What does RFM mean? Someone's shopped recently - does it mean the person is more loyal? Frequency is again a function of category - one should look at share-of-occasion and not frequency unless one is working within a closely defined category - which is rare. Monetary value similarly means less. These three factors perhaps are telling you which customers are contributing disproportionately to your company's value - but but not as much about how loyal they are and why.
Talking of loyalty, the first distinction to be made is obviously between purchased vs. natural loyalty. Purchased loyalty - buying occasions induced by throwing money at the customer is more in the league of buying turnover and hence not really part of a loyalty discussion. The use of insights and analytics to this field will at best yield a better efficiency for interventions such as subsidy and coupons, but loyalty by definition is not this, right? Now that brings us to the rudimentary but complex topic of defining loyalty and more importantly, remembering the definition as we go about undertaking various activities under the garb of loyalty. For this discussion, therefore, paid loyalty is out of syllabus.
The second most important distinction to be made is between attitudinal vs. behavioral loyalties. Both are important and in syllabus, but it is still important to put the right label when we speak - because both are fairly different animals. While behavioral is observable, measurable and clear, it cannot easily answer 'why' questions. One could have high exhibited loyalty just due to the lack of alternatives, or better alternatives. It is a practical kind of loyalty to measure though, and a focus here ensures one is not wasting time running faster than the tiger. At the same time, it is important to remember that buyers can be loyal and potentially open to switching at the same time - not single but ready to mingle nonetheless.
The attitudinal kind of loyalty is the holy grail of the 'why'.
Storks mate for life. Wild dogs, ants and bees exhibit loyalty to the pack. Dogs may not show loyalty to their mates, but they're loyal to their human masters. Cats are said to be loyal to the house and the lioness to the 'position' of the most powerful lion. The logic of loyalty is certainly complex and non-trivial - and we haven't even started talking about humans.
We haven't spoken about how some people may be more 'predisposed' to being and staying loyal. This is something you could possibly measure - such people have clear favorites that don't change that often. in most cases - music, food, colors and so on. On the other extreme are 'variety seeking' people - who like to try different things and not get tied into a pattern. The first person, if ordering five dishes in a restaurant, will order four familiar ones if not five, while the second person will order only one familiar dish if at all, and others he hasn't even heard of - the more exotic the better. Of-course the perplexing question here would be are the predisposed people already taken? Or they still have 'open' slots for newer brands to latch on?
A close topic is the cultural context to relationships - in India, disloyalties to a girlfriend are commonly / socially forgiven, but not to a wife. Disloyalty to an employer is again, forgiven - but in Japan that too, is a matter of loyalty. Within various age-groups in India, the elder generation is probably still loyal to a brands like Bata and Tata, the younger prides itself on discovering new, cool brands every day.
We haven't spoken about some categories being more prone to loyalty - more 'emotional' and less 'commodity'. Now who's loyal to a brand of memory-cards? But we are, to mobile phone brands, right? What about inherently infrequent purchases like double-beds? How many will you buy even if you're loyal to a retailer?
So clearly, we aren't having the debates we should be having - we're merely talking about which customers already bought more from us. We're talking about cross and up-selling, driving repeat and many things I completely respect - but loyalty is the wrong label for these conversations.
After we separate the discussion around transaction incentives (don't you hate the term 'paid-loyalty?'), after we speak of customers predisposed to loyalty towards categories they care about, after we put the filter of financial and emotional viability on it - in other words creating loyalty drives meaning for the customer and the company, after we separate behaviors from underlying attitudes, then and only then would we begin to understand this noble emotion.
ps: thoughts welcome - I think it's happening to a lot of other big words (e.g. Trust - familiar?) too. More on that later.
