B2B Marketing

Here, I discuss B2B issues in Marketing

What makes customers emotionally attached to a brand/firm?

First, I would like to thank everyone for the numerous comments I have received.  I think this particular topic has been of interest to a great many people (my visitors have crossed 1,600 and the total hits over 15,000).  After looking at the various discussions on my blog, and on different Linked in groups, I thought it would be best to discuss what it takes to become emotionally attached.

Emotions vs Emotional Attachment

First, lets get one thing straight, both of these are not the same!  Emotions are temporary states of mind, and can change very quickly.  It is not always true that a positive emotion will lead to a satisfied customer.  In fact, you can have negative emotions (fear, anxiety, etc) leading to positive experiences.  For instance riding on a roller coaster may make some people scared, however the outcome is a positive experience.  At this point in time, it is difficult for us to which emotions will lead to a loyal customer.  However, we can say that emotions that have a positive impact on customer experience will lead to customer loyalty.

Emotional attachment on the other hand is something is takes time to develop.  It is a consequence of all the different interactions, and experiences, that a customer has with a brand or a firm.  Emotional attachment, hence, is a more permanent state of mind, and is difficult to change.  Although, having said this, it does not mean that an emotionally attached customer will not defect.  That can happen, if the company takes advantage of the customer (e.g. provide bad service, over charge for products, etc.)

What makes customer attitudinally loyal?

This stage of the loyalty comes after several interactions with the firm or brand.  Once the customer interacts with the brand, he/she will start to develop a positive image of that brand.  This will lead to the customer having a preference for the brand.  In the behavioral loyalty phase, the customer was indifferent.  He/she would go where ever the cheaper deal, or readily available produce was sold.  However, an attitudinally loyal customer is one that likes the brand.  He/she will prefer this brand over others, and will try to get this brand as a first preference.

From an equity perspective, these customers are more profitable for the firm than behaviorally loyal ones.  First, they will tend to spend more with the firm.  On average these customers spend between 60-80% of their wallet share with the ‘preferred’ brand.  Second, they will try to purchase a wider range of products and services from the same firm.  For example, an airlines customer may also do the hotel booking from the same site.  Third, these customers are generally cheaper to serve.  They know the company or brand, they know the procedures of your firm, and hence can make a purchase decision more quickly, without much help from the company.  Finally, these customer do marketing for you, by recommending it to others.  Hence, you get free marketing, which also happens to be a more reliable source for customers.  More customers trust their friends and family than any other form of advertising.

What takes customers to the next level, i.e. emotional attachment?

While some of the loyal customers move up to the attitudinal loyalty phase, others do not.  Similarly, out of those customers who become attitudinally loyal, some customers move up to the emotional attached phase, others do not.  So what is it that takes some of the customers into the emotional attached phase, while others remain in only attitudinally loyal?  For starters, emotionally attached customers feel that they get an excellent service, or the quality of the products is excellent.  These customers believe that the level of quality provided by this brand is so good that no other company can compare.  Attitudinally loyal think that quality is good, but not better than others.  Attitudinally loyal customers may be loyal to several brands or companies.  However, emotionally loyal customers stick to one brand or one firm and the one they love the most for a particular class of products or services.  These customers also believe that they have had ‘memorable’ experiences with a firm, whereas loyal customers in other categories don’t recall any memorable experiences.  Another interesting fact is that these customers also believe that there have been very few bad experiences.  If they’ve had bad experiences, they have been compensated with excellent service recovery.  In contrast, attitudinally loyal customers feel they’ve had more bad experiences, and these have not been compensated with timely, or appropriate service recovery.  Finally, another very important finding in my research was that emotionally loyal customers do not become emotionally attached right away.  In fact it takes a certain period of time for this to take place.  So, for us to expect these customers to become emotionally attached in the first encounter, this is not going to happen.  The time period varies, but is about 3 to 5 years for most firms and brands.

From a financial perspective, these customers are the most profitable for a firm.  First, these customers spend almost all of their wallet’s share with their preferred brand.  My research shows, this is between 80-100%, which is significantly more than the other loyalty categories.  Second, these customers purchase a much larger selection of products and services from the firm.  So in addition to hotels, maybe they will go for the rent a car, and even book some sigh-seeing tours etc, with the airlines.  Emotionally attached customers are usually the least costly to serve.  Since they know the ins and outs of a company, the cost to serve these customers is very low.  Often these customers refer to the preferred company as ‘my’ company, or ‘my’ brand!  These customers take ownership of a firm.  Hence, these customers are even wiling to forgive some bad experiences.  Moreover, emotionally attached customers do more word of mouth marketing than any other type of customer.  In fact, these customers will go out of their way to mention their favorite brand.  Finally, when asked if emotionally attached customers would pay more money to the same service / produce, the answer was always yes.  However, these customers would only pay a little extra, and not a considerably more amount of money.  While attitudinally loyal customers will switch on a lower price, emotionally loyal customers would rather pay a slightly higher price to get that same great service.

