What is customer loyalty?
What is customer loyalty?
Customer loyalty is when customers repeatedly choose to do business with a specific company and continue to purchase their products or services, even when there are other options available. It is built through positive experiences, trust, and satisfaction with the company's offerings and it revolves around customer spending, which differentiates it from brand loyalty.
What is the most direct cause of customer loyalty?
A major driver of customer loyalty is providing a positive customer experience consistently. This includes delivering high-quality products or services, excellent customer service, personalized interactions, and addressing customer needs and concerns promptly.
If you want customers to stay loyal to your business, you need to build trust and establish a strong emotional bond with customers. Customers will keep coming back to your brand if they are satisfied with their experience. And keep in mind that satisfied customers who feel valued are likely to recommend your brand to others, which can drive word-of-mouth and provide additional value to your business.
Why is customer loyalty important for businesses?
Customer loyalty is important for various reasons. To begin with, it helps develop a consistent customer base, which is crucial for any company trying to expand and flourish in the long term.
Customers that are loyal to a company are more likely to make repeat purchases and refer others to the company, which will eventually have an impact on sales and profitability.
Customer loyalty can also enhance brand reputation and increase brand awareness. Customers are more inclined to recommend a company's goods and services to others when they are pleased with their experience. This can help the company acquire new customers and establish a positive reputation.
Moreover, customer loyalty can help decrease marketing expenses and improve customer retention rates. Businesses can cut back on the cost of expensive marketing campaigns and increase the possibility that existing customers will do business with them again.
Overall, businesses need to take customer loyalty into account to be successful. Businesses can boost customer satisfaction, enhance brand reputation, and ultimately promote long-term success by concentrating on developing solid relationships with customers and offering top-notch products or services.
Examples of customer loyalty programs
Here are two successful examples of brands that created customer loyalty programs.
The multinational lifestyle retail corporation, Urban Outfitters, implemented a customer loyalty program called “Urban Outfitters Rewards.” The program is a free shopping subscription that allows customers to take a 10% discount off their first purchase after joining. Also, the program uses a point system which helps customers save for later purchases. Customers are given a $5 Urban Outfitters reward credit for every 100 points they collect. As soon as they join the program, they are rewarded 75 points. Then, they can gain 130 points more if they download the app, enable push notifications and subscribe to the newsletter. Other ways to collect points include buying a product or writing a review.
The leading coffee chain, Starbucks, created a successful customer loyalty program named “Starbucks Rewards.” To get started with the program, customers can simply download the Starbucks app, use a credit/debit card to pay through the app, and collect Stars. Then, customers can use the collected Stars to get Rewards, such as free food, drinks, and more. The more they spend using the app and the more stars they collect, the more benefits they get by becoming “Gold Members.” Moreover, app users can play games on the app to earn Stars, which is also beneficial to increase engagement. The program helped Starbucks increase customer interaction and incentivize customers to keep making purchases.
Benefits of customer loyalty
Building customer loyalty can be challenging, but the benefits are well worth the effort. Here are some of the key benefits of customer loyalty:
Loyal customers will return to the brand to purchase products or services repeatedly. Acquiring loyal customers is crucial since they provide steady revenue stream for your business.
Customers who keep coming back to your business tend to spend more on each purchase compared to new customers. Also, they are more likely to buy additional products or services, which leads to higher revenue for the business.
Lower marketing costs
Acquiring new customers usually costs higher than marketing to existing customers. If customers become loyal to a business, they can also advocate for you. They can refer the business to others and thereby generate additional revenue for the business. This way, companies can benefit from word-of-mouth marketing and lower some of the marketing cost.
Businesses need to survive in today’s crowded and competitive marketplace. One significant way to gain a competitive advantage is by having loyal customers. Loyal customers are less likely to be persuaded by competitors’ offerings and may even act as advocates of the company against negative reviews.
Feedback and insights
Loyal customers are more likely to give feedback and reviews. These can help businesses make more informed decisions while developing their products and services or making strategic and creative planning. Overall, feedback can help shape the company’s business strategy to better meet the needs of the customers.
Factors affecting customer loyalty
Quality of Product or Service
The quality of a product or service determines whether customers will stay loyal to the company or not. If the product or service meets the expectations of the customer in a consistent way, they are likely to remain loyal.
Customers value excellent customer service, which can include prompt responses to inquiries, problem-solving, and friendly interactions with staff. Good customer service can create a positive emotional connection with customers, leading to greater loyalty.
A company’s reputation affects customer loyalty, too. Brands that are known for their reliability, honesty, and commitment to quality are more likely to maintain loyal customers.
Price is just one of the factors a customer considers when making a purchase. However, the price can influence customer loyalty as well. A business that provides competitive pricing, promotions, or loyalty rewards can attract customers and keep them in the long run.
