The Downside of Measuring Loyalty
Over the last decade satisfaction research has shifted strongly towards loyalty research. This shift has been driven, in part, by widespread interest in Net Promoter Scores (NPS) as a way to benchmark against other companies and link the customer experience more directly to financial outcomes. But it turns out that focusing so much on loyalty may be taking us down the wrong path, according to a recent study published by the Marketing Science Institute.
The researchers, a team of professors and doctoral students at the Universities of Washington and Oregon, analyzed findings from over one hundred published studies examining the impact of loyalty on performance outcomes. They found a decidedly mixed bag because marketing and strategy teams end up defining, measuring, and operationalizing loyalty in many different ways. They summarize as follows:
The effectiveness of strategies for building and profiting from customer loyalty varies depending on how loyalty is conceptualized and measured. For instance, value-based strategies are very effective at building behavioral loyalty (r = .67), but ineffective at building attitudinal loyalty (r = .05). Furthermore, true loyalty, which reflects the alignment of attitudes and behaviors, has the strongest effect on performance (r = .59) and is best built through customer satisfaction (r = .70) but not loyalty incentives (r = .37) such as reward points.
Their conclusion? “The $48 billion spent annually on loyalty rewards programs may be better allocated to initiatives that enhance satisfaction, since satisfaction is the foundation of true loyalty.”
So, to our marketing colleagues we say: It is not enough to have customers coming back to you again and again, if the only reason they come back is to get their rewards. And to our research colleagues we say: Keep your research eye on satisfaction over loyalty because without it you may not be helping the bottom line.