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Relating Customer Experience to Customer Loyalty: Part 3 of 3

This is the last part of a three-part blog series based on the three questions I’ve been asked most frequently over my 20 years in various research consulting roles at MaritzCX. Last month I answered the question: “How do I set goals for my CX program?” If you are interested, that blog post is here. In December the question was: “How do I increase response rates? Should I shorten my survey?” You can find that blog post here. This month I’m addressing the question: “Why isn’t there a stronger relationship between customer experience and customer loyalty?”.

My first answer to this question is, “there probably is a stronger relationship than you are finding when you try to measure it, but you should never expect the relationship to be perfect.” In my experience, there are two main causes of models relating customer experience to loyalty to produce poor results: mismeasurement and use of underspecified models.

Mismeasurement

When trying to relate customer experience to customer loyalty, the first things you need are good measures of both. For best results, the customer experience measure should be an overall relationship measure, not a transactional measure. In other words, it should assess customers’ overall experience with the brand or company across all channels and all transactions. This measure should be based on a relationship survey because a relationship measure (e.g., How likely are you to recommend Company X”) taken in the context of a transactional survey (e.g., a survey assessing a sales experience, particular hotel stay, etc.) will be swayed by outcome of the particular transaction. You also need to make sure that your relationship measure is based on a true cross-section of your customers. If for some reason a portion of your customers are not included in the measurement, the results of your customer experience to customer loyalty model will be inaccurate.

You also need to be careful about your customer loyalty measure. The loyalty measure should be a true measure of loyalty, such as actual repurchase or renewal behavior. “Proxy variables” like Intent to Repurchase will throw off your model and likely produce artificially high results.

Underspecified Models

Having an underspecified model simply means that you aren’t taking enough things into consideration when you are making your customer experience to customer loyalty model. An example might help here. In my work within the automotive industry I have often seen people trying to relate dealership sales satisfaction to brand-level repurchase behavior. That loyalty model is shown below:

Usually very poor relationships are shown because when we are measuring Dealership Sales Experience, we are only taking into consideration one of many things that determine Vehicle Brand Repurchase. A more accurate and complete loyalty model looks like this:

Here you can see that three different aspects of customer experience (Dealership Experience, Vehicle Experience, and Company/Brand Experience) all affect intent to Repurchase the Brand and ultimately actual Vehicle Brand Repurchase behavior. You will also see that Dealership Sales Experience is only one of many interactions with the dealer that affect the overall dealership experience. Finally, you should notice that there are many non-experience variables (those shown in gray boxes) that affect actual loyalty as well.

From this illustration I’m hoping you will take away two things. First, the very simple model of Dealership Sales Experience predicting Vehicle Brand Repurchase SHOULD show very low results because Dealership Sales Experience is only a very small part of what drives Vehicle Brand Repurchase. Second, even if we can measure every customer experience variable, the relationship between customer experience and customer loyalty will never be perfect because a lot of things outside of customer experience also affect repurchase behavior. Please note that while this is an automotive loyalty model, loyalty models for other industries will be similar. There will always be things outside of the customer experience that affect loyalty (price, competitive offerings, changing needs of the customer, etc.) and there will almost always be multiple customer experience touchpoints that affect loyalty.

Three Best Practices: A Case Example

 OK, what do we do about all this? I think if you do three things you should be able to vastly improve the results of your customer experience to customer loyalty models. I’m going to try to illustrate the results using real data from an automotive loyalty study we conducted. Very briefly, in this study we contacted people after they purchased a vehicle and asked them to rate their dealership sales experience (among other things). We then re-contacted those people approximately five years later and asked them about their experience with their dealer over the lifetime of their vehicle, whether they had replaced their vehicle, and if so, if they replaced it with another vehicle of the same brand and from the same dealer. This gave us four important variables to work with: Dealership Sales Experience, Overall Dealership Experience, Vehicle Brand Repurchase Loyalty, and Vehicle Dealership Loyalty.

The first best practice is to use an overall measure of customer experience, not a transactional measure. From the study described above, when I relate Dealership Sales Experience (a transactional measure) to Brand Repurchase Loyalty I get the relationship shown below on the left. However, when I relate Overall Dealership Experience to Brand Repurchase Loyalty, I get a bit of a different effect (shown in the chart on the right). While in each case loyalty drops an average of about six percentage points across each level of customer experience, you should notice that there is very little drop across the first four levels of satisfaction in the chart on the left and almost all of the effect is due to drop in loyalty at the lowest level of satisfaction. Conversely, loyalty drops more consistently across the satisfaction levels when using the Overall Dealership Experience measure shown in the chart on the right.

Another best practice is to make sure your measures of customer experience and loyalty are not mismatched. In the example above, you’ll see that we are measuring DEALERSHIP experience but relating that to BRAND loyalty. However, if we look at DEALERSHIP experience and relate that to DEALERSHIP loyalty (did they repurchase from the same dealer) we get the relationship shown below.

Now we are showing a stronger relationship. Dealership Loyalty drops almost 11 percentage points for each level of Dealership Experience. However, only 55% percent of customers that are completely satisfied with their dealer repurchase their next vehicle from the same dealer. What’s up with that? Shouldn’t it be higher?

That takes us to our third best practice which is to remove the effects of other factors you are not interested in that affect loyalty. In this case, a major factor that affects dealership loyalty is brand loyalty. If I switch vehicle brands it is very unlikely that I can repurchase from the same dealer. Therefore, we can run the same analysis linking Overall Dealership Experience to Dealership Repurchase Loyalty, but only include people that repurchased the same brand. When we do that, we get the results below:

Now we see an even stronger relationship with there being over a 12 percentage-point drop in loyalty across each level of customer experience. Also, the percentage of Completely Satisfied customers that are dealership loyal has jumped from 55 percent to over 80 percent. But what about that other 20 percent? Why would customers who were completely satisfied with their dealer and who repurchased the same brand not return to the same dealer? It is very likely that those customers may have moved residences, their dealerships may have gone out of business, or some other non-customer experience factor prohibited them from going back to their original dealer. Finally, what about the 35 percent who are very dissatisfied with their dealers but still repurchase from them. In this case, those are probably “captive customers” – people that really want to buy the same brand vehicle and only have one dealership within a reasonable distance to choose from.

Summary

The biggest points I’m trying to get across here are that the terms “Customer Experience” and “Loyalty” are very broad terms and can mean a number of things. When you are modeling the relationship between the two, you need to think very specifically about “customer experience with what?” and “loyalty to what?”. As the above example hopefully shows, when you specify your customer experience and loyalty measures, line them up in the right way, and control for extraneous variables, you can show a strong (but not perfect) relationship between them.

Happy modeling.