1. Customer Relationship Management
Think your customers
are loyal? Think again
By Woodruff W. Driggs, Steven S. Ramsey and Paul F. Nunes
The psychology at the heart of customer buying patterns is far
more complex than previously thought. The different variations
of customer loyalty must be understood if a company is to win
the long-term battle for customers, increase market share and
achieve high performance.
30 www.accenture.com/Outlook

3. Customer Relationship Management
You’ve gone to great lengths to identify and nurture the
most valuable segments of your customer base. You’ve
closely monitored them through surveys and focus groups,
and you know they consistently indicate they are “highly
satisfied” with your company and its products. But . . . are
they loyal?
If you’re like most companies, you don’t really know—at
least, not for sure. And that’s a problem.
The loyal customer is perhaps the What makes customer loyalty such
most elusive subject in all of man- a vexing matter? Some loyalty chal-
agement science. And a recent lenges are inherent in the current
Accenture customer loyalty study market. Customers, for example, are
suggests that the psychology at the harder to reach and impress than they
heart of customer buying patterns used to be. Many traditional market-
and preferences is far more complex ing channels have been weakened as
than previously thought. Different consumers pursue various “market of
variations of customer loyalty must one” activities: iPods, video games,
be understood if a company is to win movies on demand and personal
the long-term battle for customers video recorders that allow commercial
and market share. skipping. In the hypercompetitive
Internet age, customers also have
Loyalty and high performance more pricing information and more
Understanding, nurturing and buying options than ever before.
ultimately serving these different
forms of loyalty is essential to a But a number of misconceptions
company’s “market focus and posi- about loyalty have also led companies
tion”—one of the three building to make misguided investments in
blocks of high performance identi- customer management programs.
fied by ongoing Accenture research
(see “The right place, the right The notion that loyalty is all about
time,” Outlook, October 2005). improving customer “satisfaction” is
perhaps the most common mistake.
Through their market focus and The frustrating truth is that what cus-
position, high performers achieve a tomers say about being satisfied turns
kind of strategic decision-making out to be a poor indicator of loyalty.
capability that enables them to In fact, a consistent finding from cus-
compete in the best markets and tomer research is that 60 percent to
maximize growth opportunities, 80 percent of lost customers across
without reaching or scaling beyond all industry segments reported on sur-
their capability to do so. Companies veys just prior to defecting that they
with an overly simplistic view of were “very satisfied” or “satisfied.”
loyalty and of their customers are
likely to have a misguided market Another misstep is thinking that
focus and position, taking them because a company has a loyalty
down errant and expensive paths program in place, it is doing all it
that can leave them poorly equipped can to improve customer loyalty.
to compete. Loyalty programs are one part of
32 www.accenture.com/Outlook

4. an overall loyalty strategy, but they ment and pricing, operations, and
lack the nuance that gives compa- sales and service must all be pulling
nies the ability to target the most in the same direction to generate
profitable segments. Our research the kind of loyalty that produces
has found that loyalty cannot be high performance.
sustained by incentives alone. In
The true drivers
Accenture’s loyalty survey, for exam-
ple, only 20 percent of consumers To attract and retain the most loyal
said they had switched providers in and profitable customers, a company
the past year because of the absence must first understand the true drivers
of loyalty perks and rewards. And of loyalty—the customer attitudes
just 22 percent said they have stayed that, in turn, drive the different kinds
with a provider because of frequent- of behaviors that must be understood
buyer rewards. and nurtured.
Senior management has also diluted Accenture has developed a loyalty
efforts to encourage customer loyalty model—based on our own research
through the attitude that “it’s mar- and client experience as well as on
keting’s job.” Marketing has a vital leading academic studies—to enable
role to play, to be sure. But develop- better analysis of different kinds of
ing customer loyalty is a team sport. loyalty drivers. At the heart of the
Human resources, product develop- model (see chart, next page) is a
The customer experience
When marketers use the phrase customer experience, it is not merely a matter of
semantics. One of the most important developments in management science in
recent years has been the insight that we are in an “experience economy.” Customers
are not buying just a product or service from a company; they are buying the total
experience around its consideration, purchase, use and service.
Companies that master this experience—that can understand it and deliver it better
than their competitors—have an edge in the marketplace. Research backs up this point.
The Accenture High Performance Marketing study, for example, revealed that a positive
customer experience accounts for 33 percent of a company’s ability to achieve strong
customer loyalty (see “Marketing mastery matters,” Outlook, May 2006).
Outlook 2006, Number 3 33

