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Measuring Customer Loyalty in Non-Competitive Environments

Loyalty Marketing

Measuring customer loyalty, the degree to which customers engage in positive behaviors toward your company/brand, is essential for your customer experience management (CEM) program. We know that customer loyalty is key to driving business growth (e.g., increased revenue, market share). Customers can exhibit many different types of loyalty behaviors toward a company, from recommending your company and buying the same product from you in the future to buying different/additional types of products from you and staying with you for a long time. While there are several ways customers can show their loyalty, research has shown that customer loyalty essentially boils down to three different types of customer loyalty:

  1. Retention Loyalty: Degree to which customers will remain as customers or not leave to competitors. This type of loyalty impacts overall customer growth.
  2. Advocacy Loyalty: Degree to which customers feel positively toward/will advocate your product/service/brand. This type of loyalty impacts new customer growth.
  3. Purchasing Loyalty: Degree to which customers will increase their purchasing behavior. This type of loyalty impacts average revenue per customer.

Using this RAPID loyalty approach to measuring customer loyalty in the wireless industry, we have found that Retention Loyalty is predictive of future churn rate, Advocacy Loyalty is predictive of new customer growth and Purchasing Loyalty is predictive of ARPU (average revenue per user) growth. Companies who have customers who recommend them, buy different types of products from them and remain as customers for an extended period of time outperform their competitors who do not.

Measuring Customer Loyalty in Non-competitive Environments

In some types of companies/industries where competition is non-existent, the aforementioned customer loyalty triad (e.g., retention, advocacy, purchasing) needs to be reevaluated, modified and expanded. Consider regulated industries (e.g., utilities, trash collection), regulatory agencies (e.g., licensing boards) and government agencies (e.g., Internal Revenue Service and Medicare), where customers do not have a choice; customers/members have to use these entities, for example, to acquire basic services, practice a specialty (e.g., medicine/law) and receive healthcare benefits, respectively.

How can customer loyalty apply to these types of entities when their customers may not have other options? To be of value in these non-competitive environments, entities need to broaden the concept of customer loyalty to include various types of behaviors customers can exhibit that are positive towards and beneficial to the entity. In an excellent and insightful article (Beyond Mere Customer Retention 2008) in Quirks, Parcenka conceptualized customer loyalty in the energy/utilities industry, a regulated industry, as consisting of three types of customer loyalty:

  1. Expansion – Degree to which a customer is likely to increase the level of business he or she is doing with a company
  2. Compliance or influence – Degree to which a customer is likely to comply with company requests or be influenced by the company in a way that benefits the company
  3. Advocacy – Degree to which a customer is willing to speak favorably about a company to friends, colleagues or others

Taking this comprehensive approach to conceptualizing customer loyalty in non-competitive environments, companies can measure a variety of customer behaviors that benefit the company/agency/entity. Based on the work by Parcenka, I crafted some loyalty questions that these companies can use to measure customer loyalty (using a 0 – Not at all likely to 10 – Extremely likely scale).

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Loyalty Questions for Regulated Industries

  1. How likely are you to sign up for different programs we offer? (Expansion)
  2. How likely are you to use us as a consultant when you are selecting products/services from a third party? (Expansion)
  3. How likely are you to comply with the agency’s advice in regulatory matters in your field? (Compliance/Influence for utilities)
  4. How likely are you to seek our advice/expertise on matters in your field? (Compliance/Influence)
  5. How likely are you to provide testimonials about us? (Advocacy)

Loyalty Questions for Regulatory Industries

  1. How likely are you to sign up for different programs we offer? (Expansion)
  2. How likely are you to use us as a consultant when you are selecting products/services from a third party? (Expansion)
  3. How likely are you to comply with the agency’s advice in regulatory matters in your field? (Compliance/Influence)
  4. How likely are you to seek the agency’s advice/expertise on matters in your field? (Compliance/Influence)
  5. How likely are you to support the agency’s position or action on licensing-related public issues? (Advocacy)
  6. How likely are you to provide testimonials about positive experiences with the agency? (Advocacy)
  7. How likely are you to support the agency’s issues on changing licensing processes (e.g., new tests)? (Advocacy)

Loyalty Questions for Government Agencies

  1. How likely are you to sign up for different programs the agency offers? (Expansion)
  2. How likely are you to seek the agencies advice/expertise on healthcare matters? (Compliance/Influence in Medicare)
  3. How likely are you to follow the agency’s advice about your healthcare? (Compliance/Influence in Medicare)
  4. How likely are you to support the agency’s position or action on issues related to your benefits? (Advocacy in Medicare)
  5. How likely are you to provide testimonials about positive experiences with us? (Advocacy in Medicare)

While these loyalty questions are not meant to be comprehensive, they do provide a good starting point for companies/agencies/entities to think about different positive behaviors (e.g., loyalty behaviors) they want their customers to exhibit. When generating loyalty questions for your specific needs, Parcenka says to consider the following things:

  1. What does the agency want from customers? Customers have many different ways they can support an agency. Consider broadening your idea about customer loyalty and think about how different types of customer behaviors could benefit your company.
  2. How can customers support the agency’s mission?
  3. What can customers do to help agency better serve them?
  4. What can customers do to help agency minimize cost of doing business?
  5. How do your ideal customers behave differently than your less-than-ideal customers? The behaviors that distinguish these groups would be candidates for helping you to generate customer loyalty questions.

Summary

In a competitive environment, customer loyalty behaviors come in a variety of different forms (recommendations, satisfaction, continued patronage, increase purchases, share of wallet). Each type of loyalty is responsible for different types of business growth. In a non-competitive environment, you can still measure different types of customer loyalty behaviors.

Think about how your customers show their loyalty and include corresponding questions that ask about their likelihood of engaging in those loyalty behaviors. Relying only on a single loyalty question will result in missed opportunities to grow your business in multiple ways. Including specific loyalty questions will help you better pinpoint a solution to optimize different types of customer loyalty. Including a “likelihood to seek agency’s advice” question and a “likelihood to sign up for different program” question can help you understand why customer are seeking your advice and identify ways to increase customers’ usage of your agency, respectively. In non-competitive environments, companies can still find value in measuring and understanding different types of customer loyalty behaviors beyond recommending behaviors or other commonly tracked loyalty behaviors.

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