Based on the research of S. Arunachalam and Sridhar N. Ramaswami
In the face of increased competition and reduced product differentiation, companies are striving to gain unwavering loyalty from customers. In fact, nowadays, companies are willing to do all they can to maintain an undividedly loyal customer base. Companies use customer behaviour and customer attitudes to gauge customer loyalty. Loyal customers exhibit loyal behaviours in the form of repeated purchases. Customers can also exhibit loyalty towards a product by having a positive preferential attitude towards the company and its products.
Customers and divided loyalty
While companies toil to gain undivided customer loyalty, customers, on the other hand, have long displayed a huge propensity to exhibit divided loyalties towards brands. As customers, we know all too well the divided loyalties we exhibit when purchasing even basic commodities such as cereals, candy, pasta, fruit juices, beverages, noodles, snacks, toiletries, cleaning supplies —you name it.
It is intriguing that though firms know that customers’ loyalties are divided, they do not know much about divided loyalty attitudes. This is ironic because a company’s relationship with a customer whose loyalties are divided can be very precarious as the customer is on the verge of exiting the relationship with the firm. Nevertheless, not much has been done to examine and understand this issue. Most of the customer research on understanding customer loyalty has focused on the behavioural aspect. The simple rule is that repeated purchases of the same brand signal customer loyalty. However, this measure of customer loyalty suffers from a major deficiency — that of not being able to rightly capture the divided loyalty attitudes of customers. Additionally, it also hampers the exploration of the crux of the problem: the motivations behind the divided loyalty behaviours of customers. To understand this, it is necessary to take a nuanced look into why and how the notion of divided loyalty extends beyond differences in purchase behaviours.
S. Arunachalam, Assistant Professor of Marketing at the Indian School of Business (ISB), points out that it is imperative to understand the motivations behind customers’ divided loyalty for two reasons: 1) To gain deeper insights into customers’ loyalty attitude determinants, and, 2) To help companies gain managerial insights on understanding and handling divided-loyal customers to the company’s benefit. He states, “An understanding of customer loyalty begins with an understanding of customer motivation. Unless brands understand the motivations behind the divided loyal behaviours of customers, brands will struggle to create meaningful relationships or enduring engagements with customers.” The results of a study by Arunachalam and his colleague show that firms must pay attention to divided-loyal customers as they form a substantive part, around 30%, of the total customer pool.
The authors use multiple data sources in a business-to-business (B2B) setting. They collect and analyse data from the equipment financing industry to examine divided attitudinal loyalty and its motivating factors. The choice of this industry is apt for an examination of divided loyalty as it involves customers receiving financing to purchase high-priced equipment from any one of the following three entities: the manufacturer of the equipment, another manufacturer known to the customer (an industry competitor), or a bank. Customer loyalties could be divided between any of the three entities and broadly fall into two categories. Competition between the manufacturer and the industry competitor constitutes intra-firm competition, while competition between the manufacturer and the bank constitutes inter-firm competition. Using this setting as a backdrop, the researchers empirically demonstrate the reasons for customers’ divided loyalty, and suggest ways and means by which firms can better handle divided-loyal customers to achieve firm-friendly results.
Understanding customers’ divided loyalty
The study demonstrates that divided loyalty arises for one of two reasons:
Intra-firm equivalence: Customers show high and similar levels of attitudinal loyalty to two or more brands if they believe that the brands are more or less similar without much differentiation. Customers’ perceptions of the similarity between products as the cause of divided loyalty is more pronounced when the competing brands are from similar firms.
Inter-firm comparative advantage: Customers show high and similar levels of attitudinal loyalty to two or more brands if they believe that though the brands are very different from one another, the combined value of the brands is the same. In other words, as long as customers perceive that they get the same amount of value by choosing different brands that are not equal, but which collectively provide the required overall value proposition, customers tend to harbour divided loyalties.
Based on the empirical findings of the study, the authors point out that in the case of intra-firm competition where the customer’s motivation for divided loyalty is equivalence, firms will benefit if they highlight parity in the value of their brand while nullifying competitors’ value propositions that show similarities. On the other hand, in the case of inter-firm competition, brands must differentiate their offerings and focus on providing overall value that is similar to competing brands. Specifically, in the B2B equipment financing industry, as long as customers’ loyalty is divided between the manufacturing firm and its competitors because of perceptions of product parity, the firm stands to benefit the most if it focuses on differentiating its products from those of its competitors. Likewise, in the case of comparative advantage, the firms stands to gain the most by highlighting structural differences between itself and the bank.
The way forward for firms
An inevitable question that carries immense managerial implications is “How can firms handle divided-loyal customers”?
The use of dealers to handle divided-loyal customers
The results of the study show that in order to achieve firm-friendly results, firms could use the services of dealers to intervene on their behalf and recommend their products to end customers. Dealers can play a pivotal role with divided-loyal customers by helping or directing customers towards a brand, simply because they are closer to the customer than the firm. The study further demonstrates that dealers influence customers’ expectations by not only providing information about the brand but also by providing information on the relative advantages of the brand over those of competitors. Dealers’ recommendations to divided-loyal customers encourage them to buy more from the firm, while enabling suppliers to reap higher value benefits.
Use of a customer-value oriented strategy
While dealers are capable of enabling a firm to achieve positive outcomes with divided-loyal customers through recommendations, they are not required to do so. The researchers empirically test the factors that prompt dealers to recommend a brand. They observe that a firm has two options to gain dealer cooperation: 1) An incentive-reward strategy, 2) A customer value-oriented strategy. The incentive-reward strategy involves the use of economic incentives by a firm as positive reinforcers. The customer value-oriented strategy involves the active involvement of the dealer in enabling the supplier to provide better services to the customers. When the supplier make efforts to enable the dealer to serve the end customers better, the dealer in turn will reciprocate the supplier’s motivation by recommending the supplier’s products to customers. The study showed that the use of customer-value oriented strategies was more effective in motivating dealers to recommend a product to customers when compared to an incentive-reward strategy. Furthermore, the results also show that the effectiveness of a customer value-oriented strategy may be lessened by the offer of monetary incentives.
What this means is that companies can now find ways to combat divided attitudinal loyalty of business customers through the intervention of dealers. In particular, in a setting of a ‘supplier-dealer-customer’ triad, it is possible for one dyad within a triadic network to influence the relationship in another dyad of that network. This study successfully uses the triadic network notion to demonstrate the role of dealer recommendations in inducing divided-loyal customers to venture beyond their preferences and demonstrate behaviours that bring more value to the firm.
About the Researchers:
S. Arunachalam is Assistant Professor of Marketing at the Indian School of Business, Hyderabad. His primary area of research is customer value, customer engagement, and business-to-business markets. He is open to discussion with executives on managerial problems and trying to help solve those. He can be reached at: s_arunachalam@isb.edu
Sridhar N. Ramaswami is Professor of Marketing at Iowa State University, Ames, IA, USA.
About the Research:
Ramaswami, Sridhar N., and S. Arunachalam. “Divided attitudinal loyalty and customer value: role of dealers in an indirect channel.” Journal of the Academy of Marketing Science 44, no. 6 (2016): 770-790.
About the Writer:
Catherine Xavier is a Content Writer with the Centre for Learning and Management Practice at the Indian School of Business, Hyderabad.