The Myths on Consumer Loyalty

Due to the flurry of comments that my 'Jet Pilot strike' post received, I thought I should post on it just one more time.

Let me address the issue of Customer loyalty. There are too many myths out there on this (Timothy L. Keiningham, Terry G. Vavra & Lerzan Aksoy's book, 'Loyalty myths: Hyped strategies that will put you out of business' is a must read). For example, its isn't exactly true that loyal customers aren't price sensitive. Turns out they are. It isn't again true that loyal customers are necessarily always profitable to the business firm. They aren't. Not always. Note, the key term is 'always'.

Coming to whether price sensitive customers can turn loyals, the answer again is, yes. But note the caveats. Loyalty doesn't mean that the customer isn't price sensitive. He still is. Which means that a competitor airline's helping hand may provoke loyalty. But that doesn't ensure the competitor can get away with higher prices, believing loyal customers will buy them at those fares. Next, the assessment of a product or a service, even for price sensitive customers, is not based on a single parameter called Price, but on a more umbrella parameter termed Value. That is, consumers assess brands on value perceptions. Price does contribute to that perception, but it isn't the only one. If price were the only one, the erstwhile Deccan Airways should have been the most prosperous airline by now. Sure prices matter, but so does delivering on whats promised as the takeoff and arrival time. So does getting a seat with a confirmed booking (Note Abdul Qabiz's post on why Air Deccan sucks).

Note, the theory of Instrumental Conditioning states that our initial move as consumer would be to try out multiple stimuli (read, retail stores, aviation services). We then settle for that stimuli that drives the best value. The next time around as a repeat consumer, we go back to the stimuli that delivered on maximum value. We continue this over time,. We only switch when the stimuli fails to deliver on what's perceived as value by us. In short, we switch when it messes up. If doesn't, we return to it time and again.

My final point is on one of the greatest myths about consumers. That the mass consumer is a ruthless rational who throws his lot with whoever sells lowest. The truth is we are as irrational as we are rational. Dan Ariely proves this is his book, Predictably Irrational.

Any one out there who believes himself to be a thinking rational who's in control of his own decisions, I'd recommend you listen to Dan's demonstration (note the Economist subscription scenario) to the contrary. You can watch him here.

Comments

nikhil said…
now i understood that how irrational we are.
nikhil said…
even mass consumers like me.
Soumya said…
Dear Sir,
I have one more query to bother you with !!
How does a brand increase its price and yet manage to retain its customers in this market where he really would not be able to add more value for the price
Like for example, what I am asking is since the prices of all commodities are on a rise generally how does the company increase the product price and yet manage to maintain its consumer

Also I just wanted to also get it clarified ,isnt a price sensitive customers value perceptions driven primarily by price ? isnt the definition of value also based on price? like good quality at affordable prices ??

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