Everyone knows how important customer loyalty is. The trouble is, it's difficult to maintain due to the massive volume of competition online.
Today, it’s easier than ever before for customers to switch to a competitor after an unsatisfactory experience with a brand. They can also share their negative experiences online with friends, colleagues and other shoppers!
Due to the high level of competition online and offline, customers are relying far more on word-of-mouth referrals from friends, family and review sites. This means if you want to be successful, you need to focus on customer loyalty.
So, what is customer loyalty, how can you measure it and how can you boost customer loyalty for your brand?
What is customer loyalty?
Customer loyalty is synonymous with customer retention and brand loyalty. It’s an ongoing positive relationship between a business and its customers.
Customers who are loyal to your brand are likely to spend more, refer you to their friends and family, and are more resilient to things like price increases, shipping costs, and one-off poor experiences.
With customer acquisition costs so high, you can’t afford to ignore customer retention practices. Many businesses have fallen flat by focusing too much on acquiring new customers, and not taking enough care of those they already have. Not only is this expensive, but it’s also ineffective. You'll also find once a customer is lost, they are very tricky to re-obtain.
Generally speaking, customer loyalty and a positive brand-customer relationship are driven by:
- Great customer service
- A connection based on shared values
- An excellent product or service
- Great communication post-purchase
- Loyalty schemes, VIP opportunities and discounts
Why is customer loyalty important?
Research shows that competitive marketing practices mean the cost of acquiring new customers today is often not enough to cover their revenue from a single purchase. It's estimated that the cost of acquiring new customers is anywhere between 5-25x higher than retaining a current customer.
Customers who are loyal to your business and its products or services are:
- Less likely to purchase from competitors
- More likely to refer you to their friends, family and colleagues
- Likely to leave positive reviews
- Are less price-sensitive and may be willing to spend more
- More likely to purchase additional and repeat products from your brand
- More resilient and less likely to leave after one weak experience
Research has also shown that the profitability of selling to an existing or previous customer is 60-70%, but the likelihood of selling to a brand new customer is as low as 5%.
Undoubtedly, one of the main benefits of having a percentage of brand-loyal customers is organic referrals and word-of-mouth recommendations. Our own research shows that 83% of customers trust these recommendations and that customers trust organic referrals more than what a business says about itself.
Taking a look at some of the other points above, there are a plethora of benefits to driving customer loyalty and retention. As well as driving more revenue, referrals, and being more resilient to change and weak experiences, brand advocates will also boost your brands’ reputation. They do this through positive word-of-mouth, social media posts, and customer reviews.
Another great perk of loyal customers is that they're more likely to provide honest and valuable feedback. A huge 97% of customers are more likely to stay loyal to brands that listen to and implement their feedback. This is an incredible figure not to be ignored!
Even poor feedback and negative customer reviews give you plenty of opportunities to learn and improve. So, although the process can feel painful, getting feedback from all previous customers is crucial for long-term success.
How to measure customer loyalty
Now we know the benefits of customer loyalty, how can you measure it in your own business? There are plenty of metrics to choose from, and you can use one of or a combination of the following:
Net Promoter Score®
One of the most widely used and standardised metrics to start with is your Net Promoter Score (NPS). Rather than looking at specifics such as customer service or product quality, your NPS is a good indicator of overall customer satisfaction. It takes into account all of their interactions with you.
NPS is one key question that can be monitored and tracked over time:
“How likely are you to recommend us to a friend, relative or colleague?”
This is answered on a scale of 1-10, where the following bands apply:
Score 0-6: Detractors. Unhappy customers who are likely to go elsewhere, and possibly damage your brand with negative word-of-mouth.
Score 7-8: Passives. Satisfied customers, but could be swayed by the competition. Not necessarily brand loyal.
Score 9-10: Promoters. Loyal customers who will continue to buy from you and refer your brand to others.
While this is a little more complicated to calculate, use historical analytics, website data and your CRM (customer relationship manager) to understand how often customers repurchase from your brand.
What makes this tricky is that some products would only be purchased again if failing or once broken, particularly high-value items. However, you can use customer surveys and intent research to predict how likely customers are to purchase from you in the future.
Simply ask customers: “How likely are you to buy from us again in the future?” from a scale of 1-6, ranging from "Definitely yes" to "Definitely no".
Customer Lifetime Value (CLTV)
Customer Lifetime Value (CLV or CLTV) is the measure of how much each customer is ‘worth’ throughout their time with you. This combines other metrics such as:
- Customer lifespan
- Purchase frequency
- Avg. order values (excluding shipping)
By understanding these three metrics, you can calculate and assign a value to each customer. Not only is this helpful to track over time (is it going up or down?), but it can also help you to better plan your marketing and sales efforts.
