May 15, 2018

How Are You Identifying Drivers of Customer Loyalty?

While net promoter score and loyalty have been used to help businesses set a strategic path forward, there is also a strong link between predicted customer loyalty and the customer’s actual buying behavior.

While this particular article focuses on loyalty, it is important to understand that when customer trust and loyalty scores increase the following happens:

  • Share of wallet goes up (SOW)
  • Customer retention rates increase
  • Customers are more willing to pay a premium price (price elasticity increases)
  • Competition can be impacted by there perceived weaker market position

When we understand which drivers and attributes are correlated to trust and loyalty, we know how to change the company to achieve these outcomes.

In this article, we will define drivers and attributes of customer loyalty and discuss their role in the design of a strategic account management program that will impact customer loyalty. Then we will outline a process for identifying the specific drivers and attributes of loyalty for a given customer group.

Customer Loyalty

Top Box Loyalty Index

Apexx uses a powerful customer loyalty measurement model. In this model, customers are asked to use a seven-point scale to rate the company on three overall dimensions of loyalty: One, overall satisfaction with the company’s products and services, two, the customer’s willingness to repurchase, and three, the customer’s willingness to recommend those products and services (see Figure 1). Our experience has shown that the composite score on these three dimensions is highly correlated to actual customer behavior. For instance, in one study, customers who gave our client the highest rating on each of the three dimensions purchased up to 75% of their product needs from our client compared to only 45% for customers that gave a rating of four for each dimension. Similar comparisons can be made for other key measures such as price sensitivity, perception of value, product and account penetration, frequency of purchase, size of purchase and so on.

But what factors influence a customer to choose a rating of seven on these dimensions over all other options?

Attributes and Drivers

An attribute is an inherent characteristic or a word ascribing a quality. For our purposes, we can think of an attribute as a specific characteristic of the product and related services. The customer values this attribute at such a level that its presence significantly impacts the customer’s loyalty. Attributes of similar value to the customer can be bundled into segments or categories called “drivers.

Why a driver?

Think of the many types of drivers that we experience on a regular basis. There are drivers in sports such as a driver used in golf to send the ball down the fairway. If a basketball player charges towards the basket we say he or she is “driving down the lane”. A screwdriver drives screws while a hammer drives nails. And of course, we drive motor vehicles all of the time. All of these drivers have one thing in common – they impart some sort of force to move something from one place to another. In loyalty management, a set of specific attributes, when present as a group, drive customer loyalty from one level to another. As described in Figure 2, all of the “action” occurs at the attribute level, which has a cascading effect on the overall drivers, customer loyalty and ultimately customer share.

Attributes & Drivers

The Magic List of Attributes and Drivers

Walt Disney once said “There’s no magic in magic, it’s all in the details.” So, too, for loyalty management. There is no magic list of attributes and drivers. In fact, attributes and drivers not only vary considerably across industries, they are often vastly different among various customer groups of the same supplier! This makes it critical for companies to identify the specific drivers and the associated attributes for each major customer group. This allows a company to customize its account management processes to deliver those attributes that are most likely to deliver value to each customer group and thereby, increase customer loyalty. Let’s look at an example. For one of our major clients, six major drivers were identified as having the greatest correlation to customer loyalty. However, as Figure 3 demonstrates, the importance of these six drivers varied considerably depending on customer size. In fact, in every customer group, at least one of the six drivers is not important at all. The presence of at least one triangle in the chart indicates that the driver is significant for that customer group. The number of triangles indicates the relative strength of the correlation to loyalty. In this example, “Product Quality and Dependability” is highly correlated to loyalty for all customer groups. This is not surprising since for many customers, quality and dependability are reoccurring key drivers. In addition, this client is highly regarded in the industry for having outstanding product quality. However, key differences are present for the remaining drivers.

Channel Relationships

For example, “Channel Service” and “Channel Relationship” were correlated to loyalty for the smaller customers but not at all for medium and large customers. The implication is that attributes related to channel service and channel relationship would only be included in an account management program aimed at the smaller accounts. In fact,this particular client engaged us to design and implement a strategic account management program for their top customers.

In order to do so, it was necessary to look at the specific characteristics that these customers “attributed” to the Product Quality and Dependability, Service and Communication and Account Relationship drivers.

As an example, let’s look closer at the Account Relationship driver. Figure 4 shows those attributes of the Account Relationship that were highly correlated with the loyalty index. In other words, customers that rated the company or account manager high on these attributes tended to give the company high ratings on the three loyalty questions. In addition, those customers that gave low ratings on these items also tended to give low ratings on the three loyalty questions. As you can see, this process takes the overall driver –Account Relationship – and distills it into actionable and measurable attributes. It is at the attribute level that we can implement the specific actions necessary to increase customer loyalty!