5. Customer Relationship Management
better delineation of the different they willing to pay a premium for
types of loyalty customers exhibit. the brand? Are they advocates for
These types can be understood as the brand with people within their
spectrums of attitude and behavior family and social network? Much
along three dimensions. as educators have discovered that
teaching a subject helps a person
Involvement with the understand the content more deeply,
product or service category leading companies have discovered
How interested are customers in the that the very process of advocating
category’s products and services? a brand to others creates deeper
Are they active and engaged par- loyalty to that brand.
ticipants in loyalty programs? Are
they “heavy” users of the category Likelihood to reevaluate
and enthusiastic about the category How prone are customers within a
in general? particular product or service category
to reevaluate their current buying
Commitment to the brand choices? What are the most impor-
How passionate are customers about tant shopping triggers? What barriers
the brands they buy? Do they iden- exist or might be erected against
tify themselves with a brand and switching brands? For example, do
develop deep ties to it? Do they care changes in personal circumstances,
about the fate of the brand? Are such as income level or moving to
Tracking attitudes and behaviors
The Accenture Customer Loyalty Model enables companies to examine customer
loyalty based on an understanding of the attitudes and behaviors of subsegments
of their customer base.
Functional Category involvement Passionate
Low High
Uncommitted Brand commitment Committed
Low High
Passive Reevaluation frequency Active
Low High
Source: Accenture analysis
34 www.accenture.com/Outlook

6. a new home, trigger a reevaluation not in the sense that they can be
of alternatives? counted on to order their favorite
brand of beer again and again, but
By analyzing the behavior and atti- in their commitment to a diversity
tude indicators of this three-part of experience. Such buyers consti-
model, different loyalty segments tute a growing market. In the
emerge, each with its own distinct United States, for example, craft-
loyalty drivers. Companies that beer output rose 9 percent in 2005,
recognize these nascent segments even as production for domestic
can improve their market focus and large brewers fell by 2 percent.
position by identifying previously
unseen markets within markets. They To respond to the unique characteris-
can then design marketing, sales and tics of this market, some craft brew-
service strategies to deliver a unique ers have begun providing “seasonal”
customer experience within each sub- varieties of their beers. The Samuel
segment. (For more on the customer Adams brand, for example—owned
experience, see box, page 33.) by US-based Boston Beer Company—
offers Octoberfest, Summer Ale,
Applying the loyalty model White Ale and Winter Lager to meet
The following examples demonstrate its customers’ seasonal taste changes.
how this loyalty model can help com- This gives the company a better
panies compete on customer loyalty. chance of holding on to the micro-
brew customers within its overall
Variety seekers Samuel Adams suite of brands, even
With the equivalent of 238 billion though these buyers technically
bottles sold annually worldwide, would still be categorized as having
beer is a $413 billion global busi- a high tendency to reevaluate their
ness. The marketing efforts of many beer-buying habits. By meeting a
of the largest brewers have, for the customer’s need for variety within
most part, been aimed at retaining the overall brand, companies can
brand loyalists by appealing to build greater long-term loyalty in a
their competitive nature, asking segment that might otherwise have
them to identify with a brand much seemed to defy loyalty.
as they would with their favorite
sports team. Using our three-part Habitual buyers
loyalty model, this means beer Consider another category of buyers
companies have been targeting cus- whose loyalty patterns can fool com-
tomers with high category involve- panies: habitual buyers. If your com-
ment (that is, they like beer), high pany sells soft drinks or snack foods,
brand involvement (that is, they are for instance, you can easily take for
loyal Heineken or Kirin or Miller granted the steady business from your
drinkers, for example) and a low retail outlets. But as one soft drink
likelihood to reevaluate. maker found out several years ago in
a spat with Sainsbury’s Supermarkets,
Yet a marketing approach targeted the third largest grocery retailer in the
primarily at brand loyalists ignores United Kingdom, nothing is a sure
a significant subsegment of the thing. Sainsbury’s pulled the brand
“high category involvement” cus- from its shelves and substituted its
tomer base: drinkers of micro- own private-label brand. Within
brewed, or “craft,” beers. These months, the private-label brand was
customers are after not only qual- one of the best-selling soft drinks in
ity but also variety. They are loyal, the United Kingdom. What happened?
Outlook 2006, Number 3 35

