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Unlocking the Power of Customer Loyalty
to Foster Long-term Customer Relationship

Market research 04 12
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LEGER
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Consumer Opinion Services
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Table of Contents

We all have some brands we are loyal to and know some brands who have gained complete loyalty from their customer base. These brands have learned and implemented the strategies of customer loyalty that work on their target market. 

A customer’s loyalty is a reward that all companies strive to achieve. However, for it to happen, you must understand your customers and deliver an experience that inspires them to do business with you continuously.  

Nurturing a customer base devoted to your brand is key to drive sustainable growth and enhance brand recognition. In this blog, we’ll explore the essence of loyalty and how to achieve it.

What is customer loyalty?

Customer Loyalty is a simple term that refers to the positive relationship your customers have with your business/brand. The relationship motivates them to continue purchasing from your brand and they choose your company rather than going to a different company. 

Existing customers are thus, the vital element of the entire business. Were you aware that your existing customers are 50% more likely to try your new products and services and also spend 31% more on your brand? This is what Customer Loyalty means.

Customer loyalty is the willingness of a customer to continue combing back to a company for purchase or business. This is due to the fact that customers are loyal to a company that provides them positive experiences, like quality customer service, brand values, product quality, etc. 

In more simple terms, Customer Loyalty refers to the customer’s ability to trust your products/services and their likability to your brand. A loyal customer is not easily influenced by price or availability offered by other companies.

 

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Why is customer loyalty important for a brand?

Customer Loyalty Customer Loyalty

Customer Loyalty impacts other essential metrics of the business as well. Retaining happy and loyal customers is a way to grow the business steadily. Customers spend more time and money on the brands they are dedicated to. The relationship they develop with the brand becomes more important than the possible benefits they may get from your competitors. 

1. Loyal customers advocate for your brand & enhance brand reputation:

Loyal customers help promote the business by recommending it to their friends. ‘Word-of-mouth’ is an exciting and successful marketing strategy, with 90% of consumers claiming that their purchase decision is heavily influenced by word-of-mouth. 

As customers, we frequently rely on customer feedback to make purchase decisions. While customers loyal to your brand will not hesitate to purchase again, unaware/ new customers will scrutinize and check customer feedback. 

Word-of-mouth marketing from your advocates can, therefore, turn into a powerful influence to inform potential customers’ purchase decisions. 

2. Customer loyalty reduces operational cost: 

In comparison to retaining existing customers, it costs 5X more to acquire new customers. 

Customer acquisition cost involves elements like sales labor, marketing spending, and software costs. Your brand can only be successful if your revenue is more than the expanses.  Investing in customer loyalty can minimize the cost to attain customers. Focusing on building strong customer relationships helps in reducing financial strains on your business. 

As per Bain & Company, to break even on CAC, a business is required to retain customers for 12 to 18 months. The idea of customer loyalty sounds more cost-efficient than looking for new customers. 

3. Loyal customers spend more:

Existing customers who are well aware of how your business works willingly return to do business with your brand. Loyal customers will make it easy and smooth for your brand to grow. 

Disloyal customers can prevent the growth of your business by an estimate of 25% to 50%. 

A customer who has done business with your brand multiple times trusts your offerings and customer services. Their personal experience fosters faith, which prompts them to spend more with your brand.

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5 Stages of developing customer loyalty

Customer Loyalty Customer Loyalty

Customer loyalty, in some form, can be seen as a ladder of commitment for a customer. These stages in the ladder increase the loyalty of a customer as they move up. 

Companies need to attract new customers to grow their market reach. However, companies should also know how to build loyalty within their customer base to establish their business in customers’ minds. Developing customer loyalty can help take the business to the next stage while increasing sales. 

1. Creating awareness: 

A business willing to establish itself in a market should create brand awareness among the customers. It could be with online presence, targeted marketing, or storytelling. The business should make use of the best marketing strategies that help customers become aware of the brand and its offerings. 

2. Customer’s research: 

You can stand out among the competitors by helping the customer in their research about products and services. Designing an informative website and updating it with rich content can help create an impact on website visitors. Leverage other channels to make information accessible to customers. 