In conclusion, I would like to add that interestingly, we can measure which customers belong to the different categories.  There is 1 tipping, point which takes customers from the attitudinal stage to the emotionally attached stage.  I will talk about this in my future blogs.

Floods in Pakistan

I would just like to add that the recent floods in Pakistan have caused more damage and affected more people than the Earthquake in Kashmir, the Asian Tsunami, and the Haiti Earthquakes combined!  If you haven’t done so already, please do donate to your local charity.  Save the children, the International Red Cross, the DEC in the UK, and numerous other charities are taking donations.

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A perfect model for customer loyalty?

If there was a perfect model for customer loyalty within a firm, what would it be?  Or, what should companies strive to achieve within the loyalty domain?  People often ask me these questions, and others like it.  I thought it would be a good continuation from my last blog to share with you what a good benchmark for loyalty would be.

First of all, there is not such thing as a perfect loyalty model.  In a perfect world, all of your customers would be emotionally loyal.  However, it is only in text books that we have a perfect economy, a perfect monopoly, or perfect competition.  Such things do not exist in the real world.  Thus there is no need to aspire to create a perfect loyalty model.  Instead, we should aspire to achieve an optimal, or preferred model.

Before I begin to talk about a preferred loyalty model, I wanted to discuss what most companies look like in terms of loyalty.

For most organizations, the loyalty pyramid looks like the image above.  From a loyalty perspective, most of the customers are behaviorally loyal.  They are there because they are ‘stuck’ to the company due to barriers.  These barriers are price, location, convenience, etc.  A smaller percentage of customers is made up of the attitudinally loyal customers.  These customers like the company, and prefer it, but are willing to switch.  Yet even a smaller percentage of customers are the emotionally attached.  These customers are the most profitable, but they form a very small percentage of the total customers a firm has.  Most of the organizations, I would guess around 99.99% of the companies across the globe, would fall somewhere in this model.  However, this is not the best model.

Companies need to aspire to improve to a ‘greener pasture’.  The preferred model looks something like this:

Notice, in this preferred state, all of the loyal customers are not emotionally attached.  The main reason for this is that it would be impossible to achieve that.  Moreover, no company would want all of their customers to become emotionally attached.  For instance, high servicing customers may not be profitable for a firm, and hence they would not want them to become emotionally attached.

This model describes a preferred state.  Interestingly there are organizations that would be classified in this state at the moment.  These would include sports fans, music fans, and people who donate to not for profit organizations.  The only catch is, all of these organizations are not, what we would consider as ‘normal’ businesses.  However there are some companies that are pretty close to this.  As Jack, mentioned in the comments to my last blog, Apple is one company, which may fall under this.  However, I would add that it would be Apple, before the launch of ipod.  After the launch of ipod, Apple has gained many new customers, and I believe that the percentage of emotionally attached would have gone down considerably.  Despite that fact, Apple still has a large percentage of emotionally attached customers.  Harley-Davidson would be another example of a company that would be close to this model.

From a B2B perspective, even in the preferred state, the emotionally attached customers would be much smaller.  Instead, the attitudinally loyal segment would be the biggest one.  If you read my past blogs, you will understand that its much harder to get B2B companies to become emotionally attached.

The question of how to get to this preferred state still remains to be answered.  I will try to answer this in my blogs, as it is not a very simple one to answer.  However, as far as I can see, most of the firms around the globe, and all the so called loyalty programs that have been developed are NOT moving firms closer to a preferred state.  Instead, these programs are just increasing the size of the behaviorally loyal segment.  I shall also try to blog about the faults with loyalty programs sometime in the future (if I can find enough time).

In the meanwhile, thanks to everyone for the lovely comments you’ve left on my blog, on linkedin, facebook and via email.  However, I would appreciate if you can please post these to the blog so that we can have all the comments and the discussions in one place.

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True customer loyalty, what is it, and does it really exist?

One of my main areas of research and my passion is customer loyalty.  After spending 5 years and spending nearly £350,000 I have produced research which is quiet exciting.  I researched, studied and/or worked with numerous firms including Apple, Emirates Airlines, Thomson Travel, Serena Hotels & Resorts, Singapore Airlines, Harley-Davidson, Ikea, Zara, Walt Disney, Caterpillar Financial Services, and a dozen other companies I sought out to find what really is a truly loyal customer, and to see how we can cultivate these customers in our firms.