7. Customer Relationship Management
Shoppers were more loyal to the store is to embed themselves inside the
than to the soft drink brand. supply chain of buyers through
approaches like vendor-managed
In the context of our loyalty model, inventory and continuous replenish-
the brand commitment for these ment. These suppliers restock store
customers appeared high, but for shelves (for example, snack foods
a substantial segment of the market in grocery aisles) and companies’
it was, in fact, quite low. Because production inventories (say, cooking
reevaluation was also quite low, oil) on a continuous basis, relieving
it was only when customers were the buyer of the need to constantly
forced to rethink their purchase that reorder to maintain supply. Becoming
the true nature of this segment’s loy- a quiet but essential player in the
alty became apparent. So if loyalty supply chain not only adds value for
comes more from purchase habit buyers in terms of ease of manage-
than brand preference, what becomes ment, it also avoids the risk of buyers
crucial is the third dimension of the rethinking their supplier choices every
loyalty model: that is, what the com- time they fill out a purchase order.
pany must do to reduce the likelihood
of reevaluating. Electronics giant Panasonic has
recently instituted this type of strat-
One method used by market leaders egy in its cooperative relationship
to lower the risk of reevaluation with such retailers as Best Buy. Using
The importance of loyalty
Cultivating loyal customers is essential to achieving high performance for several
reasons. Reliable studies continue to point to the fact that it is far more expensive to
attract customers than to retain them. Loyal customers also buy more. In a recent
Accenture survey, 81 percent of consumers said they will continue buying from com-
panies to which they are loyal, and about half said they would buy more or respond
to specials from such a company. In short, customer loyalty provides pricing power
in the marketplace and better protection from competitive threats. Loyalty provides
a platform for stronger, deeper relationships with customers; it can also increase
market share and revenue, and lower the overall cost of customer acquisition.
The bad news is that when customer loyalty is measured, the numbers are pretty
dismal. The annual customer defection rate has grown from 16.9 percent in 2003
to 19.1 percent in 2005. One study found that, on average, US corporations lose half
of their customers every five years. A recent Accenture survey of UK and US consumers—
customers across a range of service providers—found that 60 percent of them had
switched loyalties in the past year, and 64 percent said they are likely or very likely
to stop doing business with a company they currently patronize.
36 www.accenture.com/Outlook

8. a vendor-managed inventory model, recently conducted an analysis of
Panasonic has taken on responsibility different customer churn models,
for the inventory of its products in mapping various churn percentages
the retailers’ supply chains. Everyone to the number of customer acquisi-
wins with this model. The retailers tions that would be required to off-
eliminate or reduce the costs of set the losses. The company found
owning the inventory but then share that more effective customer loyalty
their higher margins with Panasonic. programs were more important than
For its part, Panasonic gets an even customer acquisition programs.
greater benefit: an end-to-end view
of its retailers’ supply chains in real Only by challenging long-held
time, enabling Panasonic to better beliefs with hard facts and figures
manage its business activities, rooted in the company’s business
including production timing. model and financial targets will
change be effective. It is absolutely
Loyalty engineering imperative that the full costs and
Creating the right loyalty capabilities benefits of a revitalized loyalty
in a company, and then effectively strategy are explored across all
managing customer loyalty, demands aspects of the organization to ensure
what might be called an “engineer- that initiatives gain senior-level
ing” perspective. That is, it requires endorsement as part of the company’s
a data-driven approach that enables overall growth plan.
a company to analyze and under-
stand the different configurations of Develop a detailed mapping
loyalty drivers among its customers, of loyalty drivers
and that supports long-term initiatives Understand the different types of
to shift and evolve the market focus loyalty that exist within your current
and position of the company based on customer base and across the wider
those customer configurations. The market, and how each type influ-
Accenture Customer Loyalty Manage- ences the risk of defection and the
ment Framework (see box, page 38), possibility of achieving even greater
for example, combines detailed steps loyalty than you currently have.
involving insight, strategy, execution Leverage loyalty driver insights to
and measurement, as well as essential plan distinctive customer experiences
enablers such as leadership, technol- that create and sustain each type
ogy and organizational design. of loyalty.
Here are some practical steps for Plan a comprehensive response,
creating differentiated customer integrated across all relevant
loyalty-building capabilities. dimensions of your company
Use an integrated approach to gener-
Understand loyalty in the context ating customer loyalty that involves
of your business model a coordinated series of initiatives
Most organizations continue to place across the following five dimensions.
more emphasis on customer acquisi-
tion than on customer loyalty. That • Insight. Use sophisticated data
can be an expensive mistake. A rig- mining tools, behavior analyses
orous analysis of the comparative and external research to under-
costs of acquiring new customers stand different segments of the
and retaining existing ones can be customer base over time.
eye-opening. For example, one • Strategy. Align loyalty drivers to
telecommunications service provider the customer experience, and ensure
Outlook 2006, Number 3 37

