The art & the science of building customer loyalty & lifetime value

There’s a direct path to an incredibly loyal customer base. You can have the luck and the vision orangutan highway to heavenof Anita Roddick. In 1976 Ms Roddick opened the first Body Shop.  She needed income for her and her two daughters while her husband was in South America.  She did not have much besides a wealth of experiences from her travels across the world.  Her location between two funeral parlors was not ideal for a store specializing in revitalizing body lotions. However, from these humble beginnings she grew her business to 1,980 stores by 2004.  She did this by building an intensely loyal customer base.

Ms Roddick’s methods for building customer loyalty were rather simple and unintentional. Early on her store developed a reputation for recycling though the truth was they could not afford to buy more bottles. Still she embraced the ethical stance. By the late nineties “The Body Shop” was the first chain that refused to conduct the testing of their products on animals.  Furthermore, she refused to let her stores advertise the Body Shop products using models.  According to Ms. Roddick “There are 3 billion women in the world who don’t look like supermodels and only 8 that do.”  Her clients were women, like herself, who used the creams as a means to reduce the stress of everyday life.  These three factors, environmental awareness, kindness to animals, and attention to average working women provided her with specific customers who identified with her values and showed this by buying her products.

Apple’s former CEO Steve Jobs is another case in point. Mr Jobs was famous for refusing to recognize the importance of customer loyalty.  In his mind a firm earned it by designing the good products. According to Mr. Jobs “Every good product I’ve ever seen is because a group of people cared deeply about making something wonderful that they and their friends wanted. They wanted to use it themselves.

According to Jochen Wirtz, Associate Professor of Marketing with the NUS Business School, National University of Singapore, Apple customers show absolute loyalty to Apple products and even dislike competing products. The Apple fans identify with its trendy brand and love what they perceive as integrated and smart solutions, sleek design and excellent product quality. These customers seem to increasingly live in an “Apple-world”, where they tightly integrate the use of several Apple products (such as their MacBook, iPod, iPhone and iPad).  Mr. Jobs pursued his line of reasoning to the extreme without caring for the cost of the product development or the risk of alienating his customer base.  He could do this because he had learned that his customers were people who were willing to pay a little more for better quality, better looks, and better functionality.  His customers rewarded him by delivering Apple the title of the most valuable company in the world.

Without loyalty your customer base is easy pickings for the competition

These were two examples of companies in different industries that built customer loyalty organically. The founders successfully communicated their values through their products and created emotional relationships with their customers. That said, Ms Roddick and Mr Jobs were one in a million. Most of us would be challenged to duplicate their achievements.

It is easy to fall victim to competing on price as illustrated by this case study for a brand like Coach.  In this article for the Financial Times, the handbag manufacturer is described having had a loss for same store sales last year because of the arrival of brands like Michael Kors and Tory Burch. These new rivals offered the same quality products for the same price but in a wider variety of styles.  These rivals specifically targeted traditional Coach customers… and won them over. The mistake Coach made was in failing to build emotional hooks with its customers.

The learning out of Coach’s experience is that having customer loyalty is like having a moat. It may seem unnecessary in the best of times, but it is the easiest way to fend off competition. Additionally, a company does not need other-world leadership such as Ms Roddick or Mr Jobs. The path to loyalty isn’t as much art as science with marketing intelligence.

Which customers to attract? How to attract them? How to retain their interest?

As the phrase suggests, marketing intelligence is all about building knowledge on one’s customers by understanding what they buy, when, in response to which events and in which sequence. This knowledge is processed to create a roadmap for the customer or customer type(s) and used to help her navigate to the products with best appeal to her. [See chartbelow representing the path of a customer over her relationship lifetime].

 

Lifetime value migration pathNot only does this method chart the path for moving the casual infrequent customer to a frequent shopper, through location analytics it is possible to communicate the offers via channels that offer line of sight visibility to the customer.

Retailers who use these techniques will have the means to distinguish themselves away from price and their competitors to succeed in an increasingly competitive market place. The state-flow diagram below shows the sequence of campaigns that nurtures customers into achieving the next level in the value tier. Retailers who do not use these techniques will see their customer relationships wither and fall away like what happened at Coach. Don’t let this happen with your business.

Lifetime value management process flow

 

One of the foundational elements of marketing intelligence is a measure for life-time (or long-term) value a.k.a. LTV. Download the worksheet below to see how LTV is calculated in practice for distinct product segments.

Download LTV WorksheetIf you liked this article please like us on Facebook or enter your email address in the form on the top right to receive periodic updates on marketing intelligence automation.

Orang Utan highway image by TimSackton used with permission under Creative Commons license.

Leave a Reply

Your email address will not be published. Required fields are marked *