Like behavioral loyalty, attitudinal definitions have existed for a long time.  This second element of loyalty focuses on how strong the psychological commitment or attachment is to the brand.  By itself, it too has limitations.  For example, how loyal are people who rave about a product and promote it to their friends, but then for whatever reason fail to buy it regularly themselves?

In the opinion of many scholars, as a minimum, an adequate definition of customer loyalty includes the history of actions plus feelings and intentions toward the brand or commercial relationship.  Loyalty action and talk (i.e., promotion to others) are both valuable to businesses, but in different ways.

A person who shops at the same place regularly is “behaviorally” loyal, while a person who tells others how great a product is, or simply feels really positive about the brand him or herself internally, is «attitudinally» loyal.  Yes, in many cases a person can be one without the other; in fact, very frequently this is the case.  Some people grudgingly shop at a place because they have no other choice, or where the costs of shopping elsewhere just are not worth the effort.  In other cases, a person might love a particular business and rave about it to all their friends, but then rarely shop there themselves (like if they can’t afford it, or it’s too inconvenient).

Behavioral loyalty is critically important for a business because it means customers are buying, and without buying there are no revenues.  However, unhappy customers can be easily enticed to shop elsewhere, either by existing or future competitors, and they can deter other potential customers through negative word of mouth.

Attitudinally loyal customers on the other hand are great for businesses because they add strength to already positive brands, and their word of mouth promotions can be invaluable in attracting other customers. If the attitudinally loyal customer is not behaviorally loyal too, however, meaning that they do not put their money where their mouth is so to speak, then even though that customer has promotional value, he or she contributes very little or no direct revenues to the business. A business with lots of people who like the brand but never spend money will not be in business for very long.

Why might a person rank high in attitudinal loyalty but not behavioral?  There are many reasons.  A person might like designer brand clothing, for example, and tell their friends how great the brand is, but then have to settle for no-name brands or clothing from Walmart because of the cost and money constraints.  Similarly, many people would love to drive hybrids and eat nothing but organic produce, but not everyone can afford to do so.

Another common example of attitudinal vs. behavioral loyalties involves credit unions.  Everybody (or at least many people) feel very loyal and proud to “bank” with their local credit union.  Credit Unions are great; they are ethical, they are democratic and they are just all round great institutions, so lots of people feel good about using them.  Many people are consequently both attitudinally and behaviorally loyal to their credit union.  However, very often, when it comes to investing their «real money» and making «real investments», many credit union users tend to park their more serious investments with the major banks or other kinds of investment firms.  Many credit union users also love their credit union debit and credit cards (especially the no-fee kind), but then make their purchases using their CIBC Aerogold, or TD Infinite, or MBNA or Capital One credit cards because of the value of the rewards.

The challenge for all kinds of businesses – whether they be credit unions, local grocers or multi-national megastores – is to make their existing and potential customers as both attitudinally and behaviorally loyal as possible, make unhappy customers more happy, and make loyal but low- (or no-) spending happy customers spend more.

How do they do this?  They need to implement a solid customer loyalty strategy, of which a reward program can be a part.  However, they also need to identify their ideal customer, recognize they can’t be all things to all people, and acknowledge the fact that nobody can (or should) try to make everyone happy.