True Loyalty

True loyalty, is one where the customer remains loyal to the company in all circumstances.  The customer never seeks out alternatives or uses competing brands, is willing to forgive mistakes, and will even pay more money to be with the same brand/firm.  When we look at the real world, these types of ‘customers’  do exist, in places such as sports or music fans, and people that donate to charities.  For example, people don’t stop supporting the Red Sox or Manchester United, just because they lose a game or don’t win the championship.  Similarly, people don’t buy a particular type of music, because its on sale, or because you get more loyalty points for it!  True loyalty exists in these types of areas.  This type of loyalty can also be referred to as emotional attachment, or emotional loyalty.  However these types of businesses are not characteristic of the other ‘normal’ types of businesses.  Moreover, since these customers are not really rational thinkers (since they are willing to pay more money to be with the same firm) the question is do they exist in the B2B domain?

The good news for marketers is that these types of customers do exist in all of the firms that I studied / worked with (even in the B2B domain).  The not so good news was that none of the firms seemed to have a clue about how to identify them!  If you don’t know how to identify them then how can you manage them?  For this blog, I just wanted to help you identify the different types of loyal customers.

Behavioral Loyalty

The first type of loyal, which I would guess about 99.99% of the firms go after are what I call the behavioral loyal customers.  A company merely looks at the behavior of the customer (i.e. is the customer coming back to us).  While it may be useful to measure repeat business, it is not the best method.  Most loyalty schemes target these customers.  However, as I found, people may return for a number of reasons, other than loyalty.  For instance, if a supermarket is close to where I work, I would go there.  If I were to move, I would switch to another one.  Another reason is the cost.  I go to the cheapest supermarket.  If a different brand offers something cheaper I go there.  Similarly for loyalty schemes, I may be loyal to a company because it offers the most points, but if a different company were to offer more points, I would switch.  Hence, this is not the best measure of loyalty.  However, in a typical company the majority of the customers belong to this category.

Attitudinal Loyalty

One step up from this is to look at the attitudes of customers (attitudinal loyalty), in addition to repeat purchases.  Do they WANT to come to our firm?  People who return to a company and also like this are in this category.  These customers are better since they like you or your brand, and are not stuck with you.  These customers will spend more, buy a greater range of products and services, and spread positive word of mouth (recommendation).  However, I’ve found even these customers have limitations.  If you offer bad service, or have a higher price, these customers will switch.  Moreover, most of these customers will look for alternatives or competing brands/products.  So even if they like you they may think of trying out others.  Again, these customers don’t represent true loyalty.  However they are better than the behaviorally loyal customers.  These customers represent a smaller percentage of customers than behaviorally loyal ones.

Emotional Loyalty

The emotionally loyal customers are the best.  These are the customers who don’t just like the brand/company they love it!  These customers feel that the product / service that you offer is so great, it is not worth the risk to look at anyone else.  They do not search for alternatives, and also block out competition’s messages.  Moreover, these customers do between 80-100% of their total shopping (in a category) with the brand they love.  These customers not only tell others about the brand they love, they will go out of their way to tell people!  These customers will also forgive service failures, something the others will never do.  Finally, these guys are willing to pay up to 20% extra to continue to receive the same product/service from the firm!  These customers are the most profitable.  Unfortunately these customers constitute a very small percentage of our customers.

The goal for a company should be to:

1) identify their customers in the appropriate segments

2) to build a program that will cater to the different needs for each of these segments

3) to try to get most of the customers to shift from the lower levels of loyalty to the higher ones

I believe that companies should alter their loyalty programs to fit into these categories of loyalties.

This is all the time I have for now, but I will be posting more on this topic in the future.  If you would like help in any of this, feel free to get in touch.

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Exploiting the power of Online Social Media through Group Buying

While attending the IQPC Conference on Online Customer Experience, I realized that there was a great potential to bring back group buying web sites.  Just in case you don’t know what that is, I though I would paste portions of an article I did for a magazine on group buying…

What is group buying?

A while ago a few friends and I went out to purchase a particular brand of a digital camera.  We went to the vendor and asked him to reduce the price since there were five of us purchasing the same digital camera.  This beautiful concept, known as group buying, helped us get a good discount on the camera.  If any one of us had acted alone, we definitely would have had to pay the full retail price.  Interestingly enough the vendor was not at all displeased when selling the cameras at a discount.  In fact he was really happy to see a bulk quantity of his product being sold in one go.  One of my friends commented on how wonderful a concept this was, and unfortunately it did not apply to the internet.  Interestingly, just about any type of business model you can think of in the physical world does exist online.

The group buying model works on the concept of large groups of people purchasing products.  The larger the pool of buyers, the greater the amount of discount will be available to the consumers.  Group buying sites work slightly differently than the usual online shop.  First a customer visits a web site, and selects a product.  The consumer is then given a few choices for the price he/she wishes to pay for the produce.  For instance, with the camera, it would have its original price, a discounted price if 10 people were to purchase, and even a lower price if the number of people willing to purchase were 25.  If a consumer chooses the lowest price, then he/she will have to wait till 25 people sign up to purchase that particular brand of camera.

