Category: Marketing Analytics

How to Measure Habit Strength Using Customer Data

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Since my recent series on building customer habits through customer relationship management, I have received a few inquiries about how we can figure out customers’ habit strength based on their transactional data. I will offer a brief explanation in this article. The approach I am discussing here assumes that you have individual customers’ purchase or product usage data available. If that’s not the case, you can refer to the last section for alternative measures of habit strength using customer surveys.

Two Key Components of Habit

To properly measure habit, we need to first understand what it is. In psychology and marketing, a habit is most commonly thought of as an action that is frequently repeated under the same situations. If we break this down, there are basically two ingredients to habit:

  • Frequency: how frequently does someone take that action (e.g., watches TV, uses the mobile app, etc.)?
  • Stability: when the person engages in the action, is it often under the same circumstances (e.g., on the way home, on Sunday morning, etc.)?

So to measure how strong a customer’s habit is, you need to find out about these two ingredients. The higher the frequency and the higher the stability, the stronger the habit is.

habit formula

How to Measure Frequency

Measuring frequency is pretty straightforward. If you are dealing with purchase data, frequency means how many times on average someone buys your product in a given time window (e.g., per week, per month, per year, etc.). If you have usage data such as customer use of your mobile app, frequency means how many times someone uses the product in a given time length. Let’s say if someone buys your product 36 times a year, the average frequency per month would be 36/12 = 3 times. Continue reading “How to Measure Habit Strength Using Customer Data”

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”