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Three Ways to Measure Loyalty

Customer Satisfaction and LoyaltyIn my post yesterday about Southwest Airlines, I made a fleeting reference to the American Customer Satisfaction Index (ACSI).  Customer satisfaction has been a core measurement tool used by companies across the Fortune 500 as an indicator of general health and well-being of their brand. For many, it is also a specific proxy for Customer Loyalty.

The Loyalty Marketing community tends to measure Loyalty in terms of behavior change and forms conclusions about current standing and progress towards goals based on quantitative measurements from the dashboards we create. Thinking about ACSI, I realized there are several other measures of loyalty used by brands in the market, some of which are popular enough that they become substitutes in and of themselves for execution of a loyalty program as part of its customer strategy.

Probably second in popularity behind Customer Satisfaction is use of the Net Promoter Score.  A newly introduced scoring system from IPSOS Loyalty, the Wallet Allocation Rule may challenge NPS for market dominance and then there is the Return on Customer, the system created by Peppers & Rogers and popularized in their 2005 book of the same title.

I will leave it to the curious among our readers to delve into the details of how each score works. The important thing to notice is that some of these are in fact “scores” while others are closer to systems that enable a brand to create actionable marketing initiatives from survey results to improve the business.

Here’s some food for thought:

  1. Customer Satisfaction is a feel-good measure, but does it adequately predict a future purchase? Customer Sat is indicative of a customer opinion at a specific point in time. Someone may leave an auto dealership with a “satisfied” feeling, but have no predisposition to return for another vehicle purchase or service visit. Besides, isn’t satisfied similar to how we feel after a big family dinner? Or it is more like we feel after watching a sporting event end up in a tie?
  2. The Net Promoter score has evolved from score to system, as we learned in our recent review of The Ultimate Question 2.0. The NPS claims to be able to predict a customer’s likelihood to purchase again in the future, but really, is there “just one” question that any business can ask of a customer that adequately measures future loyalty? At least the availability of a closed loop feedback system that can turn real-time survey results into immediate actions while customers are in-store is  a more powerful tool for marketers to have at their disposal.
  3. The Wallet Allocation Rule compares relative scores between competitors in the same vertical, thereby adding valuable perspective to an otherwise sterile scoring figure. Still, the theory reaches a bit in calculating the dollar value of a shift in wallet share. The key assumption in the model is the total spend in a specific category (clothes, electronics, air travel) and, in our experience, that figure is not usually known by clients and is always debated in planning meetings. Without high confidence in that number, shift in the value of wallet share is a best guess.
  4. Interestingly, Return on Customer makes the case for building long term value in a short term minded business world. The logic is great, but for some reason, we rarely hear of enterprise using this approach in practice.

As you think about how to measure loyalty or other customer facing business metrics, you should keep in mind that the most valuable scores are those that can help to shape future business results. If I have a fever, it’s nice to know whether it’s 100 or 103, but it is the remedy that is most important to me.

In a similar way, scoring systems that provide information to shape future campaigns and link survey results to front line actionable tactics are the most valuable. Don’t forget to tie scores and trends in scores to the behavioral (purchase transaction) information you have on file.  After all, a good grade is nice, but money in the bank is much better!

Author: Bram Hechtkopf

Bram leads the "marketing of Kobie Marketing". He consults with current and prospective clients on new business opportunities, helping to develop customer retention and loyalty marketing solutions that drive increased retention and spend. Following in the footsteps of his father, Kobie's founder, Bram is eager to continue Kobie's vision of technology and data analytics as enablers of leading-edge marketing executions for world-class customer loyalty initiatives.

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