{"id":575,"date":"2010-07-01T06:15:31","date_gmt":"2010-07-01T10:15:31","guid":{"rendered":"http:\/\/www.yupingliu.com\/wordpress\/?p=575"},"modified":"2010-06-30T23:20:55","modified_gmt":"2010-07-01T03:20:55","slug":"lock-in-vs-loyalty","status":"publish","type":"post","link":"https:\/\/www.yupingliu.com\/wordpress\/2010\/07\/01\/lock-in-vs-loyalty\/","title":{"rendered":"Lock in vs. Loyalty"},"content":{"rendered":"

Recently, while trying to obtain a mortgage, I spoke with a Quicken Loans customer service representative named Jorge (I omitted the last name here to save him some dignity). On the phone, I told him that we have not decided on a lender and that we wanted to get an idea of what Quicken Loans had to offer. Our intention was to shop around for the best deal AND service. Apparently, the fact that we are smart shoppers did not rest well with Mr. Jorge. He immediately asked us for a commitment that we are going to work with Quicken Loans if he were to spend any time working with us. When I told him that we cannot make such a commitment at this time, he refused to work with us. Needless to say, I finished my conversation with him quickly and crossed out Quicken Loans as a candidate lender.<\/p>\n

What Mr. Jorge is trying to do is not uncommon in the business world — he is trying to lock in customers (or in my case, potential customers). Wireless companies do the same thing, by locking up our phones so that they can only be used with a specific provider. This attempt at locking in customers is not without a good reason. After all, today’s consumers are very fickle. Combined with the wealth of information we can find online and through social networks, we are given the power to choose the best service at the best price. So naturally companies want to create some kind of switching barrier so that we won’t go somewhere else.<\/p>\n

 <\/p>\n

\"Handcuffed\"
Image by mskogly<\/a> | CC 2.0<\/a><\/p>\n

The question is how effective such a switching barrier really is. The answer is: not very effective at all. Consumer researchers have repeatedly demonstrated that trying to control consumers’ decisions and behavior can elicit strong consumer reactance. The result is disgruntled customers, negative word-of-mouth, and in the long run low retention rates.<\/p>\n

I am not suggesting that switching barrier is bad. Switching barrier is actually necessary. But the key differentiating point between an effective switching barrier and an ineffective one is why<\/em> it stops consumers from switching. It is the difference between “having to” and “wanting to”. In other words, you want your customers not wanting to go anywhere else, at their own free will, rather than putting shackles around them so that they cannot go anywhere else. The latter strategy is not a loyalty strategy, and it will not lead to customer loyalty.<\/p>\n

 <\/p>\n

\"Lock<\/p>\n

 <\/p>\n

I end this post with a sample list of effective vs. ineffective switching barriers when marketing to consumers, so that you can see for yourself what really fosters loyalty in the long run.<\/p>\n

Effective Switching Barriers:<\/strong>
\n– Emotional connection with the brand (e.g., Harley Davidson)
\n– Great customer service (e.g., Lands’ End)
\n– A sincere and ethical way of doing business (e.g., Zappos)
\n– A deeper understanding of customers based on effective analytics (e.g., Harrah’s)
\n– Special status and treatments (e.g., American Express)
\n– A fun culture that people want to be associated with (e.g., ING Direct)<\/p>\n

Ineffective Switching Barriers:<\/strong>
\n– Purely technology-based lock-ins (may work for a while but not for the long run)
\n– Purely point-based loyalty programs that lack soft benefits and savvy analytics
\n– Frequent coupons
\n– Imposed contracts
\n– Regulations (e.g., the utility industry)<\/p>\n

Just like love, loyalty is voluntary and cannot be forced. Only when consumers can say they love you out of their own volition will you have reached the nirvana of customer loyalty.<\/p>\n","protected":false},"excerpt":{"rendered":"

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