Measuring customer loyalty: Bridging the gap between theory and practice

The topic of customer loyalty has taken on a crucial role in management studies as a strategic factor capable of boosting business growth and sustainability over time. In light of this, the focus of our work is a fundamental theme: Measuring customer loyalty is all too often limited to behavioral aspects alone, such as purchase frequency or the share of purchase devoted to a given store. Yet customer loyalty also has an attitudinal component, in other words, a cognition, a pleasing sense of satisfaction that prompts consumers to prefer one entity over another, an expression of long-term commitment.

Paying attention to the behavioral dimension alone is a widespread business practice, but this approach underestimates the possibility that the behavior in question depends on situational constraints. What’s more, a behavioral focus leads marketers to ignore vital variables such as perceptions, emotions, and the trust that connects a customer to a company, all building blocks for long-term relationships. Indeed, prior academic literature has already put forward multi-dimensional models that aim to offer an integrated analysis of the behavioral and attitudinal nature of loyalty.

Keeping in mind these two aspects, our work was guided by several key questions:

• What are the dimensions of customer loyalty?
• How can companies integrate the attitudinal aspects of loyalty to overcome the limitations of the current behavioral KPIs?
• What are the economic and relational benefits that derive from an integrated approach to measuring loyalty?

To bridge the gap between theory and practice, our research included a systematic literature review and an empirical investigation of business practices.

By studying the prior reviews on the topic and running an analysis of 200 empirical articles, we were able to trace how loyalty has been conceptualized and measured over time. In brief, loyalty consists of a set of attitudes that align with a series of purchasing behaviors which systematically favor one company over its competitors. Only integrated approaches can give us a clear, complete picture of loyalty and its impact on value generated for the company.

We can break down attitudinal loyalty into the following:

• The cognitive dimension derives from customer assessments of the brand or the store over time, in other words, the value they perceive and the trust they place in the relationship. This can be measured in terms of their preferences and choices, or the decrease in purchases made from competing retailers.
• The affective dimension is grounded, naturally, in affection and emotional ties that consumers develop with a brand, customer satisfaction, and the quality perceived in previous contacts. This aspect can have positive repercussions on the relationship, ultimately strengthening it, on engagement, and on company profitability.
• The conative dimension manifests as a strong intention to adopt a specific behavior (i.e. repurchasing) and to remain loyal. As such, this is an expression of a concrete commitment to the brand that goes beyond preference and satisfaction. Conative loyalty translates into a greater inclination to establish long-term relationships and activate positive word of mouth.

Behavioral loyalty means making repeat purchases and choosing a certain product offering over other available alternatives. This dimension can be analyzed in light of repurchases, retention, frequency of store visits or share of purchase.

In tandem with the above analysis, we also ran a field study on a sample of 43 managers from 37 organizations that do business in industry and distribution. Our aim was to explore their approaches to measuring Key Performance Indicators (KPIs) of loyalty and improving company performance.

Our research underscores the fact that loyalty is seen as a strategic lever. However, companies are still focusing primarily on monitoring traditional KPIs based on economic transactions, such as sales increases triggered by loyalty programs, utilizing resulting the data to evaluate the profits generated by these initiatives. Such an approach centers on measuring short-term returns on investments (such as average ticket size or number of purchases) and behavioral aspects (for example, redemption, participation in loyalty programs, or frequency of store visits).

In addition to these practices, we are beginning to notice more long-term measurements associated with the study of Customer Lifetime Value, or Unique Customer View. These parameters make it possible to evaluate the entire customer life cycle. Consequently, loyalty programs are also starting to implement more complex, customer-centric approaches, moving away from an exclusively transactional perspective with an eye to creating emotional and relational ties.

Our research opens up promising prospects for managers and policymakers, highlighting the need to evolve toward models for measurement that are more complete and predictive of customer loyalty. A number of relevant implications emerge in the way of future developments.

1. New qualitative and quantitative metrics: Along with quantitative data, companies should use qualitative information and analyses on affective loyalty which will shed light not only on customer behaviors, but also on the reasons and motivations underpinning them.
2. Omnichannel technologies: By integrating digital and physical touchpoints, companies can monitor the customer journey more accurately, utilizing apps, gamification and personalization techniques to foster customer loyalty and engagement.
3. Customer-centric corporate culture: Managers should champion a cultural change that involves various corporate functions to interpret loyalty data and translate it into strategic action. This approach would enable them to transform loyalty from an operational metric into a strategic value.
4. Innovation in loyalty programs: Customer retention tools should evolve from a transactional logic to a relational, value-based approach. Companies can shore up emotional ties with their customers by offering them unique experiences and rewards that reflect the shared values that both the consumer the brand embrace.

By investing in these areas, companies can not only manage customer loyalty more effectively, but can also build a foundation of knowledge that will put them in a position to seize opportunities in the future, reinforcing their competitive advantage.

Castaldo, S. (2024). La fedeltà del cliente. Teoria, misurazione e gestione. EGEA, Milano. EAN 9788823847804.

Read other articles in the customer loyalty series:

Castaldo - Moving beyond flash promotions: Building loyalty via personalization and sustainability.