It is important to leverage your intangible assets.

By Lawrence A. Crosby

We've devoted a lot of space in this column over the years discussing how firms can improve customer loyalty by providing an exceptional customer experience. We've also extolled the benefits of improved customer loyalty in terms of enhanced marketplace and financial outcomes. As customers become more attached to the brand / company, they exhibit a greater willingness to repurchase, increase share of wallet, cross-purchase, give referrals and be a cooperative partner in the relationship. All of these behaviors can have positive economic consequences for the firm. But perhaps the operative word here is "can." Improved loyalty does not guarantee improved sales growth, market share, or profitability. Often overlooked by firms that are focused on building loyalty is the simultaneous need to unlock the loyalty they are creating. The need to unlock loyalty is not just a requirement for firms that enjoy exceptionally high customer satisfaction / loyalty scores on average. Truth is, even companies with lower average scores can have customer segments with passionate loyalists / advocates who are ready to go-to-bat for the firm if given the chance.

Leveraging the Asset

It's been said before but bears repeating: loyalty is an intangible asset. Intangible assets have become increasingly important in the economy and are generally regarded as a source of competitive advantage. For example, customer loyalty to incumbent brands acts as a barrier making it more expensive for new firms to enter the market, thus protecting the profits of the established brands. Likewise, the willingness of loyal customers to engage in an array of brand-favorable behaviors has the potential to create competitive advantage for the firm in many ways: lower marketing and transaction costs, better access to prime distribution, ability to command a price premium, quicker adoption of new products, higher acceptance of customer programs and so forth.

While critically important, intangible assets also pose significant management challenges, especially in the areas of measurement and valuation. But perhaps one of the biggest and most seldom mentioned challenges is the failure to effectively leverage such assets. This seems to be much less of a problem for tangible assets like capital, plant and equipment. It's hard to imagine a company building a state-of-the-art plant in China, then abandoning the plant and moving all of its production to a high-cost location like the United States (it's not hard to imagine how investors would feel about that). However, it is much more common to see intangible assets like loyalty being underleveraged.

ID Your Leverage Targets

The first step in unlocking loyalty is to determine where the asset exists from a product and market perspective. Are there certain products/services in your line that enjoy high levels of loyalty as exhibited in surveys, customer comments, low churn rates and the like? Likewise, are there pockets of highly loyal customers who possess certain demographic or firmagraphic characteristics? With regard to the identification of loyalist segments, an important overlay is the assessment of customer value. Do these customers have sufficient buying power to expand / upgrade their relationship with the brand / company? Are they innovators or early adopters who might be naturally prone to give your new product a try? Are they influentials whose referrals are likely to carry some weight?

One advantage of identifying leverage targets is that it helps focus the firm's ideation around impacting the behavior of specific customers. Another advantage is that it helps avoid the dilution of effort effect. Any attempt to leverage the loyalty of existing customers is going to have costs associated with reaching out to those customers with some type of offer through various channels. Targeting is essential for ensuring that communications and product/program development resources are applied where they can do the most good.

ID Your Opportunities

Unlocking loyalty is basically a process of identifying and knocking down barriers that prevent already loyal customers from behaviorally expressing their loyalty. The most important opportunities for capturing the full value / ROI of loyalty building investments revolve around eliminating such barriers. This is an area where considerable innovation needs to be devoted, but seldom is.

One framework that is useful for conceptualizing barrier elimination opportunities is the pioneering work of a colleague, Dr. Jannie Hofmeyr. In the context of brand equity, Hofmeyr set out to explain why there is some degree of mismatch between the attitudinal equity of brands and their realized market share. He attributes this mismatch to something called market barriers. These are market factors that prevent people from buying the brands that they want (regardless of whether they are current customers or not). His research suggests that seven kinds of market factors account for 87% of deflected share:

• Availability (anything to do with access)
• Price (e.g., affordability)
• Product (preferred brand is unavailable in certain variants)
• Promotion (other brands promoted more than the preferred brand)
• Purchaser (when someone else makes the decision)
• Experts (when the person is sold off their preferred brand by an "expert")

All of these market barriers could serve as loyalty barriers particularly around the specific behaviors of repurchase and cross-purchase.

Another but related way for conceptualizing loyalty leverage opportunities is in terms of the various behaviors a loyal customer might exhibit. What can the company do to facilitate / enable those behaviors to occur? Following are a handful of ideas around the key loyalty behaviors. This just illustrates how innovation and action planning teams can focus their thinking around enabling specific behaviors.

Repurchase. One approach is to make it easy to reorder in any medium including face-to-face, mail, phone and on-line. Another way is to accelerate repurchase, e.g., during an auto sales slump, a Japanese car manufacturer approached its many loyal customers with an offer to end their lease terms early and move into a new vehicle at a lower monthly price.

Buy More. Variants on the notion of a "better deal for better customers" apply here, such as volume discounts and loyalty programs. Another option, suggest new uses for a product.

Cross Purchase. While a limited product line can be a loyalty barrier, do your loyal customers really know everything you sell? Are your salespeople incentivised to sell the full line? How about team selling with representatives from different units / divisions?

Recommend. Increasingly, companies are introducing formal referral programs, some of which dangle a small reward. Even less costly, simply thank customers for making a referral so they do so again. In some contexts, influential customers can be invited to give a testimonial.

Cooperate/Comply with Requests. This is often a matter of providing loyal customers with information on how they can better perform their role as a partner, e.g., how to use self check-in/out or manage own accounts on the Web.

Do Not Fail to Act

The failure to leverage intangible assets is especially pernicious because they are so hard to create. This is particularly true of customer loyalty. Only by taking steps to unlock loyalty can the full potential of this asset be realized.

About the Author

Lawrence A. Crosby, PhD, is the chief loyalty architect of Synovate Customer Experience; he may be reached at larry.crosby@synovate.com.

© Reprinted with permission, American Marketing Association's Marketing Management, November / December 2008 Issue. All rights reserved.