3. Showcase benefits: 

Customers mostly purchase from a brand when they need the product or for emotional satisfaction. So, customers often look for products that will give them satisfaction and deliver value. 

Demonstrating the advantages and uniqueness of your offerings can help build trust with the customers. Moreover, trust builds loyalty. So, highlighting how your product can help the customers make your brand seem dependable and develop customer loyalty. 

4. Establishing familiarity: 

This stage includes three customer experience stages – buy, use, and repeat. 

Customers give importance to their first experience with the product. They form their opinion about the product after the initial use. Their experience establishes familiarity with the product, which decides whether they will move to the next level.

This stage helps the most in firming customer loyalty as it ensures customers that the brand will consistently deliver on their expectations. 

5. Customer reference: 

Customers referring your products or brand to others show their commitment to your brand. It shows that customers are delighted with your offerings and brand in general, and they want others to experience it as well. At this stage, you have achieved your loyal customers. 

This stage helps deepen the bonds you have with your customers. Utilize customer insight to measure customer loyalty and deliver an exceptional customer experience to your advocates. Nurture these loyal customers with personalized promotions and loyalty programs to enhance the customer’s lifetime value.

Related read: Why is it time to advance your customer loyalty approach?

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Best practices to build customer loyalty

Your loyal customers help you keep the business afloat and successfully grow. So, when it comes to implementing customer loyalty efforts, it’s important to go about it in the right way. Let’s look into ten ways you can nurture and develop customer loyalty. 

1. Understand your customers: 

You must know your customers beyond their tier or point status in your loyalty program. Having a deeper and more comprehensive understanding of your customers helps you establish what kind of loyalty your brand is evoking from the customer base. 

Track customer behavior data to determine where customers focus more on the purchase journey. This way, you can correlate their behavior to the activity that prompts them to purchase. 

Capturing customer emotion can bring you closer to your customer’s feelings about your brand. It can help you understand if customers willingly do business with you or are stuck. You can detect the emotion that is driving loyalty in customers. 

2. Give the best value to the best customers: 

Not all loyal customers are the same, as we have already explained the loyalty categories above. To get the real value out of your loyalty program, you must give the best value to the loyal customers. 

The customers who help you generate the most profit should also enjoy the profits and benefits themselves. This will enlighten them and lead them to become even more loyal to your brand. 

True loyal customers have higher expectations from your brand. So, if you focus on satisfying all customers with average-value rewards, the high-profit customers are more likely to defect while the less-profitable customers will stick around. 

3. Build a customer loyalty culture: 

To boost customer loyalty, you need to build a company that cares about its customers. A company obsessed with its customers is most likely to have a customer base that is less likely to search for other brands. 

Embrace customer obsession at every level in your company, from executives to front-line employees. Instead of treating customers by their order no. or the revenue they bring to the table, invest your time to care about them honestly. Take time to ask about their problem and solve those issues. As a result, you will be giving them reasons to appreciate your brand and stay loyal to you. 

4. Focus on delivering CX and not just on the loyalty program: 

Customer loyalty is rooted in an exceptional customer experience. A company that focuses its time and effort on delivering a great customer experience is most likely to have a base of loyal customers. As per Forrester, customers are more likely to forgive a company that delivers a good customer experience for its minor mistakes.

To earn customer loyalty, it is better to focus on designing a customer-focused experience, resolving customers’ issues & pain points, and giving them a memorable journey. Use modern tools & technologies to monitor customer journeys and gather customer feedback. Use the insight to discover opportunities to build loyalty and align it to your CX strategies. 

5. Prioritize long-term benefits over short-term loyalty: 

Companies are more focused on their sales and generating faster revenues than long-term, sustainable customer loyalty. 

The potential of a loyalty program is recognized when the customers become loyal for a lifetime and change their purchase behavior. This change in customer behavior can only be seen when you offer loyalty programs and rewards with long-term benefits. 

One-time promotions or lotteries can excite customers to spend on your company. However, it does not generate loyalty. When the promotion ends, the customer will begin to defect. As a result, you will be spending more on acquiring customers than profiting from loyalty programs.

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6. Offer quality customer service:

Unless your customers feel valued and respected when doing business with you, they are less likely to stay with you. Customers appreciate a business that values them and provides them with a better customer service experience. 

