Resource Page: Customer Loyalty
Why is Customer Loyalty Important?
Customer loyalty is important because it reduces cost of service, results in better reviews, leads to additional purchases, boosts profits, retains more customers, and increases brand advocacy.
Reduces cost of service
A growing customer demographic expects brands to deliver self-service features. Customer self-service examples include chatbots, interactive voice response (IVR), online forums and communities, FAQ pages, and online libraries known as knowledge bases.
The quick and convenient nature of self-service features eventually results in overall improved customer satisfaction and loyalty. As long as self-strategies remain effective in resolving customer queries, they will encourage customer engagement. Thus alleviating the burden, demand and therefore costs, on customer service departments and support teams.
Results in better reviews
Brands that increase customer loyalty enjoy more positive reviews and customer feedback. Consumers trust the opinions of customers more than business advertisements. When they see customers praising certain products or services, they are more likely to consider the brand that delivered the positive customer experience. An overwhelming majority, specifically 85% of consumers surveyed, agree that star rating is central to their purchase decisions.
Leads to additional purchases
Companies that experience consistent levels of improved customer loyalty go beyond simply offering quality products. They understand every stage of the customer journey. Establishing a well-thought out strategy, fine-tuned to deliver maximum value, relevancy, and impact at every touchpoint.
The customer journey transforms into a loyalty loop, circulated by repeat customers as long as they are delighted.
Boosts profits
Customer loyalty boosts profits via optimised acquisition channels and increased customer lifetime value. Word-of-mouth marketing significantly reduces the amount of money businesses need for advertisements to attract new customers.
Additionally, happy customers will buy your products regularly and increase their spending in return for value. This demonstrates how customer loyalty is important for businesses looking to increase profit margins and their budgets for other priorities.
Retains customers
Customer loyalty and high retention walk hand in hand. The strategies businesses use to build customer loyalty usually pivot around retention. Most marketers and businesses across sectors agree, their future survival in highly competitive markets depend on successful customer retention instead of on acquisition models.
Increases brand advocacy
Brand advocacy is arguably the most important outcome of better customer loyalty. It eliminates the need for spending lots of money on acquisition.
It’s also one of the most effective lead qualification methods, as customers recommend people they think will derive the most value and satisfaction from your products or services. In addition, word-of-mouth (WoM) marketing is one of the most trusted and successful forms of advertisement.
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Benefits of Customer Loyalty
Customer loyalty benefits businesses in a number of ways . It’s directly responsible for cutting costs and increasing retention. Paves the way for clearer customer insights and personalised experiences. Boosts revenue, customer lifetime value and improves engagement. As well as drives innovation, leads to brand advocacy and meaningful relationships.
Cuts costs & increases retention
Advancements in self-service and referral programmes eventually cut costs as a result of increased retention. From operational procedures to customer acquisition, customer loyalty directly benefits businesses by helping them to save.
Therefore, businesses can afford to invest and innovate. Further nurturing loyalty and retention with other types of customer loyalty programmes. Or replacing legacy systems with technical solutions that improve operational efficiencies and enhance customer experiences.
Clearer customer insights & personalised experiences
During the process of nurturing loyalty, businesses gather datasets of information about customer demographics, preferences, behaviours, and needs. All of these details paint a vivid picture of every customer.
As a result, this informs marketing and winback campaigns, communications and rewards relevancy. Personalised customer experiences benefit businesses by increasing conversions, cutting churn and encouraging referrals.
Boosts revenue and customer lifetime value
A boost in revenues and CLV go a particularly long way for businesses that prioritise building customer loyalty. We’ve already demonstrated part of what makes customer loyalty important is more revenue and CLV. Plus, touch on the benefits they offer in the previous section.
However, the financial gains as a result of increased customer loyalty also leads to a truly unique point of difference. Especially when the brand values customer loyalty. As wider margins and bigger budgets allows more breathing room to expand, develop and innovate the strategies, methods and techniques of long term loyalty.
Improved engagement
Customer loyalty quickly succumbs to apathy for businesses without engagement strategies in place. However, if said brand has done all it can to consistently delight its customers, it’s in a prime position to open channels that encourage engagement.
Loyal customers want to interact with the brands they love. Therefore, there’s a great opportunity for engagement strategies to be successful. Loyal customers will respond positively to social media marketing and participate in online communities.