The customer experience should be as convenient as possible to save customers’ time and effort. Companies that make it easier to purchase products or services are more likely to win the hearts of their customers. For instance, businesses may offer online ordering, instant checkout, fast delivery, or in-store pickup options for a seamless customer experience.
Customers demand personalized experiences which are tailored to their needs, preferences, likes, and interests. Thus, companies can foster greater customer loyalty if they provide personalized experiences such as product recommendations or relevant content.
The rising consumer demand for corporate social responsibility cannot be disregarded by businesses. In fact, social impact drives what Gen Z buys and where they prefer to work today. Companies need to commit to produce positive change and adopt socially and environmentally ethical practices, such as sustainable production or fair trade. This could affect whether or not customers will remain loyal and keep engaging with the brand.
How to measure customer loyalty
Measuring customer loyalty is crucial for businesses to understand how satisfied their customers are and how likely they are to continue doing business with them. Here are some effective ways to measure customer loyalty:
Net Promoter Score (NPS)
NPS is a popular metric to measure customer loyalty. Customers are only asked: "How likely are you to refer our business, product, or service to a friend or colleague?" On a scale of 0 to 10, with 0 denoting "not at all likely" and 10 denoting "very likely," the responses are recorded. Then, customers are classified as promoters (9–10), passive (7-8), and critics based on their comments (0-6). Finally, NPS is calculated by subtracting the percentage of detractors from the percentage of promoters.
Customer Satisfaction Score (CSAT)
Another well-liked metric for measuring customer loyalty is Customer Satisfaction Score (CSAT). In this method, customers are surveyed about how satisfied they are with a good or service on a scale of 1 to 10. The average score is then calculated to determine the overall customer satisfaction level.
Customer Retention Rate
The percentage of customers who remain loyal to a business over time is known as the customer retention rate. One way to figure it out is to divide the total number of customers at the end of a period by the total number of customers at the beginning of the period.
Repeat Purchase Rate
The percentage of customers who have made multiple purchases from a business in a given time frame is known as the repeat purchase rate. It can be estimated by dividing the proportion of repeat customers by the total number of consumers.
Customer Lifetime Value (CLV)
CLV is a measure that determines the total value a customer will contribute to a company over their lifetime. It considers elements including past purchases, average spending, and customer retention rate.
Businesses can gain important insights into how satisfied their customers are and pinpoint areas for development by evaluating these customer loyalty metrics. Businesses may boost customer retention, lower customer churn, and ultimately spur revenue growth by enhancing customer loyalty.
How to build customer loyalty
Businesses need to maintain customer loyalty if they aim to grow and be successful in the long term. The following are some strategies that businesses can utilize to build customer loyalty:
Know your customers
Businesses need to show that they understand their customers and their expectations. They can make use of sales data or customer demographics to gain deeper insights on customer behavior and better understand their needs. Then, data can be utilized to provide recommendations or special offers to customers, which can display how much businesses care about their customers. Moreover, after gaining insights to their customers, businesses may consider improving their products or services to meet their customers’ demands and expectations.
Provide outstanding customer service
It is important to provide excellent customer service in order to succeed as a business. Companies need to acknowledge the needs and preferences of their customers, answer promptly to their questions and concerns, and ensure customer satisfaction at all times. Businesses can increase their reputation, cultivate a devoted customer base, and earn favorable word-of-mouth recommendations by providing great customer service. To do so, they need to train their employees, effectively communicate with their customers, and always seek feedback to improve their services.
Offer personalized experiences
Customers appreciate personalized experiences, whether it's through personalized offers or relevant content. Offering personalized experiences can help businesses build strong relationships with customers and foster loyalty.
One way to offer personalized experiences to your app or website users is by using personalized, interactive Storyly Stories. Being the leading mobile format of the day, Stories help communicate with users in a fun, highly visual, and interactive way. For instance, if you have a shopping app, you may offer special promo codes for your users to celebrate their birthdays. You can also utilize in-app Stories to make personalized product recommendations tailored to your users’ needs and preferences. This will not only enable a successful product discovery process but will also strengthen your customers’ connection with the brand. If you want to discover other innovative ways to create personalized experiences with Stories, check out our blog post about personalization.
Create a loyalty program
Building a loyalty program can be powerful to keep customers engaged after purchase and incentivize them to come back. Businesses can ensure long-term loyalty while they reward customers with exclusive offers, discounts, or similar perks.
Businesses need to be honest and transparent to gain customers’ trust. They can foster customer loyalty and establish trust by being transparent about product information, pricing, or other details.
Engage with customers on social media
Businesses have an amazing chance to interact with customers and foster loyalty through social media. They can respond to customer questions and comments, publish user-generated content, and provide special social media promos. All of these can help build a devoted customer base.
Ultimately, establishing a loyal customer base requires time and work, but the benefits are worth it. Businesses may create long-lasting relationships with customers and encourage loyalty by offering great customer service, providing personalized experiences, developing a loyalty program, and interacting with customers on social media.