Strong bonds or looser loyalty?

Consumers may appear to be more disloyal, but are the models used to drive retention just out of date? From NPS to RFM, the raft of techniques used to understand churn and defection may need to be reviewed for the recession, David Reed discovers.

Loyalty has long been a key marketing driver. With the increased importance of customer retention during the recession, more attention has been falling on just what loyalty means and how it can be increased.

What marketers have found will often not have been that pleasing. For one thing, customers have less money to spend, meaning that key measures of recency, frequency and monetary value will have fallen across the board. For another, the end of the boom and the onset of austerity will have farraching implications for attitudes toward purchasing and brand loyalty.

“People don’t have as much money and disposable income, so they are interrogating every shopping trip and almost every purchase they make,” says Chrissie Wells, research director at Leapfrog Research and Planning. “There is no longer the sense of loyalty to particular retailers that there used to be.” Early casualties on the High Street, such as Woolworths or Zavvi, have exposed just how shallow some loyalty behaviour really was. Given the chance to save 20p on a Top 10 CD by purchasing it in a supermarket, consumers voted with their feet.

Coinciding with the downturn, the rise of comparison websites and online deal finders have brought about a new frugality. “People are using the opportunity to shop online and look around before going to the High Street to make a purchase, particularly for highvalue items. They want to make sure they are getting the best price,” says Wells.

Where this has rubbed hardest is on the bonds of loyalty to brands. Price sensitivity has revealed that many companies do not have much depth to their brand proposition, and hence loyalty, so have not been able to retain a premium. For some marketers, adjusting to this new reality is not easy.

“One of the things marketers need to be clear in their heads about is the difference between behavioural loyalty and emotional loyalty,” says Wells. Measuring loyal customers by their frequency of purchase and share of wallet will not identify if those purchases are happening through preference or inertia.

In some sectors, consumers have entirely shed any semblance of emotion they may have had towards providers. “Ninety-five per cent of consumers now get an insurance quote online through a comparison website – they no longer have any loyalty,” says Thomas Adalbert, managing director of

This has had a profound impact on retention marketing in the insurance sector. The assumption used to be that the company could afford to sign up customers at a loss in year one and turn them profitable in year two.

With customers churning every year, this no longer works. Using renewal data information, customers are targeted in the thirty days before a policy is due to end, assuming it was not signed for automatic renewal at birth. Building true loyalty with emotional depth may no longer be possible.

But changing the whole business model could be. “Insurers used to give away 80 per cent of the premium to intermediaries. With the rise of comparison sites, this has fallen to 40 or 45 per cent. But profitability is still down because churn is higher,” notes Adalbert.

This is why premiums have started to rise, despite strong competition and transparency in the market as insurers try to rebuild their balance sheets. Young male drivers are paying £100 more per year for car insurance now than 12 months ago, for example.

Bait and switch marketing techniques are starting to be replaced by bait and stay strategies. Adalbert points to Marks & Spencer Financial Services, which is offering £20 in vouchers to new customers and £50 to customers who renew. Adalbert’s own company is seeking to hedge the risks of high churn by moving into white label products. “If you search for cheap re-motrgage offers, out of the top 20, we’re supplying five or six,” he says.

Since the last recession forced companies to reassess the strength of their bond with the consumer, loyalty schemes have been one of the primary vehicles of retention. In return for personal information and the means by which transactions can be associated with the individual, participants have gained almost permanent discounts and rewards for their continued purchasing behaviour.

The problem is that loyalty programmes rapidly become a commodity and end up giving away margin to customers who would have bought anyway. Even worse, they may actually have no resonance at all with consumers. According to research carried out by The Logic Group with Ipsos MORI among 2,000 UK consumers, 46 per cent said they do not feel part of a loyalty programme. Among those that were in a retail scheme, 51 per cent were only fairly satisfied with the benefits they were being offered.

“What consumers tell you is not necessarily reflected in their behaviour,” notes Anamaria Chiuzan, marketing manager, customer insight and loyalty at The Logic Group. She says this can play both ways – transactional behaviour may indicate loyalty, but does not show when it is at risk from a shift in attitudes, while attitudinal insights are often not aligned with behavioural data, so the value is limited.

“Certain companies are very attracted by recent online tools like Net Promoter Score to find out as much as they can about what customers are saying. I can see that tendency being driven too far with loyalty programmes built around NPS. It is very important to align with customer profitability. There will always be bargain hunters, downshifters, churners and inactives – you need to understand who is profitable,” says Chiuzan.

She is not the only one to counsel caution about the value of this metric. “A lot of large companies are excited by NPS and it is part of the marketing armoury,” says James Richards, commercial director, Northern Europe, at SPSS. “The challenge is that it is difficult act on it. Why are customers satisfied? What are the drivers of negative NPS that cause disloyalty?”

Even so, he reports a growing interest among companies in capturing attitudinal data for use within segmentations and customer insight, especially through the use of “golden questions”. Through his company’s work with UK insurance providers, SPSS has been able to identify five moments of truth in the lifecycle from acquisition to defection which can make a big difference in loyalty. “Cablecom has used attitudinal data collection and NPS to drive its customer interactions and has taken churn from 19 down to 2 per cent,” he says.

