Leading With Loyalty

Brand rituals build loyalty and drive growth.

By Zain Raj, Euro RSCG Discovery

Like most of you, I travel a lot. Which means I meet a lot of very interesting people. Once they find out what I do, our conversations tend to drift into the issue of brands, business and marketing.

I was travelling from Chicago to the West Coast last week and found myself sitting next to a gentleman; I’ll call him Jim, the CMO of a Fortune 100 company. In a conversation that lasted for about three hours, we talked about the challenges he is facing in his business.

We discussed everything from changes in government policies to the impact of the economic environment; from competitive pressures to pricing disadvantages; media proliferation to media fragmentation; and from consumers being in control to the powerful impact of social media.

Interestingly, the one subject Jim didn’t mention was the changes in the way today’s consumers relate to brands. I found this omission very intriguing. Is this because he did not see this as an issue? I probed him on this.

As he talked, it became clear to me that he was dealing with a significant branding problem. His brand has very high awareness levels. It also has very strong equities. He is at price parity among his competitive set. But he is losing share. How is this possible?

I posit a response: It is because Jim’s brand was built in the last millennium and is still being managed under 20th century marketing principles.

The last millennium was about the traditional marketing and advertising model. The model invented by Procter & Gamble and its acolytes. It was a model built in a different era. As we all know, the consumer has moved on. The business environment, the global economy, the internet, lack of innovation, and increased complexity all make it difficult to succeed using the ways of the last millennium.

Nothing is as it was. We are living in a new reality and we need to understand it, accept it and deal with it. The pressures on the business and the challenges marketers face is resulting in having to do more, deliver more and do this with far fewer resources. Budgets are regularly being cut. People are regularly being cut. Expectations are constantly being increased.

Smart marketers are realizing that they need to move from just doing traditional “branding” that will drive acquisition to a more balanced marketing program. This should include a higher degree of emphasis on understanding and retaining their existing customers and developing a deeper sense of loyalty to the brand.

This is a more efficient model, which is critical because it costs significantly more to acquire a new customer than it does to retain an existing one (a cliché based on fact).

An emphasis on customer understanding and retention is not new; most companies claim they are doing this already. However, I believe that they are only scratching the surface. They are executing tactical add-ons to their mass branding programs instead of leading with a strategy. They are executing a basic version — one that does not work.

With the commoditization of brands and homogenization of value propositions, brands need to create deep and meaningful bonds to generate the kind of loyalty that drives meaningful business success — over time. This means that brands need to deliver innovations, marketing, and product choices — first for the benefit of their existing customers before they do so for new prospects. This is what Harrah’s pioneered in the casino industry.

According to the Harvard Business Review, Harrah’s has the most devoted clientele in the casino industry, which is a business that is notorious for fickle customers. Harrah’s has taken full advantage of its ability to capture the data of current customers to build tremendous loyalty.

Harrah’s uses the data on its customers to enhance customer service. They created Total Rewards, a loyalty program conceptually modeled after the airline industry’s frequent flier programs, but customized for their own business.

These insights improve operations for Harrah’s and tailor its reward program and marketing efforts to appeal to the customers who have the most impact on its business. It helps make the casino’s most loyal customers even more devoted.

This has helped build the business. After years of being a second-tier player in the industry, Harrah’s has become the industry leader and a financial success. As a matter of fact, the program generates $6.4B (80 percent) gaming revenue yearly.

Brand-Bonding Behavior

What Harrah’s has done is to create, among its customers, a set of very meaningful behaviors where the Harrah’s brand is central to their use of the gaming category. For them, no other brand will do.

I call this phenomenon brand rituals.

A brand ritual is a brand-bonded behavior that customers build with certain brands that makes them a central part of their experience in the category. These rituals go beyond habits and routines to create a deeper bond. They become an integral part of people’s lives. They create an enriched experience in a unique way only that brand can provide. This is where the brand gets the strongest levels of loyalty from its core customer group.

We can all name some of the brands that are part of our rituals. Some of mine are: Having coffee at Starbucks; watching TV shows on my iTouch; starting my day with the Wall Street Journal; searching for information on Google; and shopping every other weekend at Costco.

These brands have created a deeper sense of loyalty and bonding than their competitors. Different customers want different things from their relationships and they evaluate, perceive and use brands differently. However, despite all of these differences, making a brand central to their “ritual” results in predictable and sustainable behaviors that lead to profitable growth.

But how do you do it? By fostering a mutually committed relationship with your customer, you create a branded relationship that enhances and enriches your user’s experience. By establishing meaningful connections with your customer, you continue to make your brand more personal in the consumer’s eyes. And that is the essence of a true brand ritual.

Behavioral data is an important component. It provides insights to inform how to effectively create those bonds while instilling the idea that there is simply no other choice or way to do business than with your brand.

It needs to be integrated with attitudinal data for a complete picture. Frequency of use is a necessary proxy, but is not a strong measure of loyalty. Attitudinal, emotional and satisfaction measures are important, but are not great predictors of sustainable behavior.

To understand this phenomenon, we created and tested (and are still refining) a more holistic, predictable measure, which we have dubbed the Brand Bonding Behavior Index (BBBI).

