Tuesday, August 29, 2006

Bonds & Loyalty

What is loyalty?

It is the act of binding yourself to a course of action.

It is this loyalty that makes you love or hate a brand. The extent to which you are loyal to a particular brand may vary from person to person depending on his / her interactions & experiences with the brand.

As the loyalty increases one becomes a bonded customer for a particular brand.

Why do most of the Airlines we know run a loyalty program?

The aim of any loyalty program is to induce repeat purchase by rewarding the customers. Most of us get flattered by the smallest of rewards and become bonded to a particular brand for life.

What are the different types of loyalty?

There are two types of loyalty

1) Behavioral loyalty
2) Emotional loyalty

Behavioral loyalty: This is all about actions, behavior. A behaviorally loyal person cannot attribute any reasons as to why he or she has chosen a particular brand.

An example would be the telecom scene in the UAE. Everyone here has an Etisalat mobile connection. It is not because everyone loves the brand, but because they don’t have a second option.

Behavioral loyalty comes simply out of habit or because of a reason that there is no other option.

Emotional loyalty: This is about a combination of feelings and action. An emotionally loyal customer goes any length to buy his brand. He either buys his brand or doesn’t buy at all, such is Emotional loyalty.

A hardcore Harley fan doesn’t even touch other bikes. He or she is Emotionally loyal to the brand Harley.

The greater the emotional loyalty, the greater the sales… The real payoff for a brand
comes only when the customer gets on top of the emotional loyalty pyramid
Garth Hallberg, All consumers are not created equal (John Willy & Sons, 1995).

What is a bond?

1) A connection that fastens things together.
2) Stick to firmly.
3) Come together for a common cause.

A customer’s bonds with a particular brand is the result of the emotional loyalty he / she has towards the brand.

Simply put, as the emotional Loyalty increases the customer bonds with the brand. The brand becomes the customers favorite.

There are three types of bonds

1) Financial Bond: The simplest and the easiest of bonds to understand, the name explains what this means. This is a bond a customer develops with the brand because of “monetary offers”. This could be a voucher which the customer redeems for a product, a discount coupon, scoring rewards points etc.

I use my Citicard because I get more points compared to the other cards I own (this is an example and I don’t know if this is true!!)

2) Social Bond: This is when the brand creates a sense of belonging among its customers. The customer is made to feel as a part of the brands family. This bond works well in cases where the emotional loyalty is extremely high.

A good example of this would be the HOG (Harley Owners Group). The Harley owners feel part of the Harley family & culture and they feel proud about it.

3) Structural Bonds: This bonds comes into play when a customer has a formal, contractual relationship with a brand.

I have a service contract on my car with Arabian Automobiles (a dealer in Dubai). Therefore I am obligated or bound to go to them for getting my service done. I am structurally bonded with the dealership.

Amazon.com is one example of a brand successfully exploiting all three bonds to create a mutually beneficial relationship with the consumers.

1) They have you registered with a username and password – Structural Bond

2) They feed you with exactly the information you would need. If you are looking at buying or bought a fiction, they start feeding you with more fiction titles every time you login and they also throw in reviews from likeminded people – Social Bond

3) They also present you a free shipping option based on your purchase value etc. – Financial Bond

These bonds have their own strengths and weaknesses.

a) The Financial Bond is a double edged sword. This can easily be copied and bettered by your competition. But it gives you quick wins. In the long run it would be difficult for any brand to survive based on the strength of the financial bond it has with its customers.

b) The Social Bond tends to create a great amount of emotional loyalty. But a Social Bond can’t be a substitute for a substandard product, pricing or distribution.

c) The Structural Bond is very strong. But remember it can be broken once the structure collapses. In other words this bond ends when the period or tenor of the agreement ends.

Summing up

1) No one bond is greater than the other (even James Bond!!)
2) No bond is standalone. They have to be combined to produce a better result
3) The bonds are not a one time offer. It is the sustained effort a brand takes to foster a mutually beneficial relationship with its customers

Having spoken about loyalty and bonds we have to look at how we initiate a conversation with the customers first place.

We have to create touchpoints and more importantly create them at Moments of Truth (Something I learnt at OgilvyOne)

More about this in my next post…

I again have to thank OgilvyOne for making me what I am today, as far as Direct Marketing & CRM go...

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