With guaranteed improved engagement, you could even encourage desirable customer behaviours e.g., partaking in feedback surveys, taking part in competitions, leaving reviews and engaging with content.
Drives innovation
Data analysis provides businesses the insights to identify the moment specific customers become loyal to the brand. How they measure this is up to the business. Loyalty could be substantiated by repeat purchases or certain levels of engagement with the brand.
However loyalty is measured depends on factors such as the business model. Yet, the metrics directly inform what works, needs improvements or abandoning altogether for other effective techniques.
It’s precisely for this reason that customer loyalty drives innovation. It shows businesses what works at each stage of the customer journey for each segment.
Creates brand advocates
Brand advocates are great for bringing highly qualified leads to your brand. WoM marketing or referrals outshine other acquisition channels. The reason is due to the fact that 76% of consumers trust recommendations from “normal” people as opposed to businesses.
Trust, as we know, is a consumer sentiment that’s an essential part of customer loyalty. Highly qualified leads recommended to your brand will begin their customer journey with confidence that your brand can live up to its name. When those expectations are met, loyalty is earned, trust is maintained, and more brand champions are created.
Develops meaningful relationships
Customer loyalty also leads to more meaningful relationships. Consumers have never had so much choice. Whatever they need or want can be provided by hundreds if not thousands of brands. Customer loyalty is the end result for brands who do so much more than simply meet demand. They exceed expectations.
Rewards are aligned with customer values and preferences. Unique co-created value through brand partnerships offer brands a compelling point of difference and irresistible offers for customers.
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Customer Loyalty Trends
Customer loyalty is far from a new concept. Businesses across the world try to nurture it in many different ways. Some of these tried and tested methods have grown stale over the years.
Macro-economic challenges and external circumstances outside of our control have shaped the lives, needs, and expectations of our customers. To keep nurturing their loyalty, businesses need to keep innovating their rewards programme.
Always-on rewards
As consumers, we’ve grown accustomed to a world of convenience. Everything we need is at our fingertips and more often than not delivered at the door the next day. This of course is thanks to advancements in technology and global infrastructures.
Loyalty has gone the same way. Always-on rewards offer instant, ongoing rewards, regardless of how much a customer spends.
Brand partnerships
Businesses are also looking to form alliances with other brands in order to increase customer loyalty. More consumers than ever desire unique, co-created value.
In response, brands are pooling their resources, expertise, and even sharing their customer bases. In doing so they broaden their range of offerings, build relevancy, and increase retention and engagement.
Personalised experiences
Many studies, surveys and reports show that consumers want more personalisation in their shopping experiences. Brands that track customer needs, preferences and behaviours, position themselves as the brand that sees their customers as unique individuals.
Customer satisfaction and delight are guaranteed when communication is tailored to the individual, every interaction is personalised to their preferences, and rewards are relevant to their buying habits.
Tiered loyalty programmes
Perfect if you want to increase customer loyalty by appealing to our natural desire to compete with others. Tiered loyalty programmes are a great way of incentivising upsells. Social competition drives customers to prioritise your brand, products or services over others.
In addition, tiered loyalty programmes present the perfect opportunity for brands to segment their customer base. Different customer categories can be identified, allowing you to optimise allocation of resources, effort and time for each segment.
Gamification
Engagement is necessary for long lasting loyalty. Gamification has proven to be one of the most effective methods of catching and keeping the attention of customers. For example, a study showed gamification increased trial usage and clicks to buy.
Gamification also offers you the chance to fully brand your loyalty programme and make it your own with unique games. With handheld gaming exploding in popularity over the last decade, it makes sense to incorporate gamified elements into mobile app-friendly rewards programmes.
AI
AI applications are rolling out across industries. For customer loyalty, marketers and companies realise the potential AI has for transforming customer experience. The broad viability of AI applications also means it can assist with powering chatbots, helping to resolve queries and complaints in a quick, efficient and convenient manner.
Deep learning algorithms are also posed to help brands track customer data and deliver unrivalled personalised CX. Essentially the high level of assistance AI offers for marketers will free up thousands of man hours and resources.
NFTs
A study by PicoNFT revealed that 37.4% of consumers say NFTs influence their engagement with brands and give them a reason to be loyal. NFTs as rewards offer exceptional value as they are more like assets that can appreciate in monetary value. What’s more, since they are truly one-of-a-kind, brands could build communities for their customer base in which NFTs are swapped and traded. Thereby building long term engagement and connection amongst community members.