BBBI is a measure of the quality and nature of loyalty. It captures the essence of the brand ritual by integrating levels of commitment, of enriched experiences, and frequent behavior to let us codify various dimensions of loyalty and their underlying drivers. We fielded a study, in partnership with Leo J. Shapiro, a leading research company, among 3,000 US customers of 78 brands in multiple categories from retail to services to packaged-goods and beer.

What did we learn? Here are a few teasers we gleaned as we looked across categories:

There is more than one kind of loyalty. Our study identified nine brand-bonded behavior states with varying degrees of brand commitment, indicating that frequency is not a sufficient measure of loyalty. Every brand has all nine states at varying levels.

Nearly half of a brand’s customers are open to other brand alternatives. Three of the nine brand- bonded behavior states consists of users who are open to alternatives, while some even actively seek them. On average, six percent of brand users dislike the brand they currently use! Just because they’re using your brand frequently doesn’t mean they are loyal to you.

One of the lowest loyalty states is emotionally-based. You can imagine our surprise with that finding, given the emphasis on the need to create a lovemark or trustmark. In this brand-bonded behavior state, brand users find the brand to be friendly, attentive, and accessible but are open to other brands. Supermarkets, gas stations are among the categories that index high in this state. Warning: likability or appeal are not necessarily predictive of high brand commitment.

Brand rituals are the highest form of loyalty. Fifteen percent of the customers of a brand have a bonded relationship with the brand that qualifies as a brand ritual. Reciprocal relationships, dependable experiences, experiences that delight, and a sense of a brand user’s acknowledged value to the brand are essential in brand rituals. As in any relationship, you need to nurture it constantly.

Tesco Gets It

Tesco is another company that really understands the importance of developing customer bonds. Ranked as the largest retailer in the UK, and the third largest worldwide, Tesco has more than 15 million regular shoppers and is the world’s largest online food retailer via tesco.com. But this wasn’t always so.

Just 15 years ago, Tesco was a weak number two behind Sainsbury’s. Threatened by discounters, Tesco had a low share-price and slow growth. So, the retailer looked at ways to retain existing customers, increase frequency and value and broaden customer share. What resulted was the creation of a loyalty program, Tesco ClubCard, which rewarded customers in various ways for shopping at Tesco.

The Tesco Clubcard was tested in 1993/1994 and launched nationally in 1995. The goal was to capture customer data, allowing Tesco to identify customers by name, reward frequency and value, while profiling customers nationally and locally. In addition, Tesco planned to use the data to develop new services and products to serve their needs better than the competition.

Tesco incorporated offers and promotions from partner brands that were targeted based on the customer’s profile. Special interest clubs like Wine, Baby and Healthy Living were introduced to give consumers a more personal connection to the store. And a budget was set aside for rewards that would go back to customers to spend at Tesco each year.

What Tesco did is to build a brand ritual. They showed a commitment to customers by responding to their changing needs and created an enhanced and enriched experience for them. Some of the innovations delivered were Points on Petrol introduced in 1996. Tesco.com launched in 1999 and incorporated the Club Card. The Healthy Living Club and Air Miles Rewards were introduced in 2002. And Green Club Card points were introduced in 2006.

 To keep up with technology, the program evolved from an actual card to a key fob, making it even more convenient for Tesco’s loyal customers. Ultimately, the club itself changed over time and that was a crucial part of the strategy to keep it relevant and grow its members.

There are two dimensions for building a brand ritual commitment and enriched experiences. Commitment is delivered when you understand that you need to be loyal to your customer first for them to reciprocate. You have to deliver enriched experiences to them that are relevant and meaningful. This is possible if you use transactional and behavioral data and fuse it with attitudinal and relational research.

This then allows a larger number of your customers to move up the continuum from habit (where the brand is neutral with possibly good feelings) to a routine (where the brand delivers functional satisfaction) to a bond where the brand becomes central to their behavior.

Our study confirms that for a majority of brand customers, the brand is part of their habit and in danger of being replaced by a competitor quickly and easily. For some 36 percent of users, their brands are part of their routines as long as they perform well.

Many packaged-goods brands fit in here. That’s why they constantly tout how they have improved to maintain usage. But for about 15 percent of consumers, the brand is absolutely central to their experience.

Remember, a holistic, unified approach in your marketing program is very important. This means that you should create synergistic experiences at every possible touch-point. No one experience should be out of context from the rest. If you do this well, you move your brand up the bonded behavioral continuum to a brand ritual.

And it pays. Tesco went from a struggling retailer to the largest in the UK and third largest globally. Harrah’s has gone on to become the largest, most-profitable entertainment company. Apple has been the turnaround darling. Google is worth more than its peer set.

Coming back to Jim: Even though he has good attitudinal measures on his brand, he has been unable to create a behavioral bond. My advice: Build a brand ritual … and change your brand’s trajectory. •

ZAIN RAJ leads Euro RSCG Worldwide’s global retail practice and is CEO of Discovery, the company’s data analytics and customer relationship marketing unit. He can be reached at zain.raj-at-eurorscg.com.