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Consumer Loyalty Strengths/Vulnerabilities in Cycles 69

As economic conditions deteriorate, the perceived switch-
ing costs take on different weightings: the value of the price
differential increases in importance relative to the value of
time and effort.

Relying on behavioral loyalty in tough economic times is
a high-risk strategy. This is particularly the case in mature
markets. In these markets, differentiation among competitive
products is low and thus behavioral loyalty is highly likely.
Moving toward a more sustainable competitive advantage
requires the development of the next level of loyalty: cogni-
tive loyalty. This is particularly important in depressed
economies.

Cognitive loyalty is a form of loyalty that is unrelated to
switching costs. It is purely the relationship between the
business and the customer. When cognitive loyalty is
achieved, the supplied value proposition (which is closely
related to customer satisfaction) is relatively higher to a busi-
ness’s competitors. A high customer satisfaction or net pro-
moter score index might reflect superior product features
(tangible and intangible) and will then likely reflect an
increase in the perception of value the customer feels they
are receiving.

Repeated satisfaction typically leads to increased trust.
Historically earned trust can supplant a consumer’s need for
a certain level of additional information. In other words, if
a consumer has trust, they will require less information than
if they don’t have trust. In a hard economic environment, a
consumer will rely more on trust yet will also slightly increase
their need for additional information.

Regarding the economies of trust, when a consumer trusts
a business, it costs the business less in acquisition costs and
also less in servicing costs. This is because customers require
less of the business to convince them of the business’s su-
perior value relative to competitors. These trust economics
are a trust annuity over time: the more trust, the more sus-