Customer Engagement vs Customer Loyalty

Posted in Marketing & Strategy Articles, Total Reads: 824 , Published on 29 February 2016
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One of the hardest parameters to measure is customer loyalty. It can be understood through proxies like surveys which can capture the willingness to buy. However the theoretical intention of buying and converting it into practice is completely different.

Customer engagement is a lead indicator of customer loyalty and the profitability of the brand. It is a measure of the consumer’s willingness to invest his hard earned money in the product or service offering of the company. The KPIs for customer engagement are also more tangible and easier to measure than the loyalty ones like Customer Loyalty Index or NPS. This is because loyalty is just a mental state while engagement is a more concrete form of behavior.


Image: pixabay


FEATURES

The three most important features of customer engagement are:

- It is majorly dependent on a person’s intuition.

- It is a better predictor of customer perception.

- It has a high positive correlation with sales revenues and profitability.


Customer engagement is deemed to be meaningful if through it they buy the company’s goods or services. If they simply visit the store to check out the product then it is not consider effective customer engagement. The similar experience can happen online too where a customer can just browse through a webpage without having any intention of purchasing any product or offering.


Customer engagement can be visualized as a linear axis. At one end of the axis with low customer engagement, consumers simply know the company’s offerings but are unwilling to buy them. At the middle of the axis the consumer have questions about the product, its uses. They compare it to other products and if they are finally satisfied they decide to buy. At the other end of the axis with high engagement, they actively think of buying the particular product or service. After buying if they like the experience of using it, they often become loyal repeat customers.


The best way to engage the customers nowadays is via two way interaction method where through live online chat they can have discussions with the representatives of the company. If there is an avenue online then the customer interaction can be carried out at any time of the day. This ensures that consumers get exact responses to their queries instead of routine lines from a FAQ list.


The needs and requirements of the consumer have a direct correlation to customer engagement and loyalty. By floating a consumer survey, companies can tailor their solutions to satisfy customers and make them into repeat buyers. Later a review of their product offerings have to be done by floating another survey in order to know the areas of improvement of their product.


Source: Socialbakers


Customer Engagement

Researchers have found a correlation between an increase in customer engagement and an improvement in cross selling by 22 percent and sales by nearly 50 percent. It also results in an increase in the size of the orders from five to eighty five percent. If the consumer is engaged then he will be instrumental in spreading positive WOM on Facebook, Twitter, YouTube, blogs and other such social media networks. This has a positive effect on other customers and will enable the reduction of the sales cycle and help in closing deals faster. However it is imperative that the customer be engaged throughout their entire lifecycle. Only then can they be truly positive proponents of a company’s products and services.


Customer Loyalty

Customer Loyalty however helps to generate greater demand for a product. Earlier past consumer behavior was the determining factor for customer loyalty. However this model was not perfect as it could not forecast consumer’s future behavior, it could not guarantee if the consumer would remain loyal or not. It also could not point if the loyalty was due to cashback schemes or reward points. It was also unsure where these customers would be buyers from the same company in the long run.


A HBR article which was published in 1995 showed that satisfied customer can also defect. Furthermore, numerous researchers showed that customer satisfaction was not an ironclad feature on which the companies could blindly rely upon. A study showed that the closure rate of bank accounts for highly satisfied customers and lesser satisfied customers were nearly the same effectively. So there was a low return on investment in trying to aggressively improve customer satisfaction.


Source: evigo.com


When researchers included the emotional connect as a factor in purchases, customer engagement came into play. Customer satisfaction was effective a function of the feedback given by a customer on decisive parameters like price or quality. Customer engagement ensures connect at the emotional level between the customer and the brand and hence it has a more direct correlation with sales and return on investment.


Subsequently, after the recession of 2008, customers have become very particular about the products that they spend their hard earned money on. If they do not a kind of connect with the brand then they will be highly unwilling to simply buy the product. Even when the market is booming the attitude of customer to stick to only products which they like won’t change. Since attracting a fresh customer costs 5 times that of retaining an older one, firms have to focus on retaining their consumers. Simply spending lots of money on advertising budgets and sales campaigns may generate an initial interest but won’t lead to a profitable relationship with the user.


Behavioral Economics comes in the center stage when customer loyalty and buyer decisions are being talked about. Emotional factors play a decisive role along with rational factors in final decision making. Behavioral economists argue that only 33% of human decisions and behaviors can be explained alone by rational factors and majority of purchase decisions are influenced more by heart than by head. Research by Gallup shows that fully engaged customers are profitable across business life cycles in both B2B & B2C scenarios. A truly powerful link exists between customer engagement and key business outcomes which is evident as per the below facts across industries.


Retail Banking – In retail banking it has been observed that actively engaged customers contribute to 37% of the revenues more than their disengaged counterparts. They also subscribe to more products from the banks like opening more loan or savings accounts, issuing more mortgages etc. Furthermore their bank balances are also higher than their disengaged peers.


Source: thefinancialbrand


Electronics – Consumers in the electronics business who are more engaged make almost 1.44 times the visits of their disengaged counterparts. They also end up spending much more and buying a greater number of products than they had originally accounted for. In the restaurant business, hospitality or insurance sectors also engaged customer end up spending much more on the company’s offerings.


CONCLUSION

Customer engagement requires the establishing of a connection with the customers in addition to providing great customer services. However for a big company, maintaining this relationship with their multitudinous customers is a very daunting task. Here is where repeat sales and WOM become important. Social media and also online tools can be used to maintain these relationships. Special attention also needs to be given to the most profitable customers by offering those customized benefits which are not available to the common public.


This article has been authored by Anurag Das and Swagato Sarkar from XLRI Jamshedpur



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