Strategies for strengthening your family business’ brand; is it realistic to rely on customer loyalty?

This is a lesson often learned the hard way because it is so counter intuitive.  When I was the CEO of Alliance Computing Technologies, I believed we could differentiate ourselves through extraordinary service, fair but competitive pricing and a strong pipeline of new products to bind our customers to us.  Now once the savvier amongst you stop laughing, hear me out and consider the lessons that might be worth considering.

There is some truth to the wisdom of allocating a portion of your budget to R&D for the expressed purpose of developing your pipeline of future offerings.  Those future offerings, though, in and of themselves do not assure you of the loyalty you seek.  More is not necessarily better.  It’s often just more and it confuses the buying decision.

If you spend any time in the woods hiking or hunting, you recognize game trails.  These are the well-worn paths along which animals travel for food and water.  Notice how these trails represent the path of least resistance.  Are we so different?  Consider your own preferences for simple over complex choices.

In their article Customer Loyalty is Overrated, A.G. Lafley and Roger L. Martin introduce the concept of cumulative advantage. They discuss how we often miss this simple truth and how companies like P&G, IBM, Pepsi and others leverage it.

Pop culture says sell the sizzle not the steak, a reference to the emotional component in how we make the buying decision.  Not very satisfying to those of us who want a more substantive explanation but it turns out that behavioral psychology might come done squarely in the side of this simple mantra.  The brain may in fact be more interested in processing fluency that is, filling the gaps between what it has and what it needs as efficiently as possible (the path of least resistance).  In this case, positioning your offering as the rational choice alone may not serve your purposes well.

If the brain likes automaticity as Lafley and Martin claim building our brand on new products, new services might come at the expense of loyalty to our core offering. Confusion from too much choice can be an unintended consequence of a flawed strategy and runs counter to what we know about the psychology of decision-making.

Recently I visited a Chinese restaurant with the most exquisite dessert I’ve had in a long time Mango Purple Sticky Rice. I wanted to fix it for dinner guests we had invited the following weekend.  When I went to Publix to purchase the black sticky rice used as a key ingredient I was confronted with a rice selection that had more than 65 different rice choices and not one was the product I was looking for. It’s not a perfect example to illustrate the point but the sense of frustration I felt from the overwhelming choices available is the affect I want to highlight, that can lead to indecision and lost sales.

Lafley and Martin make the point that this phenomenon is as true in the new economy as it has been for P&G or IBM in the old.  The easier we make it for customers to say yes to our offering, the more comfortable the brain becomes repeating the process and the more reluctant it is to choose an alternative so long as the expected value is there.

If this idea of cumulative advantage intrigues you, its four imperatives are:

·         Become popular early

·         Design for habit

·         Innovate inside (emphasis added) the brand

·         Keep communication simple

You can read more about them in the Harvard Business Review article itself as well as the counterpoint by Rita Gunther McGrath; Old Habits Die Hard, but They Do Die.  To maximize the life time value of your customers, consider whether this line of thinking plays into your strategy for developing the necessary loyalty or are your expectations simply unrealistic?