Customer Engagement. It’s a phrase echoed by brands in their quest to attract and retain customers. Yet, in talking with marketers across myriad industries, we realized that it’s a concept that is often very misunderstood.
We’ve found that “engagement” and “loyalty” are terms that are often used interchangeably. Understanding the differences and interconnection between the two, however, is the key to building and maintaining strong, sustainable, and profitable customer relationships.
Behavioral psychologists have long argued that only 30% of human decisions and behaviors are actually driven by rational considerations. This means that more than 70% of consumer loyalty and spending decisions are based on emotional factors. As the growth of social media technologies and an overall trend toward commoditization of purchase decisions have forever changed the way brands and consumers interact, marketers have come to realize that creating customers who are emotionally engaged with their brand is a distinct competitive advantage.
Maintaining this level of customer engagement is, however, one of the biggest challenges facing marketers. While consumers are starting to increase their spending, they are not connecting emotionally with brands the way they did before the recession. According to PeopleMetrics’ 2010 Most Engaged Customers study, customer engagement levels across multiple industries have remained flat after dropping sharply in 2008. The study evaluated more than 60 brands across 12 industry sectors. Only 52% of customers surveyed said they felt an emotional connection to the company—a mere 1% increase over 2009—compared to 59% three years ago.
“Beyond Loyalty: Meeting the Challenge of Customer Engagement,” a report from the Economist Intelligence Unit, illustrates the bottom-line impact of these decreased levels of customer engagement. In December 2006 and January 2007, the Economist Intelligence Unit queried 311 executives on their companies’ customer engagement practices. Among the survey’s key findings are the following:
- Nearly 90% of all respondents say that customer relationships are either very or extremely important to the success of their business. More customer engagement, they believe, would translate into improved customer loyalty (80%), increased revenue (76%) and increased profits (75%).
- Nearly 49% of respondents estimate that insufficient engagement costs them up to 25% of sales, while about 26% believe that it costs them between 25% and 50% of their annual total; 11% peg the number of lost sales at an even higher level, somewhere between 50% and 75%.
- Nearly 43% of survey respondents say that customer engagement efforts are often sidetracked by competing strategic priorities. This will continue to be the case unless engagement takes its place alongside corporate goals and strategies.