A company that provides positive and satisfying customer service to its customers has a higher chance of retaining its customers. Customers, as well, when they feel cared for and get the help they need when they need it, are more likely to continue supporting the business. 

7. Personalize their customer experience:

Customers willingly share data in order to get a personalized experience. By using a loyalty program, you can collect relevant data about your customers and provide them with a personalized experience. You can send them personalized recommendations, promotions, etc., and use their purchase history to upsell or cross-sell them products or services they may like. 

8. Ask for their feedback:

If you are looking for ways to create experiences that retain your customers, you should ask customers for their perceptions and thoughts at every critical touchpoint. CSAT surveys, loyalty surveys, or NPS surveys give you an indication of how satisfied or happy your customers are. You can gather their feedback at moments that matter and evaluate the quality of your services. 

Actively gathering customer feedback also demonstrates your commitment to learning about their pain points, needs, expectations, and preferences. This inspires a sense of trust and increases satisfaction.

9. Monitor customer journey:

The customer journey is a large picture of their experience and is more sophisticated and complex. There are many touchpoints in a customer journey, and each has a specific share of influence on Customer Loyalty. 

You need to regularly monitor and collect feedback from your customers to improve the journey. 

10. Demonstrate your appreciation toward customer participation:

Buyers are well aware that customer loyalty programs are strategies to make customers spend money on the company. But, customers still subscribe to such loyalty programs because the generous services offered by these programs stand out and are hard to miss out on. 

Show your customers how much you value their decision to spend money on the brand by offering unique rewards and benefits to attract them. 

Related read: Improving Customer Loyalty: How an Impactful Customer Experience Strategy Can Help?

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5 Types of loyal customers

Your loyal customers may be loyal for different reasons. Not all of them are committed solely to your brand. So, here’s a list of customer loyalty categories. 

1. True loyal customers: 

Also known as advocates, these customers are happy to be a part of your brand. They repeatedly purchase your product without needing much convincing, are willing to try your new products, and share their great experience with their friends and families.

2. Happy customers: 

They are happy with your offerings and have bought from your brand numerous times. However, they may go to your competitor if they give a better deal or discount. 

3. Loyal for price: 

These customers favor the low price of your products more. They will take their business elsewhere if they can find a better deal. 

4. Loyalty program: 

These customers may be more interested in your loyalty programs and the rewards you offer rather than your company and products. 

5. Loyal for free items: 

They are loyal to the freebies you offer instead of your brand. They may buy from you but only when you provide some free gifts. They don’t contribute much to your revenue.

4 types of customer loyalty programs you can use

Customer Loyalty Customer Loyalty

In this section, we’ll briefly explore the four types of loyalty programs you can incorporate into your business strategy. 

1. Point-based customer loyalty program: 

This is one of the widely used loyalty programs. The concept is offering customers the chance to earn points, which then convert into a discount code or some type of reward. 

However, using this loyalty program, you have to ensure that the relationship between points and rewards is not confusing for your customers to understand. Keep the offer simple. Also, keep in mind that point-based loyalty programs are better used for businesses that influence frequent purchases. 

2. Tiered loyalty program: 

The idea behind this customer loyalty program is to offer a small reward to a customer in the beginning, for participating. After the first reward, keep on encouraging customers by increasing the reward value as they move up the loyalty ladder. 

For businesses like airlines or hospitality, the Tiered Loyalty Program works the best. 

3. Paid loyalty program: 

Paid services that let the customer bypass certain purchase hindrances are profitable for the business as well as for customers. 

You can customize your business with some fee-based loyalty program to address issues that may influence your customers to leave, for e.g., offering free gifts, free delivery, or fast delivery in 2 days. 

4. Value-based customer loyalty program: 

By understanding the values and the needs of your customers, you can target those values and encourage customer loyalty. While offering coupons and discounts may work for all, some businesses can succeed by offering value to their customers in ways different from coupons and discounts. Building trust and a strong bond with your audience may help you more. 

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How can you measure the effectiveness of your customer loyalty program?

