The Brand Loyalty Equation
There is a lot of noise made about the end of retail. How Amazon and the digital world will put an end to the need for traditional retailers. While there is no doubt the retail landscape is inexorably being altered by digital, is it possible that understanding digital will make us better retailers? Let’s discuss digital marketing for a moment. From the layman’s perspective, when you place an advertisement on Facebook, Google, or other third-party platform, you intend to make a sale. If you don’t make a sale, the placement of your advertisement could be considered a failure.
While this assumption is made quite often, it’s incorrect.
Seasoned digital marketers understand that the customer journey is far more complex. A digital marketer thinks in funnels and touches. In their view, every time a customer interacts with one of your platforms, this person is at a different point in your sales funnel. Different tactics are effective at different points in the journey. For example, if someone is searching for a nearby Chinese restaurant on Google, it is highly likely they intend to eat Chinese food soon. They have “intent” to make a purchase. But if someone states on their Facebook profile they like Chinese food, they may be open to discovering a new Chinese restaurant one day, without necessarily intending to eat in one today. Bottom line? It could take anywhere from five to fifteen touches before a customer moves from the awareness stage to the purchase stage of your funnel. See the below diagram as reference.
Now, the average traditional retailer probably thinks of every visit to their store as a potential sale, but as our explanation of digital marketing demonstrates, there are many stages to the customer decision-making process. I would surmise that in the past many customers would visit a store multiple times prior to committing to a purchase, similar to their digital behavior. And I would argue that despite a shift in sales from retail to digital, a retail presence is still a critical part of the customer journey.
Therefore, instead of companies cutting retail stores, they should shift their retail strategy to change how retail is best utilized. For instance, many Zara stores now have kiosks within them that allow customers to make purchases from the online store and have them delivered to their homes. Zara is adjusting to the shift in consumer behavior. Another example would be Sweetgreen’s new 3.0 store in New York where the retail experience seems it will be taking on the function of brand/product showcase to aid maximization of the pick-up and delivery functions through their digital application. And then there is Tesla, a company at one point rumored to be closing all its retail locations. While nobody could ever reliably claim to know what Elon Musk is thinking, I can say without question that the presence of these stores in upscale retail locations has raised brand awareness and value perception in the minds of the target clientele.
In my opinion, there are three factors that combine to create brand loyalty. The first is trust. Trust is built by doing what you say you are going to do, over and over again for an extended period of time. The second is value. Is the customer paying less than they would be willing to pay for that product or service? The third factor is aspiration. Does this product make me feel good about myself? Do I have a desire to tell others about it? Post it on my social platforms? Buy some merchandise? When your brand combines trust, value, and aspiration, it is highly likely you have a loyal clientele.
Brand Loyalty = Trust + Value + Aspiration
As entrepreneurs, marketing executives, retailers, and business leaders, we will always face short-term pressures and shifts. We have to grapple with questions like, What are you making from those advertising efforts today? Or, Why are per-store sales dropping? But if we hope to build long-term brand loyalty—a primary indicator of long-term success—the metric we should be focused on to determine the health of a business is long-term customer value.
How much does it cost us to acquire a customer in the short-term vs. how much we make off that customer when they are loyal to our brand in the long-term, across all sales channels—that’s where our focus should be. This requires that we dig deeper to see the entire picture, find relevant data points, and engage cost effectively at all points in the customer journey, both digital and physical.
The goal is an ongoing relationship with your customers so they are repeatedly patronizing, recommending, and engaging with your brand over time. Great entrepreneurs and brands understand the connection between customer acquisition cost and long-term customer value, and when they strike a profitable balance between these metrics, they know that everything is possible.