For example, some marketing costs may mean high outgoings for small returns. However, if you know that the average CLTV for your business is much higher, you can forecast with this in mind.
Upsell and cross-sell rates
A critical metric for customer loyalty, is customer upsell and cross-sell rates.
Upsells are where you add personalisation or extra features to the base product or service. In the case of a car, this could include choosing a metallic paint colour, selecting a bigger engine size, or paying for leather seats. While none of these are essential and the car will work perfectly without them, customers may prefer to personalise or upgrade their product with convenient add-ons.
Using the car analogy, a cross-sell would be where a customer purchases a related product or service. This could include GAP insurance, car insurance, or breakdown cover from the same provider that sold the car.
You can ask your customers “How likely are you to try our other products?”. This will help you to monitor their intent to buy in the future. Give options on a scale of 1-6, where 1 is "Definitely yes" and 6 is "Definitely no".
You can measure upsell and cross-sell rates in your business by tracking CLTV over time. Your CRM should also be able to track repeat purchases.
Customer Loyalty Index (CLI)
As one of the more accurate markers of customer loyalty, CLI is another standardised metric that takes into account other factors such as NPS, upsells, repurchase rates and more.
Using three key questions, CLI averages a customer's response rate and gives a score to monitor loyalty:
- “How likely are you to recommend us to a friend, relative or colleague?” (NPS)
- “How likely are you to buy from us again in the future?” (Repurchasing)
- “How likely are you to try our other products?” (Upselling)
While you can use these three metrics separately, by combining them you’ll be able to better calculate your CLI.
Using the 1-6 scale, each scale has its own scale - bear with us:
- 1 = 100
- 2 = 80
- 3 = 60
- 4 = 40
- 5 = 20
- 6 = 0.
You can then use this average score (1-100) to track, monitor, and benchmark your CLI, tracking improvements over time.
The churn rate is a reflection of how many customers have stopped using your services, or who have cancelled contracts or subscriptions over any time period.
A key metric when monitoring your business success, you’ll want to frequently review your churn rate and keep it as low as possible!
Customer reviews are crucial for customer loyalty. While a plethora of negative reviews will mean a bit of an uphill battle, you can use it to better understand pain points and issues your customers are facing.
To take this a step further, use tools such as Feefo's Performance Profiling, which uses sentiment analysis to get an overall picture of what your customers are saying. Look for whether they’re generally happy, neutral, or dissatisfied.
Monitoring these over time will help you to take a base rate and monitor the effects of any changes. You can also implement automated review requests sent via email, to encourage your customers to leave reviews. This should help you grow your brand reputation over time.
How to boost customer loyalty
Now we’ve covered what customer loyalty is, how it benefits your business, and how to measure it, let’s look at boosting your customer retention.
One big starting point for retaining and acquiring new customers alike is to analyse your customer journey.
Start by mapping out your customer journey, including all touchpoints, and identify any areas where the customer experience may be weak. You can use analytics, customer reviews, website data and surveys to better understand this.
Ultimately, you want to find which of your customer interactions could use some work. It's essential to provide an easy browsing and shopping experience to keep your customers happy. Don’t forget to include competitor analysis in this too. If you can improve on the experience of your competitors, it will be harder for customers to leave or find somewhere else to shop!
Reliability and consistency are key here. Some of the main questions to ask include:
- Can customers get helpful information and customer support from all social channels?
- Can they use their preferred methods of contact?
- Do your brand values, PR, and advertising efforts genuinely reflect your business practices?
The customer journey includes all experiences between you and your customers, so a full picture of this is critical.
Personalised communications are absolutely crucial when driving customer loyalty.
One big faux pas we often see is businesses sending emails about products that customers already have. They don't personalise the information, instead, they send emails to entire databases.
Avoid this by creating segments, personalised advertising, and relevant cross-sell communications based on your customers’ preferences.
Rewards and discounts
Brand advocates expect to be given something in return for their loyalty. Rewards, points, loyalty programmes, discounts and coupon codes are brilliant ways to drive loyalty while increasing your revenue.
Everyone likes to feel like an influencer! You can give your customers referral codes when they introduce a new customer to your business. This drives organic referrals and will keep your business at the forefront of your customers’ minds.
So, there we have it — everything you need to know about customer loyalty, measurement, and why it's important. The key thing to remember is that measuring customer loyalty is not a one-off exercise. It should be benchmarked, iterated, and monitored regularly to ensure that your customers are happy.
After all, you’ve spent money to acquire them — don’t let your hard work send them straight to a competitor’s doorstep.