In a recent article in the Harvard Business Review, the title says that “Customer Loyalty Is Overrated.”
“The death of sustainable competitive advantage has been greatly exaggerated,” the article asserts. “Competitive advantage is as sustainable as it has always been. What is different today is that in a world of infinite communication and innovation, many strategists seem convinced that sustainability can be delivered only by constantly making a company’s value proposition the conscious consumer’s rational or emotional first choice. They have forgotten, or they never understood, the dominance of the subconscious mind in decision making. For fast thinkers, products and services that are easy to access and that reinforce comfortable buying habits will over time trump innovative but unfamiliar alternatives that may be harder to find and require forming new habits.”
What’s more, the article states: “Beware of falling into the trap of constantly updating your value proposition and branding. And any company, whether it is a large established player, a niche player, or a new entrant, can sustain the initial advantage provided by a superior value proposition by understanding and following the four rules of cumulative advantage.”
According to the article, the four rules of Cumulative Advantage are:
Become Popular Early
Design for habit
Keep Communication Simple
Innovate Inside the Brand
But changes in technology or other features should ideally be introduced in a manner that allows the new version of a product or service to retain the cumulative advantage of the old.
Clay Walton-House, practice leader – customer retention & loyalty, Lenati, offered Loyalty360 his opinions of the article.
“The authors compare companies with hugely different value propositions and business models; pointing to Tide and Southwest Airlines in the same sweeping statement belies the vast differences in how consumers engage with those respective brands, and the psychology of how customers choose where to spend their money,” Walton-House explained.
CPG brands often compete on simple value propositions related to product quality, Walton-House added.
“They win and lose solely based on differentiation of product, price, and how it’s messaged,” he said. “Other industries like airlines, financial services, telecom, or hospitality, for example, have a slew of other factors and complexities to consider in the end-to-end customer experience. These factors contribute largely to how consumers perceive a brand and whether loyalty is generated. For example, as a business traveler, I may love American Airlines’ up-to-date planes, the brand and message they send, and the benefits offered via their mileage program—but if they lose my baggage a couple times and cancel flights due to poor scheduling, well they are out of luck—my money is going elsewhere. These are complexities in managing a complicated customer experience that Tide does not have to worry about.”
The core thesis of the authors’ argument is that loyalty is driven as much by making a consumer’s choice easy, as it is by making that choice a perfect match for their needs, Walton-House noted.
“The core of this argument is a truism in today’s consumer economy due to the scarcity of time in the average consumer’s life,” he explained. “The modern paradigms for customer experience are ease, simplicity, and speed—without these, there is what we often call an engagement tax on consumers, which detracts from their satisfaction in the relationship with the brand.”
The reality, Walton-House said, is that loyalty is an outcome of a very complicated set of consumer psychological processes that determine choice—the choice to continue engaging with a brand or to turn to another.
“This choice is driven both by easing the choice itself for consumers, as the authors argue, but also by continuing to stay ahead of what consumers need,” he said. “The answer is not one or the other, but both—as is often the case with complicated consumer psychology: there is a network of factors that contribute to decision making, whether conscious or not.”
Walton-House said that the exemplary brands the authors hold up in this article (Google, Facebook, and Amazon) are examples of exactly that—they have aggressively invested in both making it easy for consumers to continue choosing them, while developing new experiences, tools, and services that meet known and unknown needs of the customers they seek to make loyal.
“So is customer loyalty overrated, as the name of the article implies?” Walton-House posed. “Not so long as companies still seek to retain and monetize consumers. Until that corporate objective fades away (hint: it never will), solving for the complete set of consumers’ behavioral drivers—both their needs and ease of decision-making—will be the evolving game brands play.”
Chirpify CEO Chris Teso told Loyalty360 that the authors of the article focus on two important themes: Making it easy to do business with a brand and reaping the rewards of brand frequency.
“These themes are not inconsistent with building and maintaining loyalty,” Teso said. “Indeed, they should serve as foundations when extending loyalty efforts to new areas such as mobile, social media, and bots, for example.”