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For decades, a goal of many organizations has been to grow their business by creating loyal customers as a result of continually exceeding their customers’ expectations of the brand; be it through product quality, service, communications, etc. And the reason for this was essentially three-fold:

  1. Loyal customers tend to be more valuable – they tend to be your “best” customers,
  2. Loyal customers tend to be brand advocates – they regularly will recommend your brand to others – helping to generate more business,
  3. Loyal customers tend to be more resilient – they stick with your brand through thick or thin.

Below is a chart from a global retailer that clearly drives home point #1.

Customer and Revenue Distribution Based on Relationship with Brand

In this organization’s case, 13% of their customers were considered “loyal” and they provided one-third of the firm’s annual revenue.

The average “Loyal” customer was 360% more valuable than a customer who only had a pure “Transactional” relationship with the brand, 233% more valuable than a customer with a “Functional” relationship with the brand, and 166% more valuable each year than a customer who actually had some “Emotional” (but not yet loyal) connection with the brand.

Pretty compelling… right?

Every organization will have customers or clients who fall into these four engagement categories; and once you’ve identified who these customers are, you can begin to figure out why they fall into these different categories, and what things (if any) your organization can do (provide) in order to move customers to the next level of engagement with your brand.

But I’m sure you’re asking:

  1. What’s the difference between a transactional, functional, emotional and loyal relationship or connections, and
  2. How do you identify these four different types of customers?

Conceptually, the answer for “what” is pretty straight forward:

  • Transactional Relationship – The customer is generally indifferent about who they are transacting with and your brand/organization/business is essentially fulfilling a need.

An example of this might be purchasing gas when there is only one option around and you’re on empty. As long as the pump works… you’re good. And you might not even remember who you just bought gas from as you drive away. Another example is when I purchase table salt. I don’t care what brand it is, nor where I get it. It’s just salt as far as I’m concerned.

  • Functional Relationship – The customer cares a little bit more about their transaction; but their decisions tend to be more clinical, and they tend to put more weight on things that are typically “cost of entry” or “table stakes” for your category. They care about the need your brand is fulfilling, but this particular need isn’t necessarily of the highest priority to this customer.

Here your customers tend to like you just fine – until you don’t meet their minimum expectations – and then you’re dead to them.

An example of this might be a supplier of office / janitorial supplies. You might be a customer’s preference the transaction was easy, the price was the CHEAPEST, and the order was correctly fulfilled most of the time. If any of these things become an issue too many times, that customer is going to a competitor – with zero remorse.

  • Emotional Relationship – This customer really does like your organization and will regularly go out of their way to deal with you because they feel you excel on attributes that are clear (non-table stakes) differentiators for your category; and these things truly matter to them.

Here you’ve moved past being a benign acquaintance, or that person that’s OK to be around every once in a while. There’s something about your organization or brand that these customers really like, or relate to. These customers will freely admit that they feel like they have a connection with your brand. You’ve established a certain level of brand-trust, or equity with these customers over time.

An example of this might be an apparel brand that is always a part of someone’s wardrobe, perhaps because they feel it reinforces their sense of identity – it is a signal to themselves as well as to others about the type of person they are.

  • Loyal Relationship / Advocacy – This is the emotional relationship turned up to eleven! This customer not only really likes you, but they talk your brand up every chance they get.

Often, your brand has attained exclusive status with this customer. They willingly promote you because they feel others will feel the same way about your brand and this bolsters their social ‘cred’ or status.

An example of this might be shoe repair place that is seemingly a well-kept and exclusive secret. The workmanship is more like craftsmanship. Your shoes come back looking better than new! This place is AMAZING! You won’t take your shoes anywhere else – you would never betray them that way! And if you move, you will ship your shoes to this place to have them repaired!

In terms of “how” these customer segments are identified, this will vary depending upon your business (industry sectors), as well as the type(s) of data you do or don’t have on your customers.

Commonly, this is done using a combination of survey data linked to customer-level transactional data. The less customer-level transactional data you have, the more you will need to rely on survey data – but this by no means marginalizes the usefulness of the results.

And as I noted above, once you have classified your customers into these categories, you can begin to figure out why they fall into these groups, and what things your organization might be able to do to motivate them to become more engaged with your brand, and move up to the next tier. That is, what do each of these customers care about most, and what are their priorities?

We seek Loyal/Advocacy relationships and have been fortunate to develop many. They are the life giving stream of business and referrals.It’s hard to find these days. The value exchange we have, is in return we will move heaven and earth to fulfill that promise and reward that loyalty. For me, it’s a way of life.  Unfortunately, for many it’s a forgotten way of life…

Hopefully, this version of my blog will create some inner thoughts and reflection, on how you do business – but most importantly the value we bring to one another.

Dave