3 Ways to Measure Customer Loyalty

Customer loyalty is a tricky sentiment to track.  It is difficult to measure customer loyalty because proof of loyalty, the state of being loyal, is most often shown after an action occurred that indicates a person’s loyalty.  However, past action often indicates but doesn’t guarantee future loyalty.

So how do you measure something that hasn’t happened yet?  You can look for patterns when analyzing responses to survey questions designed to measure specific indicators that, when taken in context by the analyst, have varying degrees of certainty as to future action.  Bob Hayes, author of Measuring Customer Satisfaction and Loyalty, breaks it down into 3 measurements: Retention, Advocacy and Purchasing.

Retention as an Indication of Loyalty

Retention is a reflection of a customer’s willingness to remain with a particular company’s service or products and is useful to measure customer loyalty.  Questions designed to determine loyalty are often based on the “How likely are you…” model to predicate future behavior.  Among wireless or other service provider companies, Retention is most often asked by the question, “How likely are you to switch?”  This question is an indication of the relationship the customer has with the company and may be an indicator of overall satisfaction. Although, the smart analyst should be aware that the question alone, without corroborating evidence, may be an indication of a deeper dissatisfaction with the competition rather than satisfaction with their current company.

This least of all evils attitude is often found in service industries such as cable/internet providers, wireless companies and banking.  To be helpful, retention questions should be supported by an investigation of the second measure, Advocacy.

Measure Customer Loyalty by Measuring  Advocacy

“How likely are you to recommend…?”  or How likely are you to purchase other products from us?” and ” How satisfied are you with…?” are typical advocacy questions.  They are related to retention because the assumption is that a customer that is a cheerleader for or satisfied with your organization is likely to remain with you.  They relate to the customer’s perception of the company’s image that they are doing something right.  Determining what that “right” something is requires additional investigation.  It may be related to a single experience or simply to an overall – but general – impression.

There is overlap between Advocacy and Retention but they are distinctly different.  Advocacy requires less action on the part of the customer, because to advocate does not mean purchasing.   Whereas Retention requires the costumer to engage with your company through the basic transaction of making an additional purchase (or renewing a service) which in itself is a strong indication of customer satisfaction.

However, the strongest indication of customer satisfaction is related to Purchasing.

(RE)Purchasing is a strong Customer Satisfaction Indicator

Purchasing questions like, “How likely are you to (continue)(increase)(purchase different) products from X Company?” are the best indicators of growth through customer loyalty.  They seek to determine if the amount spent per existing customer will increase or decrease based on additional purchases within or across product lines.  It is distinguished from the retention question of how likely are you to switch because a switching question may me a repeat of the same revenue (0 growth) rather than an increase in spending (positive growth)

Use All 3 To Measure Customer Loyalty

All three customer satisfaction indicators are closely related in that they measure costumer intent.  negative responses to these types of questions usually indicate a loss of that customer.  Either they will re-up, purchase additional products or feel good about your company/product/services — or they won’t or don’t.  It is fairly straight forward to develop relevant survey questions to receive the data.

What becomes difficult is providing the context for analyzing the survey data into a meaningful construct that can be used by decision makers.  That is the job of the analyst to rely on his or her experience, knowledge and expertise to put the data into perspective.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>