Customer Loyalty – a matter of Habit; but habits do die

Customer Loyalty Is Overrated

Why do companies routinely succumb to the lure of re-branding? The answer say A.G. Lafley and Roger L. Martin, the authors of “Customer Loyalty Is Overrated,” is rooted in serious misperceptions about the nature of competitive advantage—namely, that companies need to continually update their business models, strategies, and communications to respond to the explosion of options that sophisticated consumers face.

Research suggests that, what makes competitive advantage truly sustainable is helping consumers avoid having to make a choice. Consumers make most purchase decisions almost automatically; they look for what’s familiar and easy to buy. They choose the leading product in the market primarily because that is the easiest thing to do. And each time they select it, its advantage increases over that of the products or services not choose, creating what the authors call cumulative advantage.

Lafley and Martin offer guidance for building cumulative advantage:

• Become popular early:g. back in 1946, Procter & Gamble gave away a box of Tide with each & every washing machine sold in America.
• Design for habit: The best outcome is when choosing your offering becomes truly an automatic consumer response. While designing for this – never leave the outcome entirely to chance – look for changes that will reinforce habits and encourage repurchase. When P&G introduced Febreze, consumers liked it but didn’t use it much. The problem, it turned out, was that the product came in what looked like a glass-cleaner bottle; so users kept it under the sink. When the company redesigned its bottle so the customers could keep it in a more visible spot, the consumption leap frogged.
• Innovate inside the brand: Changes in technology or other features should ideally be introduced in a manner that allows the new version of a product or service to retain the cumulative advantage of the old. Efforts to “relaunch” brands can lead people to break their habits. For customers, “improved” is much more comfortable than “new.”
• Keep communication simple: A clever ad may win awards, but if its message is too complex, it will backfire. Daniel Kahneman, one of the fathers of behavioral science, characterized subconscious habit-driven decision making as “thinking fast” and conscious decision making as “thinking slow.” Remember, ‘the mind is lazy’ and it doesn’t want to ramp up attention to absorb a message with a high level of complexity.

A Counterpoint

Rita Gunther McGrath takes issue with some of this thinking. She argues that although the theory of cumulative advantage makes sense in industries that are predictable, but those condition might no longer apply for many other industries. Habits, like other elements of the environment, too can shift.

McGrath says, brands must balance the power of cumulative advantage with the need to refresh their approach; one tactic is to leverage an organization’s core skills or capabilities, but in a new format. The better executives become at understanding the motivations behind unconscious choices, the more likely they are to succeed at building habitual behavior among their customers—and, just as important, the more likely they are to see how those habits might change.

Conclusion

The team at Actuate Business Consulting, a knowledge based management consulting firm in India, believes, that in today’s world of infinite communication and innovation, any company – whether it is a large established player, a niche player, or a new entrant – can sustain the initial advantage of a superior value proposition by understanding and implementing the aforementioned four rules of cumulative advantage. However, companies and industries, have to face strategic inflection points, often caused by ‘ technological development’ and ‘adoption tipping points’. After this inflection point, without true reinvention, companies will only go downwards. Hence, they need to find a balance which allows for true reinvention.