The three dimensions of customer loyalty

cubes by Brian Yap FlickrAs performance marketers have known for decades, loyalty marketing, the act of increasing customer value by focusing efforts on your existing customers, can be a powerful driver of company growth. Research conducted by Bain & Co has shown that retailers with a loyalty programme are 88% more profitable, on average, than competitors without one.

However there is also evidence to suggest that, whilst loyalty marketing represents a massive opportunity, few companies are actually realising it. Forrester research shows that nearly two thirds of loyalty progammes for retailers are ineffective, and Aberdeen Group research shows that 74% of retailers report ‘partial to no tangible improvements’ from their loyalty programmes.

So what does this tell us? Is time up for loyalty marketing? Should marketers be focusing their attentions on other types of marketing? The answer is far from it – it seems that companies aren’t making the most of the potential because of poor execution.

In actual fact, the proliferation of new technology and shifting consumer behaviour means marketers have more tools at their disposal than ever before to execute powerful customer loyalty programmes. The result is that they are able now to drive previously untapped value and volume from their customer base across multiple dimensions.

1) Volume as a concept is no longer restricted to the number of products a customer has bought (i.e. their transactional volume) but also the number of product improvements they’ve suggested, the product reviews they’ve posted and the product recommendations they make.

2) Value as a concept is no longer restricted to the transactional value a customer has but also the value they have in influencing people within their networks to purchase your products and the value they have in improving the product and customer experience.

The different types of customer value that marketers can unlock all add up to, what we at OgilvyOne call, ‘total customer value’. And to unlock total customer value marketers need to view loyalty as 3D because it now has three dimensions:

Transactional loyalty – a customer demonstrates transactional loyalty if they buy your product and keep buying your product (and others in your product range) over time.

Social loyalty – a customer is socially loyal if they’re willing to advocate your product to their networks, either on or offline.

Collaborative loyalty – a customer is collaboratively loyal if they’re willing to invest time and effort in improving your product or experience.

By segmenting your customers against the three dimensions of loyalty, brands are able to create a customer loyalty map for the 21st century, one that plots clusters of individuals on a 3D map where the axes are transactional, social and collaborative loyalty. And plotting customers on the map gives different strategies as to how to unlock their value. For instance, we’d treat someone with high transactional value and low advocacy value very differently to someone with low transactional value and high advocacy value.

So which brands are already starting to harness the power of 3D marketing? There are a few notable examples:

1) Mobile network GiffGaff has actually built a business based on the advocacy and collaboration value of its customers. The model developed rewards active community members for running parts of the business including answering questions in the community, attracting new members or helping to promote GiffGaff.

2) Brands as diverse as KFC, Estonian Air, Neutrogena and Nestle in Thailand have all created social loyalty programmes where they reward a customer’s social behaviour with points that can be redeemed for products.

3) Starbucks MyIdea is a popular example of a brand trying to harness collaborative loyalty in order to improve its customer experience, one such crowd-sourced innovation being wifi availability in coffee shops.

So there we have it. Marketing is going 3D. Will you don your 3D glasses? Why not give it a try. You might see the world of marketing in a completely different light.

Matt Holt is associate director, digital strategy at OgilvyOne London