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Customer Loyalty Measurement Framework

Customer Loyalty is Alive and Well

I read an article last week on Forbes, Customer Loyalty Is Dead. Long Live Engagement, by Curtis Bingham. He argues that companies need to use customer engagement metrics instead of using customer loyalty metrics. He, however, confuses the meaning of customer loyalty with the measurement of customer loyalty.

While he correctly claims that most companies measure customer loyalty via self-reported likelihood ratings (e.g., likelihood to recommend, likelihood to buy again), he jumps to the wrong conclusion that customer loyalty is the same as self-reported ratings. It is not.

Customer Loyalty Measurement Framework

Figure 1. Customer Loyalty Measurement Framework: You can measure emotional (e.g., advocacy) and behavioral loyalty (e.g., retention and purchasing) using different measurement approaches (e.g., subjective and objective).

Customer loyalty is the degree to which customers experience positive feelings for and exhibit positive behaviors toward a company/brand. That is, there is an emotional component to loyalty as well as a behavioral component to loyalty. Furthermore, each of these types of loyalty can be measured using either self-reported ratings or objective metrics. I presented a Customer Loyalty Measurement Framework (see Figure 1) that distinguishes between customer loyalty types and the measurement approaches.

Also, his measures of customer engagement are simply measures of customer loyalty. Specifically, while his definition of customer engagement is fairly straightforward (customer engagement is the extent of a customer’s willingness to invest his or her discretionary time with a company for mutual benefit.), his purported measures of engagement include "providing referrals, serving as references, participating in product and strategy advisory boards, speaking at conferences on behalf of the company, and advocating company products". Those do not measure customer engagement as he defined it. They are simply measures of customer loyalty (i.e., positive behaviors toward a company).

Summary

Customer loyalty is alive and well. I have yet to see a coherent framework for the definition and measurement of customer engagement that distinguishes it from customer loyalty. I found the same trouble with the concept of employee engagement. People are simply relabeling an old construct (employee satisfaction) with a new name (employee engagement).

I do believe that companies need to consider using objective measures of customer loyalty when they are available. While self-reported measures of customer loyalty are related to objective metrics, companies are still interested in real behaviors on behalf of the customers (recommend, buy more, remain as a customer) that contribute to business growth (new customers, increase in average revenue per customer and increase customer tenure). The Customer Loyalty Measurement Framework can help companies select the right customer loyalty metrics for their particular needs.

 

6 Responses to Customer Loyalty is Alive and Well

  1. James Ray September 18, 2014 at 3:34 am #

    So many company/brands are wholly missing the opportunity to measure customer engagement promote loyalty via mobile apps. The poor state of data capture and lack of analytics on mobile device usage reminds me of the early to mid-90's on the web browser.

Trackbacks/Pingbacks

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