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customer loyalty

Is Loyalty Overrated?

by Bryan on October 26, 2010

Our dog Scout just had a birthday. She’s a very loyal dog. She and her older sister Cocoa Puff (both chocolate Labs) are loved members of our family, but they have very different personalities and are loyal in different ways. Is loyalty overrated? I can comfortably walk with Scout off leash without the fear of her darting off at the first smell of pizza, so I’d have to say no.

Nature or Nurture?
This got me thinking more…Is loyalty a function of nature or nurture? How important is customer loyalty? Are we taking the best care of the people who give us business? Are we conditioning our customers well or are we the cause of our own trouble? As a company how much of our attention does it deserve? Is it overrated? Is loyalty (to a product or brand) or the propensity to be loyal in general something we’re born with or is it learned? To tell you the truth, I’m not sure about whether it’s learned or hard wired. I can tell you that Scout is a very loyal dog but wasn’t always that way. After a little bit of training and rewards for good behavior she started to get it. She listens to us, stays close on walks off leash and (as you can see in the photo) loves to hang out with everyone. Cocoa Puff (aka: Cokes and Puff Doggy) our other Lab had the same training but is much more independent and loyal to whomever has food. How did this happen? Maybe I need the Dog Whisperer…

On the consumer side, I’ve been watching the explosion of Groupon with deep interest (disclaimer: I’m working on something similar but different for our community too). Groupon has had a tremendous amount of success and is an amazing business case study. If you don’t know their model they basically use the power of (local) collective buying to connect businesses to new customers fast via super low prices. They have a data base of millions of consumers all shopping for the best deals. You discount your product 50%+ and if the set number of consumers all buy your thing, they (all) get the deal. You pay Groupon the rest of your profit margin as a fee. Groupon promises to jump-start your biz and deliver lots of new customers walking in your door fast. Based on the testimonials on their site, it looks like this has worked for a lot of people. But I wonder at what cost and for how long?

From my point of view, if you sign up for Groupon’s service you’re basically mortgaging 100% of your margin or profits today for the hope of business tomorrow-to say nothing of the possible devaluation of your brand. That is, you have to discount your product or service 50%+ (and with competition fierce in some categories it’s higher), then pay the rest to Groupon. This you do with the expectation that first-timers will be so dazzled with you that they will surely be back and you’ll instantly have loyal repeat business. But as the rise of these kinds of services increases (500+ imitators), the deals become even more “insane” margins are ground further to stubble. I’m worried that small businesses are training consumers to be loyal to the best price. Are these the kind of customers we want? With the economy still down, consumers seem to win. But do they? Where does the price-slashing end? Without profits, companies can’t afford to keep their best people and they have to cut corners causing quality to suffer.

I’d like to hear your thoughts on this. Is loyalty nature or nurture? Is it overrated? How do we cultivate loyalty?