Customers are more influential than ever. Empowered by social media and digital devices, they’re the ones who dictate when, where and how they engage with brands. Not only are customers actively sharing their thoughts on products and services, but their data is being harnessed to shape product development and customer experience (CX) strategies.
Today, the consumer has the upper hand, meaning your customer loyalty strategy is absolutely critical for driving profits. In fact, increasing customer retention by just 5% could boost profits by as much as 95%. Therefore, a well-executed loyalty program delivers excellent ROI – but it all starts with knowing what the different types of loyal customers are, how to hold onto them and how to measure and track success.
- Defining customer loyalty
- Why customer loyalty is important
- 5 benefits of having loyal customers
- How can you measure customer loyalty?
- Creating a customer loyalty strategy: How to build, improve and maintain loyalty
- Why you need a customer loyalty program
- Final thoughts
Defining customer loyalty
Customer loyalty is the ongoing emotional relationship that exists between companies or brands and their customers. The strength and quality of this relationship is measured by how willing a customer is to engage and interact with, as well as repurchase from you, compared to your competitors.
Loyalty is the direct result of customer satisfaction and positive customer experiences, which drive trust and lead to loyal customers.
Here’s a quick overview of the different types of loyal customers:
1. Satisfied customers
These are the customers who are generally happy with your products/services and don’t have anything to complain about. They stick around without the need for extra incentives, but can jump ship if a great offer comes along.
2. Value-loyal customers
If you’re offering the cheapest prices, this type of customer will stay, but their main goal is to get more for their money, so they’re likely to switch to other brands/companies for a better deal. At the same time, they could easily come back to you when you have lower price offers.
3. Convenience customers
Whether it’s geographical location or another reason that creates a hassle-free experience, convenience-led customers are usually happy to pay for ease. As a result, they’re not as price-sensitive, but they’re not truly loyal to you just yet. This creates many opportunities to engage with them – small improvements to the customer experience and customer service could lock them down.
4. Loyalty scheme customers
These customers are motivated by rewards and stay for your loyalty program, not your brand. They will continue to be loyal to you as long as they keep getting discounts, offers or freebies.
5. Benefit-driven customers
Like the customers who stay loyal because of rewards, the benefit-driven customer is loyal based on what they can get from your business. For instance, this could relate to coffee shops with free WiFi or online retailers with free returns.
6. Passively loyal customers
These customers are accidentally loyal, simply because they don’t have the time, desire or initiative to shop around. In a way, they see your brand as the ‘best of a bad bunch’ and will quickly go elsewhere if a better offer is available and is convenient to them.
7. Actively loyal customers
The holy grail of loyalty – businesses should strive to have most of their customers in this category. These customers regularly buy from you and make a significant contribution to revenue, and will actively talk about your products/services to others. They’re also the first to try any new products you launch and are willing to provide feedback.
Why customer loyalty is important
The fact is, it requires a lot less effort to retain an existing customer than to acquire a new one. Customer acquisition is both expensive and time-consuming, and many businesses report that loyal customer types are the ones who spend more money with them.
Here are some interesting stats that drive home the importance of making customers loyal to you:
- 82% of companies agree that retention is cheaper than acquisition (Econsultancy)
- Nearly 70% of US customers say they would spend more with a company that provided better customer service than competitors (American Express)
- A huge 93% of customers are likely to make a repeat purchase when their customer experience and customer service expectations are met (HubSpot)
5 benefits of having loyal customers
The impact of customer loyalty is hugely positive, not only encouraging repeat purchases and getting a higher return on your efforts, but also giving you sustainable growth.
Here are the top five benefits of having a customer loyalty strategy in place:
1. Build meaningful relationships
Switching your focus from sales to loyalty is the best way of standing out. Customers are exposed to between 4,000 and 10,000 ads a day, meaning your message is often diluted in a sea of content. To gain a competitive edge, align your brand with your customers’ goals and values, and create engaging, relevant and useful content that goes beyond just offers and incentives.
2. Grow your bottom line
Nurturing customer relationships is an easy way of nurturing your bottom line. Customer retention can be anywhere from five to 25 times cheaper than customer acquisition, giving you an easier way to boost revenue. As mentioned, loyal customers spend more too, resulting in better marketing ROI.
3. Turn customers into brand advocates
In addition to increasing sales, a customer loyalty strategy can also help you optimize word-of-mouth and peer-to-peer marketing. Actively loyal customers can be turned into brand advocates. These people will talk about your brand on social media, share product photos, write positive reviewsand are more likely to recommend you to their friends.
4. Gather valuable data
With a customer loyalty scheme in place, it can be much easier to collect first party data for the purpose of personalization. This level of data can also be used to forecast trends, helping businesses get a better idea of what customers want and how customer experience can be improved.
5. Drive long-term growth
Loyal customers stay and they’re happy to engage with you, giving you meaningful, long-term relationships that provide sustainable growth. This is why it’s important to have authenticity in marketing, connecting with customers on a much deeper level than just talking about products and services. This is how you convert customers into brand loyalists, the type of customers that are not easily swayed by your competitors.
How can you measure customer loyalty?
Measuring customer loyalty gives you invaluable insight into your most important customer segment. This is why it’s important to set retention KPIs so you can track your efforts. Here are five ways you can measure customer loyalty in your business:
- Customer retention rate: This is a much more accurate way to conduct retention analysis than simply looking at repurchase rates. The customer retention rate factors in ‘big window’ and ‘small window’ timeframes, giving you a year-over-year metric that looks at repurchases in a more meaningful way.