The customer Loyalty program aims to encourage customer happiness and retention. So, it is essential to measure how effective your customer loyalty program is. There are different methods you can use to measure customer loyalty. Some of these are:

1. Customer retention rate

Customer Loyalty Customer Loyalty

Customer retention rate tells you how long your customers stay with your brand. Business profit increases at the rate of 25% to 95% with a 5% increase in customer retention. 

You can figure out if your customer loyalty program is successfully working or not by looking at the customer retention rate. The rate should increase along with the growth of customers in loyalty programs. 

2. Customer churn

Customer Loyalty Customer Loyalty

The churn rate indicates the number of customers who are leaving your company. It is therefore the opposite of the retention rate. Every time a customer leaves the churn rate grows. Keeping the churn rate at the lowest is important for any brand that is trying to move forward in market competition.

This is an important metric that you must track regularly because churn rate can negatively impact your business revenue. Lowering the churn rate will lead to a larger volume of loyal customers. This means a high retention rate. 

3. Net Promoter Score

Customer Loyalty Customer Loyalty

NPS helps you to measure customer satisfaction on a scale of 1 to 10. NPS records your customers’ feedback about how they feel about your products and services. A well-known metric, NPS, is used by industries with a lot of competition to determine the growth of the brand.

The responses are divided into three criteria: Promoters, Passives, and Detractors. Promoters are the loyal customers who advocate for your brand and popularize it among the customer base. 

4. Customer lifetime value

Customer Loyalty Customer Loyalty

This metric helps you see the value you will achieve from a long-term relationship with a customer. Customers spend more money on a brand they trust. An increase in CLV means that there is an increase in the frequency of purchase over a period of time. This further implies that there is also an increase in the retention rate. 

5. Customer loyalty index

This metric helps measure the loyalty of a customer towards the brand. Similar to NPS, CLI also includes questions on multiple and repeat purchases. It is used to record a customer’s intention of purchasing from the same brand in the future.

Examples of successful brands and their customer loyalty program

Let’s look at how leading brands have utilized customer loyalty programs to earn trust, increase brand awareness, and enhance brand reputation. 

Sephora Beauty Insider

In the point-based loyalty program, Sephora allows their customers to use their Beauty Insider card at every purchase to track the money they spend on the brand. Every dollar that a customer spends they earn a point in their Beauty Insider. Shoppers can later redeem the points for a later purchase. 

Shoppers are grouped into three types of Beauty Insider based on their average purchase limit. From these groups, the top spenders are identified among the loyal customers. 

Hyatt Loyalty Program

Hyatt Loyalty Program is open to everyone. They offer a membership that is free and requires no condition that the members need to meet. The perks of the membership include discounts at their participating hotels, dining, spa, special member-only offer, etc. 

Starbucks Reward

Starbucks Rewards is a Star-based Loyalty Program, in which every purchase made by a customer earns them a star; $1 = 2 stars.

Customers need to download the Starbucks app or sign up online and add the amount of money to their digital card. They can scan the digital card upon checkout. In the app, they offer other prizes as well such as double-star days, free beverage coupons for birthdays, etc.

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FAQs on Customer Loyalty

A loyalty program is a strategy to excite and encourage customers to engage and purchase more products from a specific brand.

A loyalty program is a deal a brand makes with its customers. A brand tells the customer that if they purchase products or services from the brand or spend a specific amount on the brand, they will get something in return, i.e., a loyalty reward. The loyalty reward could be coupons, discounts, points, or free gifts.

Brand Loyalty is explained as when a customer identifies with your brand. They consciously or unconsciously continue to purchase from your brand because they know that your products satisfy their expectations.

Customer Loyalty is the result of customer satisfaction. The positive experience of a customer with your brand and its products/services makes them willing to purchase repeatedly.

Customer Loyalty Schemes are marketing strategies used for the purpose of encouraging customers to do business with your brand. Such tools are used to promote the business to attract customers to purchase repeatedly. Customers participate in these loyalty schemes to earn discounts or rewards. 

 

Companies that develop effective loyalty programs enjoy financial benefits from their loyal customers.

  • Loyal customers engage more with the brand.
  • They are likely to spend more money.
  • Loyal customers are likely to become advocates and boost their reputation.
  • Customer loyalty becomes a competitive advantage.

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