System Analysis of Loyalty

Identifying Drivers and Attributes

Our discussion of drivers and attributes might imply a reverse approach to identifying attributes. We might ask what drivers have the most impact on loyalty and then, what attributes contribute to that driver. Actually, the process begins with the attributes that are most highly correlated to loyalty and that determines which drivers are described by the relevant list of attributes. At Apexx, we use a five step approach to identifying the appropriate loyalty attributes and drivers. (See Figure 5)

Identifying Drivers and Attributes
Step 1: Identify the potential list of attributes.
Through customer focus groups, internal meetings, review of prior research, brainstorming and a variety of other methods, an exhaustive list of possible attributes is created. At this point it is more important that the list be very inclusive to ensure that no potential attribute is left off of the list. It may be helpful to think in terms of categories of attributes (not drivers at this point) to aid in the brainstorming process. The list may seem daunting, however, through statistical methods, the research process will weed out the irrelevant and redundant attributes. It is better to eliminate an attribute through research than to miss a potential attribute altogether.
Step 2: Conduct quantitative customer research.
At this step, detailed customer interviews are conducted that identify the overall loyalty index for a given customer and that customer’s perception of the company’s performance on all of the possible attributes. In addition, we typically ask customers to evaluate the performance of major competitors. Be sure to include firmographic information and other information that will help segment the customers in basic customer groups in Step 4. This may also be a good time to ask questions related to share of wallet, perception of value, frequency of purchase and other key indicators of loyalty. This generates a loyalty model specific to your industry and organization. It is important that sound marketing research practices be followed related to the sample size and composition, as well as the design and administration of the survey.
Step 3: Perform analysis to determine attributes and overall drivers.
A statistician or analyst is usually employed at this point to perform the analysis necessary to determine the attributes and overall drivers. At Apexx, we employ analysts with both a strong applied research background and a strong business background. Since this process is typically one-part science and one-part art, the analyst must be able to dig deep beyond the numbers to discover the story within. A variety of statistical methods can be used but they all attempt to achieve the same end results: a set of general drivers that are highly correlated to overall customer loyalty and a list of attributes for each driver. At this stage, irrelevant and redundant attributes fall out of the equation yielding a succinct and specific list.
Step 4: Identify differences among customer segments.
Using the final driver set and attribute list created in Step 3, our analysts will recalculate the correlations of drivers and attributes with the loyalty scores at the customer group level. It is possible that great differences exist from group to group. These differences must be incorporated into account management programs and processes to ensure the greatest impact of the program. In our earlier example, we found that the channel had a high degree of impact on loyalty for smaller customers but relatively little, if any, impact for larger customers. Clearly, one size does not fit all in this situation. In fact, designing an all-inclusive solution not only is a waste of resources but may have significant negative effect for some customer groups.
Step 5: Design the solutions.
As mentioned at the beginning of this article, measurement is meaningless unless something is done with the information. This step utilizes the new model of loyalty and other key findings of the research to design appropriate account management programs that focus on the attributes that have the greatest impact on overall loyalty.

Looking Forward

Now that the solutions have been designed, the “real” work begins! After all, even the best design is worthless without effective implementation. The research leading to the design often tells a readily accepted story – but it is the implementation that requires a high degree of trust and change management.

By focusing efforts on those product and service attributes that have the highest correlation to customer loyalty, companies can be sure that their investment in loyalty management will have the greatest impact on future growth and profitability.

In a future article, we will examine ongoing measurement and intervention techniques to ensure that your company is delivering its promise on those key attributes.

Quick take-aways

With a solid handle on what drives trust & loyalty:

  • Share of wallet goes up (SOW)
  • Customer retention rates increase
  • Customers are more willing to pay a premium price (price elasticity increases)
  • Competition can be impacted by their perceived weaker market position

When we understand which drivers and attributes are correlated to trust and loyalty, we know how to change the company to achieve these outcomes.

It is imperative to include all drivers and attributes in the first survey and to ensure a valid sample size is included.

Chris Wisniewski

Chris Wisniewski

Principal and Vice President
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In his 20-plus years of marketing and sales work and consulting, Chris has worked with clients such as Office Depot, GE, Staples, Belden Wire & Cable, Disney, Rockwell, Southern California Edison, Target, Reedy Industries, Parts Town, DFSI, Corporate Express, (including furniture & design divisions) Runge Paper, United Airlines, PepsiCo, VISA, Solo Cup, and many others. Chris has helped companies conduct branding and value proposition work, enter new market segments, evaluate and improve their marketing programs, and generate revenue through lead generation programs. Prior to joining Apexx Group, Chris was Director of Business Development at Publicis, the world’s largest advertising, promotions, and marketing services firm. Chris was the director of integrated marketing at Near North Insurance where he directed the development and maintenance of more than 50 association websites, ran a call center, and managed the development of print and e-mail marketing initiatives. Chris also has experience with non-profit organizations such as IndependenceFirst, Vision Forward, ACAP, Timber-Lee, and Kathy’s House, to name a few.

Chris has a background in design and technical development, has been an adjunct professor at Columbia in Chicago. He is proficient in front and back end web technologies and is a developer that understands HTML, CSS, PHP, SQL and many other scripting and database solutions.

Chris Wisniewski

Principal and Vice President

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