Category: Academic Life

How to Build Customer Habits Through Customer Relationship Management Part 3

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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 LoyaltyHabit
What drives behavior?Belief about product superiority and/or emotional connectionThe presence of contextual cues (e.g., eat cookie -> want milk)
AwarenessConscious decisionAutomatic process with no clear decision-making process
Purchase patternErratic as need arisesConsistent in terms of time, location, and context (see more below)
Reaction to competitive offeringsAware of competitive offerings but relatively resistant due to loyaltyBlind to competitive offerings
Deal breakersDissatisfaction, 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. Continue reading “How to Build Customer Habits Through Customer Relationship Management Part 3”

How to Build Customer Habits Through Customer Relationship Management Part 2

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Last week I wrote about how you should design your habit building strategy during the customer acquisition phase. In this Part 2 of the series, I would like to share some research insight on maintaining customer habit in order to reduce customer attrition. I don’t think I need to preach to you about the importance of retaining your customers. But what’s habit got to do with customer retention? Isn’t customer retention about how happy people are with your business? Well, habit has a surprisingly important role in this process.

Declining Habit as Early Warning Signs

There are many reasons why a customer may leave a business, such as no longer having the need for the product, experiencing a negative customer service episode, or seeing a more competitive offering somewhere else. Understandably, businesses devote a lot of energy to keeping their customers, mostly focusing on improving customer experience and delighting customers. These are certainly great things to do, but they are not for everyone and they should not be the only response. Why? Because the harsh reality is that consumers don’t care what they buy most of the time. They might have tried something incidentally, it was good enough, and they ended up sticking to it because it wasn’t important enough for them to try to find “the one”. Even for consumers who cared at the beginning, many eventually fall into a simple habit of buying and consuming a product without a second thought. These are situations where maintaining customer habit is important. In my research, I have seen declining habit as a good early predictor of customer attrition. Depending on the type of product, habit decline is observed from three months to as early as ten months prior to customer leaving the company or becoming inactive. So if you are tracking a customer’s habit and see such a decline, you will have precious time to do something before it is too late.

I should point out two things here. First, it’s not so much the level of habit but the decline in habit strength that spells trouble. So continuous monitoring of customer habit is important. Continue reading “How to Build Customer Habits Through Customer Relationship Management Part 2”

How to Build Customer Habits Through Customer Relationship Management Part 1

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Recently I had the honor of speaking at the Habit Summit, a cool conference on habit building and other behavioral design issues. I shared with the audience how companies can build better and more profitable customer habits through proper customer relationship management. This talk was the culmination of my more than 10 years of research on consumer habit by analyzing tons of customer data from a variety of industries including retail, financial, and travel industries. In this three-part blog series, I’d like to share some of those insights with you. In this part 1, I will talk about how to facilitate habit shaping and development in the customer acquisition phase. Then in part 2, I will discuss the role of habit in customer retention. Finally in part 3, I will share how to build on habit and even more importantly not mess up with habit in customer expansion strategies.

Habit Evolution Over Time

In my research, I have tracked the pattern of customer habit evolution over time. Again and again, I see a U-shaped curve like the figure below. In the beginning, consumers are new to the company. Although the novelty makes them buy frequently, there is a lot of exploration going on, trying to understand what the company has to offer. This is why you see a dip in habit in the figure. Then as consumers become familiar and comfortable, they settle into a more stable behavioral pattern and their habit strength associated with the company goes up.

What does this U-shaped curve mean to your business? It means that there should be two distinct phases in your habit strategy. The first part is what I call the habit shaping window, where your strategy should focus on leveraging consumers’ exploration tendency to shape the most desirable habit for your business. Then in the habit increase stage, your strategy should enter into a habit maintenance and transformation phase, focusing on sustaining habit and not disrupting it unnecessarily. More on that second phase in latter parts of the series. Let’s focus on the habit shaping window and what you should do in this phase for now. Continue reading “How to Build Customer Habits Through Customer Relationship Management Part 1”