Loyalty Triad: 3 Separate Components of Customer Loyalty
Posted by Jeffrey Henning on Sun, Mar 14, 2010
One of the central premises of Bob Hayes' book Beyond the Ultimate Question: A Systematic Approach to Improve Customer Loyalty is that customer loyalty is best thought of not as one item but as three separate components: advocacy loyalty, purchasing loyalty and retention loyalty. Bob writes:
How well we are able to predict business performance measures depends on the match between the business outcome and the component of loyalty. Retention loyalty, for example, is useful for predicting defection rates. Advocacy loyalty, on the other hand, is useful for predicting revenue. [Purchasing loyalty is useful for predicting average spending per user.]
Companies need to do their research to fully understand how different loyalty measures correspond to specific business outcomes. Single, simple metrics [as opposed to multi-item scales] are fraught with error and can lead to the mismanagement of customers and, ultimately, loss of revenue.
Bob summarizes the three components of customer loyalty with this table, showcasing three different ways to grow revenues:
| Outcome | Behavior | Measure |
|---|
| Increase length of customer life | Decrease churn/defection rate | Retention Loyalty |
| Increase size of customer base | Increase number of referrals | Advocacy Loyalty |
| Increase number of purchases | Increase purchase behavior | Purchasing Loyalty |
This elegantly makes the case that one question is insufficient to measure the complexity of customer loyalty.
See my discussion of Bob's earlier book, Measuring Customer Satisfaction and Loyalty, for a description of the questions to include for an Advocacy Loyalty Index, Purchasing Loyalty Index and Retention Loyalty Index (the latter of which was called Defection Loyalty in the prior book).
Want to hear Bob Hayes in person? Make sure to attend the Vovici Vision 2010 conference, where Bob will be delivering one of the keynote addresses.