Mobile Wallets
Mobile wallets are growing in popularity as the method to make purchases and transferring money. These highly secure, fast, convenient and seamless applications share many of the same traits as loyalty programmes.
Customers want to purchase your products and services without worrying about potential breaches to their sensitive financial information. Many wallets offer them this assurance.
Likewise, customers want the same assurances when redeeming rewards and gift vouchers. Which is why brands are improving the compatibility of their loyalty programmes with money wallets.
Sustainability & green loyalty
Customers want connection and deep meaningful relationships with the brand they love. In fact, establishing deep connections with customers is important for long lasting loyalty. Perhaps that’s more true today than it ever has been before. As more people are socially conscious and concerned about the environment.
Our values and principles mean a lot to us. Over 71% of the British public believe loyalty programmes should promote environmentally friendly behaviour. Recent data has already shown consumers abandoning brands that fail to align to their values.
In response, brands are re-assessing their brands on a holistic level. Even making sure their loyalty programmes align with consumer values.
Giving customers a say
In 2023, companies are leveraging rewards as a way to incentivise engagement and brand advocacy. Brands are tailoring their loyalty programmes to encourage customers to give feedback. Surveys, reviews, video testimonials and even early access to products are all requested in return for rewards.
Furthermore, by asking customers to have a say in development of new products for example, builds on the loyalty the programme has already established. Customers feel more inclined to stick with the products or services they helped design (and thereby brands that offer them).
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Customer Loyalty Strategies
Customer loyalty requires strategy. Brands need to instantly establish meaningful relationships and connect with their customers. This of course, can be achieved using loyalty programmes. That way, companies can focus on making customer service and feedback a priority.
With a loyalty programme, rewards gain more impact as data collected on the platform allows for targeted incentives. Paving the way for strategies that enhance a truly unique value proposition through co-created value.
Rewards experiences must always be seamless, enhance CX, convenient and flexible around the needs and preferences of your customers. A thorough customer loyalty strategy can provide all this and more.
Connect with your customers
Loyalty should always be more than business. Make it personal. Send special rewards to people on the anniversary of them becoming your customers. Understand what their preferences are by looking at their purchase frequency and spending habits.
Wish them a Happy Birthday. Better yet, on their special day, give them their favourite product or a period of your service for free. Consider things from your perspective to inform you on the strategies you should employ to delight your customers. Loyalty is earned and kept by consistently making your customers not think but feel appreciated.
Customer loyalty programmes
Building customer loyalty without programmes is possible. Similarly, setting up and launching programmes without a platform is too. Yet, both are a lot harder to accomplish.
Loyalty programmes offer a compelling point of difference. Going far beyond simple Earn & Burn transactions, the flexibility available in rewards programmes, ensures your value proposition constantly improves.
Three quarters of consumers favour brands with a loyalty programme. Not having one in place immediately takes you out of the race for 75% of consumers. Failing to go further than the consideration stage on the customer journey isn’t exactly a great strategy.
Additionally, consider a loyalty platform proprietor if you want to save time and resources developing a programme internally. That way you dramatically increase the speed-to-market of your loyalty solution, outpacing competitors still in development stages.
Make customer service a priority
All the work you do in building loyalty can come toppling down due to poor customer service. Avoid letting poor customer service undermine the foundations of long term loyalty.
Not a single brand gets it right 100% of the time. Problems will arise now and then. Nevertheless, poor performances like late deliveries or faulty products require swift and efficient resolutions.
Have a dedicated customer service team available. Chatbots (possibly supported by AI) open 24/7 communication channels. Never offer something for free unless you know the customer has repeatedly purchased from you. That’s where a customer loyalty programme demonstrates its viability. As it allows you to track customer behaviours and past purchases.
Always make sure your customer service reiterates the point that when something goes wrong – it’s an anomaly not the norm – for your company.
Be open to feedback
Give your customers avenues to express themselves. Positive reviews, testimonials, and feedback, allow you to leverage WoM marketing, social proof advertising, and understand what’s working for your customers.
Even negative sentiments are useful. If someone leaves a negative review or complains on social media that presents a fantastic opportunity to rectify the issue. Let people see you respond to complaints. A dedicated customer service team can demonstrate how willing and capable your brand is at resolving issues.
