Customer loyalty is in many ways the core of a successful and growing business. No matter the market you operate in, repeat customers are vital. It is often said that keeping existing customers loyal is more difficult than finding new customers. There is some truth to this in that most markets in online retail are saturated, and consumers are always going to look for the best deal.
Another aspect of this subject is while striving to find new leads and customers it is easy to put all your effort into this area of the business – marketing for new customers – while overlooking the value of repeat customers.
In the article that follows we will be looking at how to build customer loyalty and why it is essential you concentrate a proportion of your marketing towards it.
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What is Customer Loyalty and Why is it Important?
Customer loyalty is best described as a relationship between a consumer and a retailer or brand that has come about as a result of the level of service and quality of product the retailer provides. In other words, a loyal customer is one that trusts you and will return to you for future purchases.
There’s more to it, however, as now we are firmly into the digital age the modern consumer expects more from the online retail experience. Thus, a first-time customer may become a loyal customer once they have experienced the level of attention to detail that you and your store provide.
Loyal customers shop with you regularly, use the product or service you provide, and also offer feedback, recommend you to others in their circle, and directly affect customer lifetime value. By engaging with you on different platforms – especially social media – the loyal customer is also essential in building your social trust.
We will be looking at the methods used to build customer loyalty shortly, but first, let’s talk about the different types of loyal customers and why you need to consider them carefully.
What are the Types of Loyal Customer?
It comes as a surprise to some that there are different customer loyalty levels. Differentiating between them is important for your marketing success. This section should also give you more insight into methods that may be used to gain customer loyalty. Marketing experts consider that there are six groups of loyal customers, and below we will describe each one.
The happy customer is often mistaken for all customers, but in fact, is shopping with you or using your service because they are happy knowing they are getting what they want. In many ways, they are similar to the convenience-loyal customers we described below. This customer shops with or visits you often as they have no reason to look elsewhere.
Yet, these are among the easiest customers to lose. Let’s say a competitor launches a marketing campaign that offers better deals than you, or a discount. The happy customer may be happy with you, but they are going to jump ship if there’s better value, great deals, or a better product at a similar price. Keeping the happy customer happy means staying on top of what your competition is doing and bettering it.
Price is always important to the modern consumer. If you offer a product or service at a better price than your competition at the same quality level the price-loyal customers will continue to shop with you. However, bear in mind that price is the sole reason this customer is with you. This customer will happily jump ship if someone offers a better deal.
There’s a thin line between putting a lot of effort into keeping price-loyal customers and spending a lot of money doing so (we will be looking at the cost aspect later). This is another reason why you need to carefully analyze your customer base regularly.
Continually dropping your price in the face of stiff competition is not growing your business, it is simply cutting into your income. It pays to be careful with a customer who is price loyal as there may come a point where they cost more than they deliver.
The convenience-loyal customer is important to you as they prove you are getting it right. They shop regularly with you because your service is good, your price is good, and your website and online store are easy to use. Convenience is important as many people do not have a lot of time to spend searching for the right service provider or retail outlet.
The convenience-loyal customer is less likely to switch suppliers because of a better price. Changing means signing up to a new account, sharing information, and finding their way around a shop that they are unfamiliar with. They already know where they can purchase what they want quickly and easily, and also know they are getting the quality they require. Keeping convenience-loyal customers is about great customer experience as well as ensuring the service remains of the highest quality and doing so consistently.
Loyalty Program Customers
This is a fickle type of customer that simply likes the terms of your loyalty program. It’s likely they shop with you because the rewards you offer are better than the competition. That’s good, as it means you are attracting customers through good deals, but this is not a customer who has a genuine relationship with you, your product, or your brand. If they see a better loyalty offer elsewhere there is no reason they will not move. The way to keep this customer is to ensure your loyalty program is updated and improved over time.
These customers are not coming to you because of the product or the brand. They are there to take advantage of freebies. For example, you run a café that has free Wi-Fi while the nearby one does not. Or you run an automobile service center and you have a deal that involves a free inspection with no obligation. This customer might buy from you or use your service, but the attraction lies in getting something for nothing.
The truly loyal customer is the one that has a genuine ongoing relationship with your brand, your product, or you. These consumers are emotionally inspired by your service. They believe you offer the very best across all of your services and products, and they will tell others to try you.
However, because they are already tied to your business does not mean they need less attention. This is the customer who will tell others how good you are, who will share on social media, and who will help grow your customer base. These people are your brand ambassadors, and you need to keep them happy.
The six groups are well-defined and each comes to you for a different reason. For a customer segment that is profitable, brands can determine how best to increase the customer lifetime value of that segment through loyalty management.
