The Sharp-doctrine: there's no such thing as loyalty
In conversations and discussions about How Brands Grow, you sometimes come across persistent misunderstandings. To name but three: 1. Sharp states that loyalty does not exist 2. Sharp says that segmentation is nonsense 3. Sharp ignores the purpose of a brand
First of all, it is not at all strange that such misunderstandings exist. When you read a book, you always remember a few things that particularly struck you. But you forget a lot more, especially as time goes by. Yet hopefully, the main points will stay with you, and these are usually encapsulated in a number of keywords: a core of truth. However, there is a chance that these main points will then fade or become distorted. That's how our brain works. That's why it might be interesting to freshen up a few things.
What about loyalty?
"If you want loyalty, buy a dog" is a much-cited quote from Byron Sharp. However, it is a misunderstanding to say that loyalty does not exist, or at least it is only part of the truth. First let's deal with the main point: Sharp shows that too many companies spend an unnecessary amount of their budget on loyal customers, and forget that the focus should be much more on acquiring new customers. Here are a few points about this.
Of course, you should not open the back door and let your customers leave the building because you deliver too poor quality or give them too little attention. But if you want to grow, you will have to attract new customers, because you will always lose customers anyway. This phenomenon is called 'the leaky bucket'.
And also regarding that loss of customers: in a substantial part of the cases, that churn is inevitable; you have no influence on that. Customers die, move house, get a cold call with an offer from a competitor, join a scheme through their work, etc. So no matter how much money you spend on it, the ratio between effort and result is not linear; you are dealing with a decreasing return on investment. However, in practice over the past decade (let's call it the 'NPS era'), there has been more and more focus - too much according to Sharp - and too much money thrown away on existing customers.
Byron Sharp uses hard figures to show that a loyalty programme is largely a waste of money. This has been interpreted as: loyalty points are especially interesting for people who buy a lot from you anyway, and may already be at their maximum. So you are not going to sell much more, and certainly not in relation to the costs involved. And what's more, we are also talking here about a relatively small group of loyal customers. The 80/20 rule that is often cited as the rationale behind the loyalty programme often does not apply. However, what Byron Sharp did not discuss is the possible negative effect of not having a loyalty programme. Sometimes you have to take part in the marketing cold war. This is similar to the promotional prices we so often encounter in retail.
And then there is the concept of loyalty. It is a given that brands have customers who buy a lot from them and relatively often. Based on their behaviour, we can call them loyal. But we have to realise that this loyalty is based on habitual behaviour, because of our lazy brain. That type of loyalty is pretty thin. By no means every 'loyal' customer has serious reasons for choosing you, or a strong emotional bond with your brand.
Consumers often have a repertoire of brands that they see as 'okay' and which one they choose depends on the moment (the reason). In that sense (feeling and professing) consumers may be loyal to brands, but they are not monogamous. So yes, loyalty in terms of repeat purchases does exist; but if you want real loyalty (for better and for worse), buy a dog (although there are biologists who think differently about this).
You should even look at your customer base, as in: 'these are not my customers; these are the competitor's customers, who sometimes also buy from me'.
In short, loyalty does exist, but more often than we would like to think on the basis of habit. And if it is based on anything more than that, it is not necessarily exclusive only to that one brand. Nevertheless, there's nothing wrong with working to ensure that customers stay with you (you don't have to open the back door), but you'll still have to spend most of your budget on new customers, because without them you won't grow.
And what about ambassadors or super-promoters?
Of course, there is nothing wrong with having customers who are happy with you and pass that on to others. However, Byron Sharp claims that the effect of this is marginal. He mainly looked at recommendation behaviour via social media. He did not consider the fact that people copy each other's behaviour or rely on enthusing stories instead of explicit (and pro-active) recommendations. Moreover, he based this on averages, while of course it may well be that a certain brand performs above average on word-of-mouth because a lot of targeted and serious work went into that. In such a case, a brand like that spends money on existing enthusiastic customers so that they function as an extra marketing channel - for the benefit of mental availability - and not to make them spend (even) more themselves.
The Byron Sharp study also shows that it is not necessarily the loyal customers who provide word-of-mouth, but more the people who have recently made their choice. There are categories in which word-of-mouth plays a significant role and in which it pays to take good advantage.
So you could say that it is important to focus on recommendable customer experiences rather than on repeat purchases.
So much for Byron Sharp versus loyalty. Now for the second misunderstanding: that segmentation would be nonsense. Read more about it in this blog.