Letting customers share opinions in surveys improves overall satisfaction too. People want to be heard. When a customer feels they’ve been instrumental in shaping a product or element of your service, satisfaction develops into appreciation. That fosters feelings of being valued and leads to long-lasting loyalty.
Communicates with your customers
Implement as part of your customer loyalty strategy, effective and engaging communication techniques. These can be simple. In fact, sometimes they take less work than opening feedback channels. For example, responding to a comment on social media.
Brands should feel familiar…like friends. Encourage engagement with fun quizzes, “A” or “B” questions, even liking customers’ posts and shares. Adding a human element to your communications rounds of the overall strategy of personalised interactions. Part of which should be outside an agenda of promoting new products or resolving issues.
Optimise the onboarding process
A smooth onboarding process prevents businesses tripping up in the moment they’ve waited so long for. Onboarding new customers should be frictionless. Make it easy for customers to join you.
If your product or service is complex make sure there’s enough educational content at the discovery stage. Your tech should also facilitate seamless and smooth onboarding. Communications about important details should strike a balance of avoiding information overload and keeping customers in the know.
Offer targeted discounts
Customer loyalty compounds when a coherent and effective strategy supports it. Earlier, we mentioned the CRM capabilities and the importance of data-gathering available in customer loyalty platforms.
These tools become a critical component to the strategy of using targeted discount offers. As they allow you to analyse data and identify repeat customers and track certain behaviours. For example, brand champions and people who engage with your social media channels.
Only offer these people surprise discounts. Giving away too much attracts opportunistic consumers and even undermines the perceived value of your brand.
Partnerships or brand alliances
Partnerships or brand alliances present great opportunities. Every strategy building customer loyalty should include a partnership. After all, it expands brand exposure to previously unreachable audiences, improves brand equity and unique value proposition.
Unique value proposition
A coherent overall strategy for building customer loyalty will lead to a truly unique value proposition if the needs and preferences of the customer base are understood.
Rewards and incentives must make sense to customers. Relevancy of rewards equates to the value customers put on your offers. Therefore, your loyalty programme should stand out from competitors by using enhanced data-gathering, personalisation, great branding, and co-created value.
Once you’ve identified what resonates with customers, understand what they love about it and what needs improving. Trial new features and rewards in your loyalty programme. Crafting a compelling point of difference takes trail, error and time. But the ROI of differentiating yourself from competitors in every aspect – from product quality to how you reward loyalty – is the difference between success and failure.
Offer flexible payment terms
Flexible payment terms keep your customers happy and loyal. Flexibility empowers consumers. Deepening their relationship with your brand and making interactions convenient and effortless; both essential to customer satisfaction and long term loyalty.
Flexible payment terms stabilise cash flows for businesses with models that present unique challenges e.g., B2B low frequency purchase rates or seasonal product offers. By adding flexibility to the payment terms, you can stabilise cash flow with incremental payments over traditionally slower periods and nurture a mutual sentiment of trust between brand and customer.
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Types of Loyal Customers
The strategies you choose to implement result in different types of customer loyalty. These include emotional, advocacy, transactional, social, engagement and behavioural loyalty. Most customers display or feel a combination of two or more of these loyalty types. The ideal situation is in fact to make them feel loyal in every way.
Emotional loyalty
This type of loyalty is the result of nurturing deep, emotional connections with customers. Usually this is a result of aligning your brand and customers’ values together.
Emotionally loyal customers are more insulated against your competitors. They are also more likely to make repeat purchases. To benefit from this type of loyalty you should consider strategies that build trust, optimise customer services and engage target demographics in meaningful ways.
Advocacy loyalty
Advocacy is labelled as the purest expression of customer loyalty. We’ve already discussed the strategies that encourage advocacy and the benefits it offers above. But let’s dive a little more into the programme you should use to leverage this type of loyalty.
Brand champions are a lot more than customers. They are valuable assets. After all, they qualify leads, automate the acquisition process through word-of-mouth marketing, and lay the foundations of customer loyalty – connection, satisfaction and trust – immediately after the first purchase.
The best way to encourage advocacy is to set up a referral loyalty programme. Rewarding brand champions encourages them to repeat the behaviour. Leading to a steady streamline of referrals, acquisition of high qualified leads, and even more loyalty secured in the future.
