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Customer Loyalty

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Market research 04 12
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Table of Contents
01

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.

 

Customer Loyalty Customer Loyalty

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02

Why is Customer Loyalty important for a Brand?

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 more on the brands they are loyal towards. The relationship they develop with the brand becomes more important than the possible benefits they may get from your competitors. 

Moreover, loyal customers help in promoting the business by recommending the business to their friends. ‘Word-of-mouth’ is an interesting and successful marketing strategy with 90% of consumers claiming that their purchase decision is heavily influenced by word-of-mouth.

  • In comparison to retaining existing customers, it costs 5X more to acquire new customers. Customer Acquisition Cost involves elements like sales labor, marketing spends, and software cost. Your brand can only be successful if your revenue is more than the expanses. This means if you spend $200 to acquire and convert a prospect, they need to spend at least that much to even out the expense and revenue.
  • As per Bain & Company to break even on CAC, a business requires to retain customers for 12 to 18 months approx. The idea of customer loyalty sounds more cost-efficient than looking for new customers. 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%. 
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03

5 Stages of developing customer loyalty

Customer Loyalty Customer Loyalty

To grow their reach on the market, companies need to attract new customers. 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. 

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. 

Customer’s research: 

You can stand out among the competitor 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 for customers. 

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 within the customers. Moreover, trust builds loyalty. So, highlighting how your product can help the customers make your brand seem dependable and develop customer loyalty. 

Establishing familiarity: 

This stage includes three of the customer experience stage – Buy, Use, & 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. 

Customer reference: 

Customers referring your products or brand to others show their commitment towards 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 lifetime value.

04

Types of loyal customers

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

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.

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. 

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. 

Loyalty program: 

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

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.

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05

Customer Loyalty Programs you can use

Point-based Loyalty Program: This is one of the widely used loyalty programs. The concept is offering customers the chance to earn points which then converts 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 business that influences frequent purchase. 

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. 

Paid Loyalty Program: Paid services that let the customer bypass certain purchase hindrance is 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., offer free gift, free delivery, or fast delivery in 2 days. 

Value-based 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 values to their customers in ways different from coupons and discounts. Building trust and a strong bond with your audience may help you more. 

Programme de fidélité basé sur des points : il s’agit de l’un des programmes de fidélité les plus utilisés. Le concept offre aux clients la possibilité de gagner des points qui se transforment ensuite en code de réduction ou en une sorte de récompense. Cependant, en utilisant ce programme de fidélité, vous devez vous assurer que la relation entre les points et les récompenses n’est pas déroutante pour que vos clients comprennent facilement. Proposez une offre simple. De plus, gardez à l’esprit que les programmes de fidélité basés sur des points sont mieux utilisés pour les entreprises qui influencent les achats fréquents.

Programme de fidélité à plusieurs niveaux : l’idée derrière ce programme de fidélité client est d’offrir une petite récompense à un client, au début, pour sa participation. Après la première récompense, continuez à encourager les clients en augmentant la valeur de la récompense à mesure qu’ils gravissent les échelons de la fidélité. Pour les entreprises comme les compagnies aériennes ou l’hôtellerie, le programme de fidélité à plusieurs niveaux fonctionne le mieux.

Programme de fidélité payant : les services payants qui permettent au client de contourner certains obstacles à l’achat sont rentables pour l’entreprise ainsi que pour les clients. Vous pouvez personnaliser votre entreprise avec un programme de fidélité payant pour résoudre les problèmes et qui peuvent inciter vos clients en proposant par exemple d’offrir un cadeau, une livraison gratuite ou une livraison rapide en 2 jours.

Programme de fidélité basé sur la valeur : en comprenant les valeurs et les besoins de vos clients, vous pouvez cibler ces valeurs et encourager la fidélité des clients. Bien que l’offre de coupons et de remises puisse fonctionner pour tous, certaines entreprises peuvent réussir en offrant des valeurs à leurs clients de manière différente des coupons et des remises. Construire un lien fort avec votre public basé sur la confiance peut vous aider davantage.

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06

How can you earn customer loyalty?

Understand your customers: 

You must know your customers beyond their tier or point status in your loyalty program. Having a deeper & 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 your 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. 

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. 

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. 

Focus on delivering CX and not just on loyalty program: 

Customer loyalty roots from 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 journey and gather customer feedback. Use the insight to discover opportunities to build loyalty and align it to your CX strategies. 

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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07

How can you measure the effectiveness of your Customer Loyalty Program?

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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:

Customer Retention Rate

  • 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. 

Customer Churn

  • 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. 

Net Promoter Score

  • NPS helps you to measure customer satisfaction on a scale of 1 to 10. NPS records the feedback of your customers 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. 

Customer Lifetime Value

  • 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. 

Customer Loyalty Index

  • Customer Loyalty Index as the name suggests, it measures 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. 
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08

Factors to keep in mind for Customer Loyalty

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 their customers has a higher chance of retaining their customers. Customers as well, when they feel cared for and get the help they need when they need, are more likely to continue supporting the business. 

Customer Journey

  • Customer Journey is a large picture of customer 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. 

Personalize 

  • 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 a personalized experience. You can send them a personalized recommendation, promotions, etc. you can also use their purchase history to upsell or cross-sell them products or services they may like. 

Be Generous

  • Customers 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 of spending money on the brand by offering rewards and benefits which are unique to attract them. 

09

Examples of Successful Brands and their Customer Loyalty Program

Sephora Beauty Insider

  • 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 Factor Analysis

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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