Building Luxury Loyalty – Ditching the One-Size-Fits-All Strategy

I recently became Colloquy’s luxury retailing contributing editor.

As you may know, Colloquy is the go-to resource for loyalty intelligence with a publishing, education and research practice that brings together more than 50,000 loyalty practitioners from around the world. Colloquy is a division of Loyalty One.

Check out my first column by clicking on: Building Luxury Loyalty – Ditching the One-Size-Fits-All Strategy.


Inertial loyalty

True customer loyalty–as Bryan Pearson points out in his new book The Loyalty Leap–is a function of two dynamics: behavioral loyalty and emotional loyalty.

Behavioral loyalty relates to metrics like share of wallet, RFM score, duration as a customer and the like. Sometimes behaviorally loyal customers are very unlikely to switch. Other times, eh, not so much.

If you had the data you might conclude that I’m pretty loyal to my family doctor, my bank, my cell phone service provider and my most frequently used credit card because they all have a high share of my respective category spending and I’ve been with them a long time. But most of my perceived loyalty is, quite frankly, based upon inertia.

In fact, I have very little emotional loyalty to any of them; each meets my needs just well enough to retain me.  Because I’m busy, because I perceive it’s a big hassle to switch and because it’s not clear that my alternatives are demonstrably superior, I don’t make much effort to explore my options. Of course, if they were to take the time to collect Net Promoter Score (or similar) type data on me, they would realize that my business is fragile, they could understand precisely why that is the case and, most importantly, they could take action to build true loyalty (and perhaps build positive word of mouth while they were at it).

It’s not hard to imagine two potential scenarios that might effect a more immediate defection.

The first is that they screw up badly. When a brand builds emotional loyalty, they get the benefit of the doubt when the inevitable mistake occurs. My quartet of so-so providers won’t get the same pass.

The second is when a new alternative emerges that sufficiently tilts the value equation. Inertial loyalty is no longer tolerated when someone makes it easy and/or powerfully better to switch.

Blackberry looked pretty solid until the Iphone and Android came along.

Blockbuster had pretty compelling market share until NetFlix and Redbox emerged.

And so on.

If you are living off of inertial loyalty you might be in for a rude–and scarily fast–awakening.



The world’s best loyalty program

The world’s best loyalty program is no program at all.

If your value proposition is engineered to deliver a truly remarkable experience for your target consumers–and you’ve chosen to focus on segments that will allow you to make a profit–the result should be both behavioral and emotional loyalty.

Many of the world’s most powerful brands–Apple, Four Seasons, Louis Vuitton, just to name a few–have managed to thrive without such programs.

Let’s face it, most “loyalty” programs are some combination of ruses to collect customer data or serve as customer bribery schemes for the most promiscuous shoppers. Worse yet, many are simply me-too efforts that are knee jerk reactions to the competition which end up raising the cost of doing business without engendering true loyalty.

I understand that there are situations where loyalty programs have become competitive necessities. But before embarking on an expensive and complicated launch (or re-design) take a hard look at your underlying value proposition and customer strategy to make sure you are solving for the right problem.


Now you’re just someone that I used to know

Most senior executives will readily agree that it is expensive and difficult to acquire new customers.

Most will agree that it takes considerable time and investment to build deep insight, create trust and engender loyalty with a customer.

And most will agree that customer value is generally pretty well correlated with duration as a customer.

Most will therefore conceptually agree that retention of valuable customers should be a strategic priority.


So how come you can’t show me a report that details the % of sales and profits represented by customers that defected during the last 12 months?

So how come you don’t have any analysis of the drivers of defection, highlighting the addressable factors along with action plans to mitigate?

So how come your performance reviews and bonus plans don’t have any retention goals?

How is it that you can spend the shareholders’ money to create awareness, generate trial, promote repeat and progressively build a deeper, more personalized relationship and then just let them become someone you used to know?