Welcome to the third and final part of this series on how to build and leverage customer habits throughout the customer journey. In Part 1 and Part 2, I shared with you the differentiation between a habit shaping window and a habit maintenance and transformation phase in a customer’s lifetime with the business and how habit disruption can serve as a beacon for possible customer defection. Today I would like to talk a little about what you should know about loyalty and habit in the customer expansion phase. Oftentimes your business may not be content with just retaining your existing customers. Your ambition may be to grow your existing customers’ relationship with you by getting them to buy more, upgrade, or buy other product lines that you also offer. To do this successfully, you need to understand what drives your customer and know if your customer loves you or they are simply habitual or both.
Segment Customers by Attitudinal Loyalty and Habit
Before implementing a customer expansion (cross-selling or up-selling) campaign, it is important to know where your customers are in the two-dimensional space of loyalty and habit. By loyalty, I don’t mean just behavioral loyalty such as buying a lot, because habitual customers may look exactly like that too. Instead, I refer to loyalty in the sense of how consumers feel about your brand. The attitudinally loyal customers are ones that love your brand, believe in the quality of your product, and prefer you over competitive products when asked. Because attitudinally loyal and strongly habitual customers are both likely to buy a lot from you, they may look very similar in their behavior in terms of how frequently they purchase or how much they spend. You have to dig a little deeper into their behavior to identify which is which. The key difference is that habitual customers tend to demonstrate a certain level of consistency and stability in what they do. They may buy around the same time, from the same location, repeatedly buy the same product, almost always (or never) use coupon, etc. The ones who are attitudinally loyal but NOT habitual will also buy a lot, but you won’t see the same stable behavioral pattern. The table below will help you make a determination based on what your customers do. If you are interested in a more nerdy academic dive into the differences, check out my published paper Not All Repeat Customers Are the Same.
| True Loyalty | Habit | |
|---|---|---|
| What drives behavior? | Belief about product superiority and/or emotional connection | The presence of contextual cues (e.g., eat cookie -> want milk) |
| Awareness | Conscious decision | Automatic process with no clear decision-making process |
| Purchase pattern | Erratic as need arises | Consistent in terms of time, location, and context (see more below) |
| Reaction to competitive offerings | Aware of competitive offerings but relatively resistant due to loyalty | Blind to competitive offerings |
| Deal breakers | Dissatisfaction, product quality issues, service failure, etc. | Change of contextual cues, such as store layout redesign, location change, etc. |
Before I move on, I would like to add that habit is easier to observe through behavior than attitudinal loyalty, as habit has a certain pattern to it. To accurately gauge attitudinal loyalty, it would be best to survey your customers and ask about their thoughts and feelings about your product. But if that is not possible, the table above combined with customer purchase data should still help you separate those frequent customers who are driven by habit vs. not habit (e.g., loyalty). Customers’ social media conversations with you can also give you some clues as to how loyal they are to your brand.
How to Treat Loyal vs. Habitual Customers Differently
Once you’ve identified your segments of attitudinally loyal vs. habitual customers, it is important to customize your cross-selling or up-selling campaign based on that knowledge. Why? Because these individuals are driven by very different things. What’s more, habit can be strong and fragile at the same time. If not careful, your marketing campaign can disrupt people’s habit, and from reading Part 2 of the series, you know that such disruption can lead to the customer eventually leaving.
To give you an example, in the paper I listed earlier, my coauthor and I ran a field experiment with a gas station+convenience store chain. If you are familiar with the gas station/convenience store industry, you know that gas is a low profit margin product. What really brings in money is often products sold in the attached convenience store. In this particular case, the company wanted to bring more of their gas-only customers into the store (i.e., cross-selling). We tested out two different designs of the campaign. One design (I’ll call it Design 1) featured a pretty typical promotion, where customers would receive a free bottle of water if they bought three bottles of water from inside the store. In the other design (Design 2), it’s also three bottles of water for one free bottle of water. But the campaign required that the customer come inside the store and buy one bottle of water each time for a total of three times before they could receive the free water. The campaign message was delivered to the company’s gas-only customers, and each customer randomly received one of the two campaign messages. How did customers react? Quite interesting actually. For the attitudinally loyal customers, they responded better to Design 1, not surprising since the purchase requirement for that design was less rigid. But the habitual customers’ responses were the opposite. Those receiving Design 1 bought less than customers receiving Design 2. What’s more, people whose gas-purchase habit was strong actually experienced habit disruption and ended up buying gas less from the company after experiencing Design 1. This shows you the potential harm from ignoring the difference between loyal vs. habitual customers.
The good news is that in our study, strongly habitual customers who received Design 2 did not experience habit disruption. They bought more during the campaign and their gas purchase was not affected negatively after the campaign was over. Habit research has shown that one effective way of changing an old habit (in this case buying gas only) is to develop a new habit (in this case buying gas + in-store products) to replace the old habit. The repetition of actions in Design 2 helped with kickstarting the new habit and avoided simple disruption of an old habit without something else to fall back to.
What if the customer is both loyal and habitual?
At this point, you may want to ask “what if some of my customers are both loyal and habitual?” That’s certainly possible. Some customers may love you, and overtime may have developed a strong habit of buying and using your product. These customers are loyal and habitual at the same time. How should we deal with these customers? My research has shown that when loyalty and habit co-exist, most of the time, habit is the force that takes over. This is because habit is an automatic behavioral routine that is triggered faster than positive thoughts and feelings about the company. What this means is that when addressing people who are both loyal and habitual with your product, you should treat them more like habitual customers than loyal customers unless your campaign is specifically designed to bring that loyalty to the surface.
To recap, before running a cross-selling or up-selling campaign, you should segment your customers by whether they are loyal or habitual and design your campaigns accordingly. I created the quick-reference chart below to help you guide your campaign design for each segment.
| Loyalty/Habit Levels | Weak Habit | Strong Habit |
|---|---|---|
| Low Loyalty | Cross-Selling and up-selling not a focus. Should work on developing either loyalty and emotional bond or purchase habit depending on product category. | Avoid one-time promotions that may disrupt habit. Instead, build repetition or design contextual cues into campaign to help steer these strongly habitual customers into developing a new better habit. |
| High Loyalty | Simple campaign that emphasizes appreciation and emotional connection. Brand-related non-monetary incentives can work well in this case. | Similar strategy as the cell above. Alternatively, the campaign needs to design a strong brand connection component to bring out the deeper loyalty from underneath habit. |
I hope you enjoyed this series on customer habit based on my 10 years of research on this topic. Please share your thoughts and comments. If you find the information helpful, please share the love through your social networks using the buttons below or on the left side of the page. Thank you for reading!