For many sectors, the profit margin or frequency of purchase is simply too low to make a loyalty scheme feasible. Equally, the level of engagement with a purchase may be low, providing few reasons for a customer to sign up to a conventional programme.

That does not have to mean abandoning any idea of loyalty as a marketing goal. The experience of shows that the same online tools which have been ripping the heart out of traditional loyalty can actually be harnessed to build entirely new levels of involvement.

“It was difficult to build loyalty because spares are such a distress purchase,” says Matthew Henton, marketing director at eSpares. “That is challenging from a marketing point of view to try to keep customers involved so that, when something does break, we are the place they will come to.”

Email marketing had been playing a role in this but, as Henton points out, deciding what messages are appropriate is hard when an appliance generally only needs to be fixed once. “You can segment the market to some extent, for example, somebody who buys a lawnmower blade has a garden, but it is difficult to extrapolate too far,” he says.

What changed all that was the decision to introduce Bazaarvoice, a ratings, review and comment tool, in October 2008. “The unanswered question was, will anybody actually review a widget? It is the same as the one they are replacing, so will they really bother writing about it? Is there anything to write?” recalls Henton.

With 500,000 products in its catalogue, eSpares did not expect to get user generated content for everything. But what it has discovered is that customers want to write about their experience of repairing an appliance using a spare from the company. As a result, it is now creating its own content for the site, in the form of demonstration videos showing how to fit popular spares, such as dishwasher seals.

Business information has also resulted that would otherwise never have been gained. “One product was getting very low ratings of one or two stars. It was a dishwasher cutlery basket costing £7.99 and we’d never had a return or complaint,” says Henton. Online, however, it rapidly emerged that the basket broke easily. Having tested it themselves, the company was able to source an alternative from the manufacturer (and send one free to those who had talked about it online).

AB testing of making UGC available to site visitors has revealed an uplift in conversion of between 6 and 14 per cent. Interactivity has enhanced the customer experience of a low engagement product category and given eSpares the confidence to develop its marketing in new directions. “We have changed the business,” says Henton.

Hooking up customers in the Web to build their loyalty is an entirely new approach whose benefits are still being worked out. One issue is the social Pareto Principle which means a small proportion of customers will be responsible for a large proportion of content.

For marketers who still want to drive up loyalty using push techniques, the question is whether conventional models retain any relevance in a changed economy. Nowhere is this more evident than around the classic use of recency, frequency and monetary value to segment the customer base.

Richard Lees, chairman of The Database Group, says RFM does provide vital indicators. “If a customer’s typical frequency has been four purchases per month and you haven’t seen them for six weeks, they have churned,” he says.

But when building a segmentation or customer value model, his company does not use recency as one of the building blocks. “We don’t kick it out – we use it as a filter for marketing communications,” says Lees. Working out who valuable customers are is a different task from deciding which ones are at risk of churn. By leaving recency out of the model, changes in behaviour can be isolated which are important to address but do not necessarily mean the customer’s value has shifted.

GI Insight also takes a different approach by combining value and consistency, rather than using RFM. “A customer showing high value may not have high loyalty. If they are spending in three out of four quarters, that is consistent, but if all their transactions are in the Christmas period, that does not signify they are loyal,” says managing director Andy Wood.

This provides a clear indication of when marketing effort is needed to increase that consistency of spend. “If you are a mail order company and typically get one transaction in 12 months, 80 per cent of your customers will churn in the next 12 months. If you get two transactions, that falls to 70 per cent,” says Wood. Focusing effort on getting a second purchase each year has a big impact on loyalty.

The mechanisms for driving this uplift have never been more flexible and rapid. “If you see a customer using a credit card to pay for an expensive shirt and you know they are very profitable, you could send them a text saying you have increased their credit limit so they can buy two,” notes Kevin Slatter, managing director of G2 Data Dynamics.

That does mean bringing together data from multiple sources across the enterprise to build a true view of the customer, their value, potential and loyalty. Web-derived data, including content and attitudinal indicators, will increasingly be a part of that.

For companies who get it right, loyalty will not just be a long-term effect, but a shortterm return.

Latest from Marketing Week


Access Marketing Week’s wealth of insight, analysis and opinion that will help you do your job better.

Register and receive the best content from the only UK title 100% dedicated to serving marketers' needs.

We’ll ask you just a few questions about what you do and where you work. The more we know about our visitors, the better and more relevant content we can provide for them. And, yes, knowing our audience better helps us find commercial partners too. Don't worry, we won't share your information with other parties, unless you give us permission to do so.

Register now


Our award winning editorial team (PPA Digital Brand of the Year) ask the big questions about the biggest issues on everything from strategy through to execution to help you navigate the fast moving modern marketing landscape.


From the opportunities and challenges of emerging technology to the need for greater effectiveness, from the challenge of measurement to building a marketing team fit for the future, we are your guide.


Information, inspiration and advice from the marketing world and beyond that will help you develop as a marketer and as a leader.

Having problems?

Contact us on +44 (0)20 7292 3703 or email

If you are looking for our Jobs site, please click here