How to Gain Customer Loyalty?
There are methods to use that will help you build loyalty among your customers, and the above categories of the consumers should give some inspiration. Here we have a look at a few things to consider when growing customer loyalty that is tried and tested.
How to Earn, Build and Increase Customer Loyalty?
As mentioned, customer loyalty comes about when you give the customer exactly what they want, at the right price and with maximum convenience. Let’s start by looking at where you need to start when you want to earn customer loyalty.
Earning Customer Loyalty
Let’s have an example. You have an online store selling a product that many other stores also sell. Why should new customers choose you, and not your competition? First, you need to get yourself seen. SEO is part of this, a quality website with great copy, and a marketing campaign that puts you on the social media pages of your target audience. Defining the target audience is another topic entirely, so we will assume you have researched your market and are ready to go.
The first thing you need to do is create a retail or service experience that inspires a memory. That is, you must go above and beyond the norm to make the customer feel they have been treated specially. First-time customers come to your store. There are certain things they are looking for: ease of use, the right product at the right price, and quality of service are among the primary drivers. These are key points for driving customer loyalty.
However, all of your rivals know this too and will have taken measures to ensure they are competitive and attractive. Remember, the true customer is one who forms an emotional bond with you, your product, and your service. An introductory discount is always sensible, as is the clear promotion of your loyalty program.
But those are simply standard routines. To create a memory takes something personal. You want new customers to go away from the experience, not just satisfied but impressed and engaged. A good example is a jewelry retailer who, with every order, sends a neat personally inscribed thank-you card. It’s simple, and it creates that memory. Or a coffee shop where – without former explanation – the customer is given a free biscuit.
Going that extra mile for your customers is always going to create the memory that helps them form the bond you need between yourself and valuable customers. That’s how you increase customer loyalty.
Building Customer Loyalty
Now that you have that customer on board, you need to build loyalty between you. They have already gone away from the experience happy and are likely to return, so what else can you do to ensure that they do? Here are a few customer loyalty tactics to think about:
Stay in Touch with Customers
Regular communication is essential. A weekly email or message, for example, outlining what’s been happening at your store is a great way of keeping in touch. As the customer will also be required to opt in to receive it, it also helps build your database from which you can draw further information. A chatty and informal style works best as nobody enjoys a full-on sales pitch and remember that a customer who has bought from you before will be interested in related products.
Keep In Touch with what Your Competition is Up To
While your truly satisfied customers are unlikely to switch suppliers the six category descriptions from earlier on highlight those who may do so if there is a better offer. Keeping up with the marketing and advertising campaigns of your rivals is essential. They may bring a new product to market or perhaps offer a special deal that you need to counter. Set aside regular time for monitoring the market and do so carefully.
Recognize and Reward Your Loyal Customers
Later we will be looking at loyalty programs in a little detail but suffice to say here that two-thirds of consumers say they appreciate loyalty and reward schemes. We’re back to the subject of giving something for nothing, which nobody is going to turn down. Look at the schemes that others are offering and ensure yours is more attractive but be careful not to go down the route of giving too much away.
Those are a few points on building and improving customer loyalty, so before we move on to talk about other aspects of loyalty, a bit about customer retention – how to improve customer loyalty and keep those customers who may be tempted away.
Best Strategies to Improve Customer Loyalty
We will be covering the same ground as in the section on building loyalty if we go into detail here, so we want to simply give a few reminders as to how to ensure your customers remain on board.
The above are just a few areas of your business you need to keep on top of. Let’s move on and look briefly at how to measure customer loyalty.
How to Measure Customer Loyalty?
It is essential that you have a clear idea of the level of customer loyalty you are attaining. Briefly, here’s how to start measuring customer loyalty.
By looking at your available purchase history and customer database you can simply take the number of repeat customers as a percentage of the total number of customers who have bought from you. This valuable insight will help you measure loyalty of your customers. The ideal figure varies by industry, but in retail, a figure of around 60% retention is very good, while the average is around 30%.
The Customer Loyalty Index (CLI) is a standardized tool that is used to track customer loyalty over time. It needs to be evaluated periodically to effectively keep track of loyalty. Even though customer loyalty may be your number one priority, it can’t be summed up in a single number. You have to take into consideration multiple factors like NPS, upselling, and repurchasing. Knowing these metrics will help you prepare a customer loyalty strategy.
Let’s look at some further customer retention facts before we get into the types of the loyalty program.
