The Fascinating World of Loyalty
Yuping Liu-Thompkins
Brand and customer loyalty are key to business survival and health. Harvard Business Review calls this "The Loyalty Economy" and argues that building, managing, and accounting for customer value should be central to a firm's strategic and financial management. A big part of my research has focused on this loyalty concept. I have been studying the underlying reasons behind loyalty and how marketing tools can be leveraged to build loyalty. This research can be divided into two main areas: what factors drive loyalty and loyalty program management.
In practice, the "best" customers are typically defined as ones who repeatedly buy a company's products. Why do they repurchase? One obvious reason is that they truly love the product or the brand. This is typically called attitudinal loyalty. However as consumers, we all know that the brands and products we truly love or even like are far and few in between. Why else then do people repeatedly buy the same thing? One of the answers is that they do it out of habit. That is, people try something, it worked OK, and they just settled into a routine of getting that same thing.
Does it matter to a company if the consumer truly loves the product or just buys out of habit? The findings from my research suggest that the answer is yes. In a paper published in the Journal of Marketing, my coauthor and I ran a field experiment with a retailer to see how attitudinally loyal versus habitual customers respond to the same cross-selling marketing message. We found that when the message ignores the consumers' reason for repurchase, it not only did not encourage consumers to buy the new category, but it actually broke some people's habit in the original product category, and they stopped buying altogether. That shows the danger of lumping together habitual customers and truly loyal customers. Currently, I am extending that line of research to look at how businesses can distinguish between attitudinally loyal versus habitual customers, how loyalty and habit work hand-in-hand, and how marketing instruments can affect the development of habit. This is being done with customer data from both a car rental company and from BonusCard, a reward credit card based in Switzerland.
Loyalty programs, like the BonusCard, reward consumers' encourage repeat purchases with free products, preferential treatments, and other benefits. These reward programs are an important marketing tool. My research in this area tries to understand the impact of these programs and how they can be better leveraged to increase customer value. One key business benefit of loyalty programs is their ability to capture customer data and facilitate targeted marketing efforts. Some of my research in this area has focused on how to leverage that data to motivate consumers in such programs. For example, in one of my ongoing projects, my coauthors and I studied how companies can customize progress feedback messages (i.e., messages telling consumers where they are in the program) to achieve optimal effects. Through collaboration with a German retailer and with Copa Airlines, we find that progress feedback messages can change the way people assess their progress in the program, yielding sometimes positive and sometimes negative effects. Our research answers when progress feedback can produce positive effects and how it should be framed according to each consumer's situation. In another project collaborating with a former doctoral student at ODU, we looked at how email communication in a loyalty program should be best customized based on the consumers' program balance and tier status. These projects are meant to break the mode of loyalty programs as simply a reward mechanism. They can empower businesses to better utilize these often expensive programs to successfully generate repeat sales.
Despite being a subject of much research in marketing, loyalty remains an elusive concept. Much more research is needed to help us understand how loyalty works and how companies can earn consumers' loyalty. I hope my own research and future work through the new Loyalty Science Lab I helped found will provide some answers to these questions.