9. Customer Relationship Management
that the brand values are consistent • Enablers. Build technology capa-
with the needs of targeted customer bilities that enable data mining
segments. Define loyalty metrics and cross-organization integration.
and who owns them. Align leadership, culture and
• Execution. Implement customer values toward a customer-centric
treatments across channels, orga- approach. Put in place governance
nizational boundaries and tech- and journey management cap-
nologies. Make sure that a abilities to ensure that silo-based
rewards-based loyalty program turf warfare does not derail the
delivers clear business benefits necessary change.
and that it is flexible over time.
Appoint a clear owner of the Test new loyalty-building
entire “customer experience.” programs before scaling them
• Measurement. Track loyalty across the company
measures at each customer touch A common practice among loyalty
point. Proactively address the leaders is to pilot loyalty-building
causes of excessive customer initiatives to prove their value and
churn. Make sure that loyalty gain broader organizational buy-in
programs have a clear purpose before making sizable investments
within the loyalty strategy and in long-term programs. The key is to
that the return on investment for start with a high-impact first phase
such programs can be measured. and then scale quickly.
Engineering loyalty into CRM
The Accenture Customer Loyalty Management Framework helps engineer loyalty into CRM efforts by creating a sharper focus
on the distinct business capabilities in the marketing, sales and service functions that focus CRM on customer loyalty.
Compelling value proposition Branded customer experience
Loyalty insight Strategy
• Brand value measurement • Marketing mix (service, channel • Loyalty and treatment strategy
• Customer profitability analysis
• Loyalty driver analysis and advertising) • Measurement strategy
• Customer segmentation
• Propensity modeling • Customer proposition (offer, brand)
Enablers
• Loyalty program engine
• Customer data management
• Reporting and performance
• Campaign automation
management platform
• Analytics and decision platform
• Human performance management
Measurement Execution
• Sales and service excellence
• Loyalty index measurement • Loyalty program design
• KPI reporting
• Campaign and treatment delivery
• Financial impact and customer • Loyalty program delivery
• Campaign ROI measurement
• Offer and brand enhancers
profitability analysis • Loyalty program operations
Source: Accenture analysis
38 www.accenture.com/Outlook

10. recent book is Mass Affluence: Seven
ExxonMobil Corporation, for exam- sions on how customers have acted
New Rules of Marketing to Today’s
ple, used a pilot approach to test the in the past, which is often not the
Consumers (Harvard Business School
potential of its Speedpass system, best predictor of future behavior. In
Press, 2004).
which is based on a small key-tag the end, companies may find that
device that customers pass in front the loyal customers they seek have
paul.f.nunes@accenture.com
of a reader at the gas pump to expe- been there all along, hiding in plain
dite their purchases. With more than sight, simply waiting to be identified,
Naomi Kasolowsky, a London-based
7 million users, Speedpass has created understood and marketed to in the
senior manager in the Accenture
a loyal subsegment within the com- right ways.
Customer Relationship Management
pany’s customer base, and is helping
service line, contributed to this article.
to drive additional revenues. Exxon-
About the authors
Mobil continues to improve the
Woodruff W. Driggs is the managing
Speedpass system by pilot-testing
partner of the Accenture Customer
related programs.
Relationship Management service line.
A comprehensive approach Previously, he headed the Operational
CRM practice within the global CRM
Loyalty is the result of multiple
service line and established Accenture’s
factors involving brand, customer
Sales Transformation practice. Mr. Driggs
characteristics, category involve-
spent 17 years in the company’s
ment, cultural issues and a myriad
Communications & High Tech operat-
of other considerations. Companies
ing group, focusing on enterprise-level
that continue to base their market
application delivery and serving as
focus and position on a monolithic
managing partner of the group’s SAP
and overly simplistic view of cus-
practice. He is based in Wellesley,
tomer loyalty may be investing
Massachusetts.
in the wrong things for the wrong
reasons. Even well-intentioned
woodruff.w.driggs@accenture.com
loyalty programs can hamper com-
petitive effectiveness if they are
Steven S. Ramsey is a Chicago-based
not based on the right customer
partner in the Accenture Customer
loyalty drivers.
Relationship Management service line,
responsible for leading the Marketing
The advantage of the approach to
& Customer Strategy practice. His
building customer loyalty recom-
primary areas of focus are related
mended here is that it integrates
to helping companies with sales,
strategy, analytics and measurement
marketing and customer service go-
to quickly put into practice the
to-market issues, helping them drive
strategic changes that can have the
higher return-on-marketing and
greatest impact on business perfor-
CRM investments.
mance. By using this approach,
companies can shape and deliver
steven.s.ramsey@accenture.com
optimal customer experiences based
on the unique loyalty characteristics
Outlook Senior Contributing Editor
of a complex customer base.
Paul F. Nunes is an executive research
fellow at the Accenture Institute
This approach can help companies
for High Performance Business in
better understand what their cus-
Wellesley, Massachusetts, where he
tomers are thinking and what moti-
directs studies of business and market-
vates their purchasing decision—and,
ing strategy. His work has regularly
thus, can help companies keep those
appeared in Harvard Business Review
profitable customers. It’s a far better
and other publications. His most
method than basing strategic deci-
Outlook 2006, Number 3 39