If Jane comes to your store every Saturday and spends $50, would you consider Jane a loyal customer? Driven by concerns about the bottom line, businesses often define loyalty based on how much consumers spend and how often they buy. But digging a little deeper into the psychological reasons behind “loyalty” can reveal important insight and help identify effective target marketing strategies.
In Jane’s situation, there are two possible reasons behind her “loyal” patronage: (1) she genuinely likes your products and services, and therefore, when need arises, she always comes to your store to make a purchase; (2) she comes to your store out of habit, whenever she’s on her way to visit her grandma on Saturdays. In other words, both habit and true loyalty can drive Jane’s seemingly loyal behavior, and your optimal marketing strategy should be different based on the exact reason involved. Let’s dissect this a little further, shall we?
How Are Loyalty and Habit Different?
To understand the difference between loyalty and habit, think about someone who gets up every morning and drinks his cup of coffee (or orange juice for the more health-conscious). He may really like coffee/orange juice, or he may be doing that simply because that’s what he has always been doing for the last 20 years. It turns out habit and true loyalty are quite different processes. The table below highlight a few such differences.
| 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. |
Why Should You Care?
Given that both a habitual customer and a loyal customer can buy a lot of your products, you may wonder why you should care what category the consumer falls into. Here are a few reasons why:
- The effectiveness of your promotional campaigns may be different between the two groups. For example, my own research in this area shows that brand-related promotions are more effective among loyal customers than habitual customers.
- How your customers respond to your competitors’ offerings are also different. While both can be fairly resistant to such offerings, loyal customers may be aware of them but simply not interested, whereas habitual customers can be totally blind to them.
- To keep these customers happy and buying, you have to resort to different strategies and avoid different mistakes. For instance, a rather harmless change in your website design may break habitual customers’ behavior and drive them to other places.
How Can You Tell a Customer is Buying out of Habit?
Habitual customers have quite unique patterns in their purchase behavior that can help you single them out. A key characteristic in their behavior is that it happens consistently in a stable fashion. This stability in behavior can be reflected in several ways:
- It usually happens at the same time, e.g., every morning, every Friday, every weekend, etc.
- It usually takes place at the same location, e.g., at home by the breakfast bar, or on the way to work.
- It is often triggered by the same context, e.g., when the children are around.
Not everyone of these may be associated with habitual purchases. But if you observe any combination of these stable patterns in a consumer’s purchases, very likely you are dealing with a habitual customer.
What to Do?
Although you may want your customers to be loyal fans and to rave about your products or services, habitual customers are not bad alternatives. Because habit represents a fairly automatic process, habitual customers can be quite blind to competitive offerings, which is good news for your business. Here are some recommended strategies when dealing with habitual vs. truly loyal customers.
- Be aware of the deal breakers for each group (see table above). Some seemingly benign changes (e.g., store layout redesign, distribution channel change, etc.) can break down habitual customers’ behavior.
- Marketing tactics that enhance customer relationship (e.g., premier membership) and build emotional connection with customers are most suitable for the loyal group. For the habitual group, promotions should avoid requiring the interruption of customer habit. For instance, cross-selling by a gas station to lure customers into the store may be less effective for customers who habitually fill up their cars on Monday mornings.
- Because habitual customers are rather blind to competitive influences, it is highly beneficial to foster habitual behavior among your customers. A promotion that helps set a rhythm (e.g., weekly coupons to a grocery store for four consecutive weeks) will encourage habitual behavior.
- For word-of-mouth activities, it is better to target the loyal rather than habitual consumers, because habitual consumers are less likely to go outside of their routine to help promote you.
I am currently working with Professor Leona Tam on identifying these two groups of consumers and designing the best target marketing strategies. We have a VERY preliminary paper written up on the topic. If you are interested in reading some of the more technical details, you can download our loyalty vs. habit paper here.