Customer Loyalty and Customer Retention Facts
Here are some statistics that should interest you with regard to loyalty programs and customer loyalty:
Those are just a few statistics that firmly link loyalty programs to customer retention. Before we get into the detail of loyalty programs, here are a few words about the importance of CRM systems.
CRM System and Customer Loyalty
CRM and loyalty marketing can be used together to create deeper connections with your existing customers. Put simply, you need a good CRM system to collect, process, and analyze all the available customer data. This will help customer success teams to identify committed customers and create targeted and personalized marketing communications. If your dedicated customer service team maintains customer relationships properly, it will encourage customers to stick around.
What is a Loyalty Program and How to Create it?
The mention of loyalty programs throughout this article is an indication of the importance of such in growing customer loyalty. Here are the main and most useful types of loyalty programs.
Types of Customer Loyalty Programs
Point-based Loyalty Program
Among the easiest to maintain, the point-based customer loyalty program awards points to customers according to how often they buy from you. When they reach a certain score, the points can be exchanged for a discount, a product, or a gift.
Value-based Loyalty Program
Similar to the above but rather than based upon frequency of visits the value-based customer loyalty program awards a score according to the amount spent. Once again, on reaching a certain point the customer is awarded a discount, freebie, or special deal.
Card-based Loyalty Program
This method is used widely in coffee shops, for example, where a customer has a loyalty card stamped each time they make a purchase and get a free coffee every eight, for example. It’s also sometimes seen in bars and pubs.
Game-based Loyalty Program
An innovative take on the customer loyalty program, the game-based version involves the customer is invited to complete a challenge – for example – with a purchase. The more challenges completed, the more points the claim and eventually reach a prize. This method encourages the consumer to engage with the brand more regularly.
Tiered Loyalty Program
Tiered loyalty programs reward consumers more lucratively as they climb through the tiers. The consumer can advance up a tier by spending above a certain amount or buying more regularly. Research has shown the 50% of consumers would willingly change their buying habits to advance to a higher tier.
Paid Loyalty Program
An unusual but increasingly popular method is the paid loyalty program in which the consumer pays to participate, usually by way of a one-off membership. As these programs tend to offer better benefits than the standard examples, they attract a higher quality of consumers. The brand uses the payments to fund more impressive rewards than could normally be afforded.
Coalition Loyalty Program
The coalition loyalty program involves more than one business offering incentives. This method brings two or three businesses together thus reducing the cost of the program. It works best where there are complementary businesses involved. A software supplier may link with a hardware or accessories company, for example, giving the program a broader reach.
Our final example capitalizes on the consumer’s desire for personalization. Using your database, you can program a birthday wish to be sent to your customers on the day, by email or message, including a discount or other offer.
The above are the main methods of rewarding a customer’s loyalty and building great customer service, so before we wrap up here are some examples of successful loyalty programs.
Customer Loyalty Program Examples
The following are among the best-known loyalty programs that demonstrate the benefits:
The Starbucks Rewards scheme involves customers paying via the Starbucks app to gain stars towards free drinks and food. This digital take is a version of the points-based system and allows the company to gather data on customer loyalty and also where and when they are shopping with the coffee shop giant.
A great example of a paid loyalty program is Amazon Prime. For a flat monthly fee, the consumer gets access to free express delivery on thousands of items as well as the Amazon streaming service and exclusive sales. Prime members spend four times as much as other customers.
The North Face
Outdoor gear retailer The North Face operates the XPLR Pass, a point-based system that is much more. Rather than offering discounts, the XPLR Pass allows customers exclusive access to special editions, they can take part in testing new goods, and points can be exchanged for special events such as mountain climbing in Nepal – all things that appeal to the target audience for the brand.
Why is customer loyalty important? The key to business growth is to make decisions that will improve customer loyalty. The important things to take away here are that a loyal customer will spend more with you than an average one. They will also encourage others to buy from you. By using loyalty programs attractive to your target customer, you are adding to the brand appeal and providing a competitive advantage over your rivals. Customer loyalty is the key to growing customer lifetime value, and we hope we have helped you understand the best route to take.
There are three key points you should focus on when creating a customer loyalty strategy for your business – having a good customer service team, building satisfying customer relationships, and creating a pleasant customer experience.
Customer loyalty enables businesses to grow the number of committed customers. Repeat purchases increase customer lifetime value because satisfied customers will always be coming back to your store. Increasing customer loyalty will reduce customer acquisition costs.
By using loyalty programs attractive to your target customer, you are adding to the brand appeal, providing a competitive advantage over your rivals, and encourage customer loyalty. Customer loyalty is the key to growing customer lifetime value, and we hope we have helped you understand the best route to take.