Transactional loyalty
The core of all loyalty is transactional in nature. Yet, it’s the term used to name the most basic form of nurturing customer loyalty. Essentially, a customer receives rewards, such as a discount or exclusive offer, in return for purchases made.
Transactional loyalty is typically regarded as a precursor to modern loyalty building strategies. These days consumers expect more than discounts. They want meaningful, convenient and unique shopping experiences. That’s where the modern consumer sees value.
Of course, transactional loyalty still has its place in catering to the expectations of the modern consumer. However, when overly-relied on, it attracts opportunists and bargain hunters. Therefore, we advise you to tie transactional loyalty to a limited role in your business. Tie it to small actions further down the customer journey e.g., discount for completing a review after the third purchase.
Social loyalty
More people than ever use social media. Particularly the younger generation who use social media platforms to interact and promote the brand they know and love. Social loyalty manifests for brands that have invested into a robust social media presence.
This type of loyalty looks like tagging friends in comments sections, sharing your brand’s posts and influencers promoting your products or services. Again, a referral programme suits rewarding social loyalty.
The main reason being it protects your brand from people who interact with your social media channels just to get a reward out of it. With a referral programme in place and a robust social media strategy, you could reach out to influencers. Their huge audiences offset the cost of giving one person (the influencer) freebies and significant discounts.
Engagement loyalty
Similar to social loyalty, engagement loyalty sees customers engaging with your brand. However, this isn’t confined to social media. Engagement loyalty is when customers interact with your newsletter, watch your YouTube videos, download your education content, and attend your workshops.
Basically, anyway they can interact with your brand that’s outside the purchase transaction. In terms of your loyalty programme, gamification is the best way to encourage this type of loyalty.
Behavioural loyalty
Behavioural loyalty can be identified by specific behaviours that a customer demonstrates. This could be a repeat purchase of a specific product or subscribing to a certain tier level on your loyalty programme.
If your products are high quality, the shopping experience with you is convenient, and your standard of service is consistent, chances are you’re going to see desirable commercial behaviours.
Admittedly, it can be difficult to pinpoint where this success is coming from, especially when you’re doing a lot of things right across the board. That’s why it’s important to open two-way communication channels.
Let your customers have a voice. Offer them rewards for valuable feedback to ascertain why something resonates with them so well. That way, you gain insights into how to improve other areas of your company that aren’t seeing the same level of success. This could be low social media engagement due to lack of tailored content. Or maybe the benefits in tiers not redeemed as often as others need revisiting.
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Measuring Customer Loyalty
You need to measure customer loyalty in order to track your progress towards your business goals. In particular when those KPIs are linked to retention rates and other key metrics.
Keeping track of the sentiments your customer base feels towards your brand, ensures you gather insights from their feedback, and that allows you to make improvements accordingly.
There comes a point when a business must justify their loyalty programme. Yours will be no different. Without the means of tracking KPIs and key metrics there’s no way of discerning whether your loyalty programme is a sound investment or costly, ineffective liability.
How to measure customer loyalty & Repeat Purchase Rate
There’s several ways to track a customer’s loyalty. You’ve got a Repeat Purchase Rate (RPR) to see how quickly a customer makes subsequent purchases after the first one. This lets you ascertain the regularity each customer makes purchases.
Net Promoter Score
Similarly, there’s the Net Promoter Score (NPS). Respondents answer a survey of how likely they would refer your business to others. Where they score on a scale of 0-10 places them into one of three categories: promoters, passive and detractors.
Customer Engagement Score
Customer Engagement Score (CES) helps you deduce how often customers interact with your brand and the duration of their session. Therefore, CES is broken down into conversion rate, pages visited per session and average session duration.
Additional metrics
In addition, there’s Customer Lifetime Value (CLV), Customer Churn Rate (CRR), Upsell Ration and Customer retention rates. All of which give you estimates of the value of customer loyalty, the effectiveness of your retention and engagement strategies, and the strength of your value propositions.
Metrics to track your Customer Loyalty Programme
As already mentioned, you need to justify the viability of your loyalty programme. There’s metrics you can use to judge whether your loyalty programme is performing as intended. These are Active Engagement Rate, Redemption Rate and Participation Rate. Click Learn More below for metric formulas.