The economics of customer loyalty.

We instinctively get it. Loyal customers know our brand, and buy it. They're much more likely to come back again, increase their spend, and recommend us to their friends and family. And they're more cost effective to serve.

(Maximizing The Benefit From Customer Loyalty...)

However, there is a school of thought that loyalty is overrated. Customers don't want relationships with brands, and are only active in a minority of the programs they have enrolled in. Instead, brands should focus their effort on providing utility, and attracting light users.

This is surely going against the tide. Driven by the forces of disruption, loyalty is becoming more valuable than ever, in three core ways.

The rising value of retention...

In market after market, enabled by technology, the barriers to entry are coming down, giving customers far more choice.

Take banking, for example. Not long ago, I used to have all my accounts at one bank, not because I felt particularly loyal, but because it was so difficult to change.

Yet today, the internet has opened up many more choices. There are internet only as well physical banks. There are services that make it easy to move your account, or move money around. And there are non-traditional players, such as brokerages or retailers, also offering banking services. 

In such a world, a retained customer is even more valuable.

The rising value of word of mouth...

The rise of social media has also put a premium on the value of word of mouth.

As the reach of traditional forms of advertising wanes, brands today need enthusiastic customers to promote them to their friends, through their own social networks, and through positive reviews.

Apple or Zappos are obvious examples, but look at how Trader Joe's ended up with a strong presence on Facebook, entirely driven by their own customers setting up fan pages.

And with social media also enabling more potent consumer activism (e.g. Apple's Maps or the beef industry's "pink slime"), loyal customers can also protect a brand's reputation, by jumping to it's defence.

I experienced this first hand at fresh&easy. When negative articles were placed on newspaper sites, a storm of comments would soon follow from our customers, nearly all extolling fresh&easy's virtues.

The rising value of data access...

Big data, of course, is technology's latest poster child. Combined with advanced analytics, it offers the promise of marketing nirvana, where marketing can be truly personalized, improving a customer's experience, and eliminating waste.

This requires access to personal data. And yet at the same time, technology is giving customers the ability to manage who they share their data with, and who they want to hear from.

(Why Collaborating With Customers Is The Future Of Marketing Optimization...)

Such access will become increasingly valuable, a source of competitive advantage, and a privilege to be earned. And similar to retention and word of mouth, loyal customers will be much more likely to grant it.

Of course, earning such loyalty should not be equated with introducing a loyalty program. As Bryan Pearson recently pointed out, while the number of customers enrolled in programs has boomed in recent years, the number active is indeed in the minority.

Instead, in today's disrupted world, earning loyalty requires a company-wide commitment. It goes right to the heart of what a brand stands for, the value it offers, and how it behaves. Rather than targeting customers, it demands a mindset of collaborating with them.

(A simple, but powerful approach to creating Loyal Brands...)

With the forces of disruption only likely to intensify, it's surely an commitment that's wise to make...