The concept

Companies often try to predict repeat purchases or loyalty on the basis of quality of service or customer satisfaction surveys. However, satisfied customers are not necessarily loyal customers. Some satisfied customers move away and some dissatisfied customers stay loyal for years, precisely because customer loyalty is only partly explained by customer satisfaction.

In order to predict future behaviour and thus to measure customer loyalty you need to determine commitment, which consists of a combination of satisfaction, the attractiveness of the alternatives and the involvement of customers.

Committed customers are loyal out of conviction and therefore valuable for companies because

• they generate significant turnover,
• they invest a high share of wallet,
• they are more tolerant,
• they remain customers for longer and
• they actively recommend the company.

Uncommitted customers are not loyal out of conviction and therefore less attractive for companies because

• they generate little turnover,
• they invest a low share of wallet,
• they tolerate fewer mistakes,
• they remain customers for less long and
• they take part in negative word-of-mouth recommendations.

However, not even taking commitment into account is sufficiently predictive of future behaviour, because hardly anybody is always able to act purely out of conviction.
That is to say, committed customers are not loyal if this is made impossible for them and uncommitted customers are loyal if they have no other choice.
What are known as market "barriers" explain why people do not always act in a way they would like to act.

That is why, in our systematic analysis of customer loyalty, we differentiate between loyalty out of conviction (=commitment) and loyalty out of necessity (=barriers).

Customer loyalty = commitment + barriers

 

The benefits of customer loyalty analyses

Anovum’s customer loyalty analyses can help you utilise opportunities and reduce risks in reaching your profit targets.

Increasing profits:

• by systematically developing your business with existing customers (cross-selling, up-selling)
• by controlling customer acquisition
• through the recognition of the potential there is to win market shares from competitors
• by installing equivalent loyalty barriers to those of your competitors

Securing profits:

• by identifying and describing customers who are at risk of being lost to competitors
• by minimising the loss of valuable customers
• by identifying the most dangerous competitors
• by setting up your own loyalty barriers

The results of a customer loyalty analysis are, on the one hand, used as indicators in ‘management cockpits’, early warning systems or within the framework of Enterprise Feedback Management solutions. On the other hand they are employed to translate into action specific measures relevant to success in individual business areas such as sales, R&D, customer service, marketing etc.

Uses

Customer loyalty analyses can be used to:

• secure customers and profits
• analyse the potential for additional sales (cross- and up-selling)
• develop and optimise loyalty programmes / CRM
• determine customer value
• analyse markets

In order systematically to measure and analyse customer loyalty we use our Commitment Model and the Share of Wallet Predictor. These two modules supply reliable data about the real future behaviour of your existing and potential customers.

If you want to know more about (customer) loyalty analyses, the Commitment Model and the Share of Wallet Predictor please contact us.