The Sharp sharia: loyalty does not exist

First of all, not at all strange that this kind of misunderstanding exists. When you read a book you always remember a few things that struck you. But you forget a lot more. Especially as time goes on. Hopefully it's the essence that stays with you. And that is usually captured in a few keywords: a kernel of truth. There is a chance that that essence will then blur or distort something. That's how our brain works. That's why it might be interesting to brush up on a few things.

What about loyalty again?

"If you want loyalty, buy a dog" is an oft-cited quote by Byron Sharp. However, that loyalty would not exist is a misconception, or at least only part of the truth. First things first: Sharp shows that too many companies spend unnecessary budgets on loyal customers, forgetting that the focus should be shifted much more to acquiring new customers. A few things about this.

Of course: you shouldn't open the back door and let customers walk away because you're delivering too poor quality or giving them too little attention. But if you want to grow, you will have to attract new customers, because either way: you will lose customers. This phenomenon is called "the leaky bucket.

And more on that loss of customers: in a substantial portion of cases, that churn is inevitable, you have no control over it. Customers die, move, get called with an offer from a competitor, join a scheme through their work, ..... So no matter how much money you spend on it, the relationship between effort and outcome is not linear; you are dealing with diminishing returns. In the practice of the past decade (let's call it the "NPS era"), however, there has been more and more, and thus, according to Sharp, too much, focus on, and money thrown away on, existing customers.

Byron Sharp shows with hard numbers that a loyalty program is largely a waste of money. The interpretation of this: loyalty points are especially interesting for people who buy a lot from you anyway, and may already be at their max. So you're not going to sell very much more. Certainly not compared to the budget you have in return. On top of that, we are also talking about a relatively small group, those loyal customers. The 80/20 rule that is often cited as the rationale behind the loyalty program often turns out not to apply. What Byron Sharp did not address is the potentially negative effect of not having a loyalty program. Sometimes you do have to join in the cold marketing war. Similar to the promotional pricing we see so often in retail.

Then there is the concept of loyalty. It is a given that brands have customers who buy from them relatively often and a lot. Based on behavior, we can call them loyal. But we have to realize that that loyalty is based on habitual behavior, because of our lazy brain. That type of loyalty is pretty thin. By no means every "loyal" customer has heavy considerations for choosing you, or a strong emotional attachment to your brand.

Often consumers have a repertoire of brands they see as "okay" and it depends on the moment (the occasion) which one they choose. In this sense, while consumers may be (feel and profess) loyalty to brands, they are not monogamous in this regard. So yes, loyalty in terms of repeat purchases does exist. But if you want true loyalty (for better and for worse), buy a dog (although there are biologists who think otherwise).

You should even look at your customer base as in: 'these are not my customers, these are the competitor's customers, who sometimes buy from me too'.

In short, loyalty exists, but more often than we like and think based on habit. And if anything more than that underlies it, it is not necessarily exclusive only to that one brand. Nevertheless, there is nothing wrong with working to ensure that customers stay with you (you shouldn't open the back door), but you will still need to spend most of your budget on new customers, because without them you won't grow.

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What about ambassadors or superpromoters?

Of course, there is absolutely nothing wrong with having customers who are happy with you and passing that on to others. However, Byron Sharp indicates that the effect of this is marginal. He has mainly looked at recommendation behavior through social media. He did not take into account that people copy each other's behavior or rely on enthusiastic stories instead of explicit (and proactive) recommendations. Moreover, he has assumed averages, while it is of course quite possible that a certain brand performs above average on word-of-mouth because, for example, it is also targeted and taken seriously. In that case, such a brand spends budget on existing enthusiastic customers, but then to have them act as an extra marketing channel - for the benefit of mental availability - and not to have them spend (even) more themselves.

Incidentally, Byron Sharp's research also shows that it is not necessarily the loyal customers who create word-of-mouth, but more the people who have recently made the choice. There are categories where word-of-mouth plays quite a significant role and where it pays to capitalize on it.

So you could argue that it is important to drive for recommendable customer experiences rather than repeat purchases.

So much for Byron Sharp versus loyalty. You can read more about other misunderstandings in Parts 2 and 3 of Sharp Sharia.

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