Loyalty and Competitive Advantage

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					         Section Head
          Abt Associates Inc.                     Business Research and Consulting Group
                                                                      Strategic Market Perspectives

Loyalty and Competitive
Breakthrough work in the area of Customer Loyalty
‘Customer loyalty has become                      The Evolution of Satisfaction
an even more strategic impera-
tive for firms.”
                                                                                               Customer        Commitment and
The Business Research and Consulting
                                                      Satisfaction          Loyalty           Commitment         Competitive
Client Update is published periodically                                                                          Advantage
as a service to Abt Associates clients.
This issue highlights a recent interview
with Sue Windham-Bannister, PhD,
Managing Vice President of Abt                         Attitudes          Attitudes and             Attitudes, Behaviors,
Associates and Sam Woolford, Principal                                     Behaviors             and Competitive Assessment
and Director of Analytic Services. Ms.
Windham-Bannister has over 25 years of
consulting experience, specializing in          nies are not in the position to mount         improve on their value proposition. Our
strategic business planning and strategic       sizeable acquisition efforts. Hence, it is    enhanced loyalty model or what we call
marketing. She has been at the forefront        more cost effective to retain existing cus-   CCA, Commitment and Competitive
of developing loyalty programs for com-         tomers than capture new ones.                 Advantage, uncovers the magnitude of
panies spanning health care, financial                                                        loyalty with respect to the competition.
services and high technology and is a           Sam Woolford (SW): I absolutely agree
noted speaker in this area. Mr. Woolford        that loyalty remains at the forefront.        SW: We all know that competition is
is a statistician and has over twenty years     There has been some discussion in the         fierce in virtually all sectors. What our
of research experience. He is a highly          marketplace about developing e-loyalty        clients needed to better understand is
skilled statistician and has developed          and understanding the impact and              what competitive advantage they have
proprietary analytic models designed to         implications of technology. But at the        that drives loyalty and conversely, what
support Abt’s loyalty research. Below,          end of the day, what our customers really     competitive disadvantages are “pulling”
Ms. Windham-Bannister and Mr.                   need to understand is how successful          customers from them. Using this frame-
Woolford describe recent breakthrough           they are at customer retention, what          work, we can identify not only drivers of
work in the area of customer loyalty.           actions to take to maintain and grow loy-     competitive disadvantage but also the
                                                alty and what the impact is of loyalty on     actual competitors who are the market
Customer Loyalty Within                         key business outcomes – market share          leaders and present the most serious
a Competitive Framework                         and revenue growth – for all models, tra-     threat.
Abt Associates Reporter (AA): What              ditional and e-based.
have been the recent developments in                                                          SWB: We understand that a high cus-
customer loyalty?                               SWB: The recent breakthrough that we          tomer loyalty score does not mean that
                                                developed in our loyalty work has added       the firm is superior to its competitors
Sue Windham-Bannister (SWB):                    another dimension that helps firms bet-       nor that the customer will stay should
Customer loyalty has become an even             ter understand loyalty within a competi-      the competitive environment shift. Our
more strategic imperative for firms. As         tive context. Traditionally, loyalty is       CCA model factors in how well our
the economy shifts and revenues begin           assessed from a “customer to firm” or         clients are performing versus their com-
to decline, customer retention is an            internally focused perspective.               petitors and reveals the implication this
absolute imperative for companies.              Companies unlock how their services,          has on loyalty. Armed with this type of
Customer acquisition is expensive.              offerings, pricing and other relevant         knowledge, companies can quickly take
Declining revenues almost always trans-         dimensions drive loyalty. This model          more targeted actions to minimize cus-
late into shrinking budgets and compa-          works particularly well to enable firms to    tomer churn.

 1    Abt Associates Inc. Business Research and Consulting Group
      Abt Associates Inc.
     Section Head                                                      Business Research and Consulting

AA: One benefit I can see for a company                              SWB: Now that we have added another
is that resources can then be better allo-                           dimension to loyalty, we can not only         Abt Associates Inc.
cated since they will better understand                              identify what percentage of customers         at a glance
what drives competitive advantage and                                and dollars are at-risk or lost in terms of   Abt Associates Inc. was founded over
loyalty.                                                             the competition, but what it is about the     35 years ago and is based in
                                                                     competition that is driving customers to      Cambridge. Abt Associates’ U.S.
SW: Precisely. Our CCA methodology                                   exit their firm.                              offices include Chicago,
provides enormously valuable informa-                                                                              Washington, and New York. The
tion to a company. Based on attitudinal,                             AA: This sounds like a methodology that       Business Research and Consulting
behavioral and financial data, we seg-                               has been developed over time to meet          (BRC) performed the research and
ment their customer base into what we                                evolving customer needs.                      strategy described here. You can
call value segments. These value seg-                                                                              send your comments or questions to
ments are profiled to reveal their finan-                                                                          Helena Long at 781.372.6520 or
cial worth and the size of potential                                 SWB: Absolutely. We started with the tra-     helena_long@abtassoc.com.
opportunities. This information enables                              ditional loyalty model, which based loyal-
firms to develop and prioritize penetra-                             ty on stated intentions or attitudinal fac-   Abt Associates is a market leader
tion and acquisition strategies. We also                             tors. We then expanded to a commit-           in loyalty, segmentation, merger and
run sophisticated analytic models to                                 ment model that allowed us to include         e-business research. Abt Associates
identify which activities, services, experi-                         behavioral data. This evolution enabled       also provides comprehensive
ences, etc., influence loyalty. This type of                         firms to financially measure loyalty.         research services relating to new
information enables our clients to devel-                            However, we wanted to factor in the           product introductions, branding,
op better investment strategies, prioritiz-                          competitive environment because as            positioning, and customer
ing which initiatives should be consid-                              companies know all too well, commit-          profitability.
ered and funded. We have developed a                                 ment is not a static state. Companies not
proprietary analytic technique which we                              only have to understand what they need
call MPI or Maximum Potential for                                    to do internally, they also need to be        Abt Associates Inc.
                                                                                 able to gauge the competitive     55 Wheeler Street
                                                                                 impact on commitment. Our         Cambridge, MA 02138
                          Competitive Disadvantage                               Commitment and                    617.492.7100
                       Parity with Competitors
                                                                                 Competitive Advantage model
                   Competitive Advantage                                         is currently being used by
   Low               Current Share               High                            technology, financial services
                     (Share of Wallet)                                           and insurance firms, and it
                                                                                 can be applied to any industry
                              Committed                                          sector that competes fiercely
                                                 Future Intentions

                                25%                                              to maintain and grow their
      Potential                                                                  customer base.

          10%                                         Low

Improvement. MPI quantifies the impact
you will have on Commitment if you
improve on a given variable or attribute
by x%. More simply said, MPI allows you
to identify what actions you should take
to yield the best results in terms of
increasing loyalty. It takes into considera-
tion the importance of the key driver,
the gap between the actual and desired
performance and the proportion of the
customer base which is effected by that
key driver.

 2    Abt Associates Inc. Business Research and Consulting Group