- Net promoter score: The Net Promoter Score (NPS) can be measured by sending your customers a survey, and this method is used by more than two-thirds of Fortune 1000 companies. The survey uses one key question: “On a scale of 0 to 10, how likely are you to recommend [Company Name] to a friend or colleague?” Their score then translates into three different customer categories: Detractors (scoring 6 or lower), Passives (scoring 7 or 8), and Promoters (scoring 9 or 10).
- Customer lifetime value: A metric based on monetary value, the customer lifetime value (CLV) measures average revenue generated over a customer’s entire relationship with the brand in question. This is a simple but effective way of measuring loyalty.
- Repurchase ratio: This is a useful metric for businesses looking to reduce their cost per acquisition (CPA). While it isn’t as accurate as the customer retention rate in the long-term, it’s still a powerful insight into customer sentiment and behavior.
- Upsell ratio: Another indication of loyalty could be willingness to try other products/services. When customers invest their money into new products from the same brand, they’re displaying a high level of trust. Businesses can also track upsell ratios over time as offers tend to get stale, which provides a good indicator of when it’s time to change strategies.
Creating a customer loyalty strategy: How to build, improve and maintain loyalty
In order to create an effective strategy, it’s important to focus on two key elements of loyalty: customer stickiness and customer retention. While stickiness refers to how likely a customer will repurchase and mostly refers to the transactional value of each customer, retention is more about long-term relationship-building.
Both are important, and if you want to build, improve and maintain customer loyalty successfully, here are the steps you need to take:
1. Personalize the experience
If you want to stand out from the crowd and deliver a seamless customer experience, make it emotional and make it personal. These two combined help you forge meaningful, responsive and impactful connections with your audience. Every interaction counts too, so find ways to connect with people across every touchpoint and on the platforms and devices that they like to use.
2. Have good social media presence
It’s not enough to have social media pages setup and a schedule of content. In order to truly engage and have an impact, you have to interact with your audience – this includes responding to private messages, comments and reviews. Get to know your customers and let them get to know you as a company – be personable, relatable and transparent with company news or your policies.
3. Create a customer feedback loop
There’s something incredibly humble about asking customers for their thoughts and opinions. A customer feedback loop can do wonders for your brand image, but more importantly, it gives you the feedback you need to improve products, services and your customer experience. Over three quarters of customers favorably when they proactively seek out customer feedback, so don’t wait for customers to come to you with complaints.
4. Develop a customer loyalty program
Customer loyalty schemes are one of the most effective ways of increasing customer stickiness, driving retention and reducing customer churn. By encouraging and rewarding loyal customers, you give them a reason to come back, justifying their purchase and extending opportunities to build a meaningful, long-term relationship with them. While loyalty programs aren’t sustainable on their own, they certainly give you a good starting point and a solid foundation on which to build your strategy on.
5. Reward customers for referrals
The best type of loyal customers are the ones who tell their peers about you. Referral schemes give them a little push in the right direction, and will reward them for introducing new customers to your brand. This is a great way of keeping existing customers on board while reducing the cost of acquisition.
Why you need a customer loyalty program
With happy and loyal customers more likely to repurchase, refer and try new offerings, it makes sense to have a loyalty program in place. Loyalty and reward schemes are generally easy to setup, with simple concepts that customers understand.
Whether it’s a tangible prize you’re offering, or access to discounts and other benefits, the prospect of being rewarded for staying loyal can have people coming back time and time again.
There are also many different types of loyalty programs, meaning brands can optimize multiple formats and create a scheme that works with every type of customer.
Here are a few different loyalty programs to try:
- Points programs: This is the most common form of loyalty scheme, used by various brands and across multiple industries. They’re easy to manage, allowing customers to collect points every time they spend.
- Tiered programs: Similar to points, a tiered program operates on the basis that the more you spend, the more rewards you earn. Instead of using points, the scheme lets users enjoy different benefits based on their rank.
- Mission programs: A mission-driven customer loyalty program combines things like social responsibility with rewards. For instance, allowing customers to donate their rewards to charity is a great way of aligning your brand with your customers’ goals and values.
- Goal programs: This type of loyalty scheme is all about hitting personal goals, tracking lifestyle gains, sharing successes and feeling connected to the brand, as well as having access to exclusive rewards. One example is Nike using apps to deliver a rewards program for customers reaching their fitness goals (such as running distance or running time).
- Privilege programs: Paid-for VIP programs encourage much better engagement with customers. A monthly fee provides access to additional services – these could be things such as free delivery, discounted products and other benefits.
Paid programs are popular too, as long as the rewards are attractive enough. According to McKinsey, 63% of consumers pay for at least one program – and subscribers are 62% more likely to increase spend with the brand, while 43% are more likely to shop on a weekly basis after joining.
Final thoughts
A customer loyalty strategy is critical for deepening customer relationships, driving better business results and creating brand differentiation. In a time where your target audience is overloaded with digital experiences and suffering from content fatigue, a loyalty program and a considered approach to communications can help you stand out from the crowd.
When you consider that 65% of a company’s business actually comes from existing customers, the idea of overlooking those customers is counterintuitive. But in order to make your strategy successful, having the right data and proactively gathering feedback from your customers is key.
It’s important to remember that loyalty is dynamic, and the customer experience landscape is constantly changing. Therefore, regularly reviewing your strategy and updating your customer loyalty scheme accordingly is paramount.
If you want to build meaningful relationships that bring sustainable growth to your business, make customer stickiness, retention and long-term loyalty your biggest focus in the customer experience journey.
Further Reading
- Personalisation and Digital Identity: The Keys to Unlock Loyalty
- 5 Brilliant Customer Loyalty Programs from Big Brands
- Why Authentic Brands Win Big on Customer Loyalty
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