MSI’s 2016 Best Paper investigates how customer engagement can alter—not simply augment—existing customer–company bonds. In their report, “Consequences of Customer Engagement: How Customer Engagement Alters the Effects of Habit-, Dependence-, and Relationship-Based Intrinsic Loyalty,” Conor Henderson, Lena Steinhoff, and Rob Palmatier examine how customer engagement initiatives interact with customer loyalty mechanisms that already operate in the background, underlying ongoing business exchanges.

In a longitudinal field experiment with a service provider, they show that such initiatives can have opposing performance implications for customers’ likelihood of expansion and defection, related to three intrinsic loyalty mechanisms (habit, dependence, and relationship).

Their results also provide insight into the power of each source of intrinsic loyalty. For instance, the loyalty benefits of relationship and dependence appear to be latent and become activated by external stimuli such as an engagement initiative. Alternatively, habit’s power is in its inertia, which is disrupted by external stimuli .

The authors identify four groups of customers, on the basis of their intrinsic loyalty profiles, then use a spotlight analysis for each group to determine the local effects of engagement. For example, customer engagement initiatives targeted to “loyalists” offer benefits with no offsetting penalty (5.1% reduction in defection with no significant effect on expansion). In contrast, “sleeping dogs” (customers who are mainly bound by habit) may be awakened by engagement initiatives, causing them to either play (expansion increases by 1.9%) or bite (defection increases by 3.3%).

Overall, the report offers new insights to managers on designing, testing, and targeting customer engagement strategies with maximal effectiveness.

Download full paper:
“Consequences of Customer Engagement: How Customer Engagement Alters the Effects of Habit-, Dependence-, and Relationship-Based Intrinsic Loyalty”
Conor Henderson, Lena Steinhoff, and Robert Palmatier (2014)