The obvious benefit is that the consumer gets a discounted price.  Perhaps the lowest price in the market will be offered at a group buying web site.  Moreover, the consumer doesn’t need to know 25 people to get a group buying discount.  People all across the globe can join the group buy.  The site selling these products also benefits from this model.  They are able to negotiate a discount from the manufacturer or the supplier.  The web site keeps a certain profit margin and passes the rest of the discount on to the consumer.  Therefore compared to the regular online shop, a group buying shop is far better, since the site is able to sell a larger quantity and make a bigger profit.  The manufacturer or the supplier also is happy with the deal.  They are happy because they sell in bulk quantity, and often times are able to dispose off excess inventory through these types of web sites.

The major downside to group buying is that the buyer has to wait till the required number of people signup.  This may take anywhere between an hour to weeks.  Therefore if a customer is looking to purchase a product and get it delivered immediately, a group buying site will not be the best place.  Moreover group buying sites come in two different variations.  Each variation has its own merits and demerits.

Why Now?

About 6-8 years ago, several group buying sites took off.  Unfortunately none of them became very successful, and most perished.  At that point in time the idea for group buying was, perhaps, ahead of its time.  However, right now may be the best time to get into this.  Why?  Well, now consumers have the power of the Social Media.  The average consumer is linked to over a 100 people!  For instance, I have over 600 in my various networks!!!  So getting the desired number of people to purchase a produce will be much easier and faster than it was 8 years ago.  Therefore I believe that it is the right time to start the group buying business model.  If you have an Online Social Community and are not sure where to take it, or how to get the most out of it, they is one thing which may be of use.

Who can use this?

Well really anyone can do this.  Group buying works for both B2C markets as well as B2B markets.  In a B2B market, SMEs can team up to buy raw materials or goods in bulk and get a cheaper rate, allowing them to compete with the bigger businesses.  In the B2C market, just about any business can start doing this.  Have extra stock, or would like to move things in bulk, or not sure if a product will sell.  Just create a group buying page for it.  This can be in addition to the usual goods you sell, and can be done on the same website as the one you currently have!  For example, if you’re CVS (US) or Boots (UK) and are not sure if a new brand of vitamins will sell.  Why not offer it as a group buy good.  If you get enough order, then you will know that there is more demand for this product.  Hence, avoiding the risk to pre-order stock!  This concept can even be used on a greater level.  I get to speak with managers from companies that are fed up with the dirt cheap prices of lower quality goods from China or India.  Well, how about a buyers forum where companies from the ‘smaller’ countries get together to obtain raw material, and hence reach economies of scale?

There are numerous applications of group buying.  I have done much work on this topic and published a number of articles as well as a couple of research papers.  If you’re interested to know more, get in touch.  If you would like for me to talk about a specific topic, please do let me know.

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B2B Loyalty, is it really possible?

I’m off to present at the CSTA event in Nottingham.  Before I leave, I thought I would share my views on an important topics, which many have been discussing with me in the recent past, loyalty in the B2B domain.

Although over 90% of the commerce in the world is in the B2B domain, little attention has been paid to building loyalty for B2B firms.  Many question if loyalty is really possible, given the nature of businesses.  Others wonder if ‘true’ loyalty is possible within this framework.  Both of these are valid questions, and fortunately I found some answers to these questions in my PhD dissertation at Bradford.

First, if we look at the nature of loyalty, traditionally its been examined from a B2C perspective, where a customer becomes loyal to a brand or a company.  Experts believe that these customers then become ‘truly’ loyal or emotionally attached when these customers fall in love with the brand, and hence behave irrationally.  Meaning, they are willing to pay more money to get the same product or service and willing to forgive mistakes from the supplier!  For businesses, the process is slightly more complicated.  The decision making unit is much larger, complex and more formalized.  Moreover, businesses usually behave ‘rationally,’ i.e. they will go for the cheaper product given the same level of quality, and would not compromise on the quality of the products or services.

However, in my research I found best practice firms that defy these notions and have developed high levels of loyalty.  These companies belong to a number of different industries and have all types of customers.  However, what is common to them is that they all have high levels of loyalty, ranging from 80-95%.  Hence there are companies out there, which have been able to achieve high levels of loyalty in the B2B domain, but what about true loyalty or emotional attachment.  This is slightly more complicated for the B2B world, however it is possible to achieve a certain degree of this.  However the research points to much lower levels of emotionally attached customers in the B2B world.

Overall, from this research we can conclude that loyalty is something which is very much attainable in the B2B domain.  Companies should develop strategies and plans and work towards building relationships with other firms.  My research also found a important characteristics that were common in all of the best practice firms.  Based on which I’ve developed a model which others can use to build & manage loyalty!  I shall share this model with you in near future.

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