What is Customer Loyalty?

Research, done by PR Newswire, says that the Loyalty Management Market is expected to grow from USD 1.4 Billion in 2015 to USD 4.0 Billion by 2020.

Now question is – why companies are investing more on customer loyalty and retention? What is Customer Loyalty, exactly?

Well,

Before we jump in to customer loyalty definition, let’s take an example.

Suppose…

You want to replace your old iPhone with a new phone. Will you buy only newer version of Apple iPhone when you get other branded phone with same features and lower price?

Do you want to try other Apple products as well like Apple TV or Mac or iPad?

If you buy Apple products or services all the time, you may be a loyal customer of Apple.

Why ‘may be‘? – That we will discuss later.

So,

What is Customer Loyalty?

Customer Loyalty is an emotional bonding between an organization and its customers.

Loyal customers favor one brand or shop or service over all others, buy products frequently, spread good words and generate leads.

Now think about our Apple iPhone example.

You may replace your old iPhone with a brand new iPhone but do you have emotional bonding with Apple brand?

Do you recommend your friends and families to buy Apple products?

Do you frequently download or buy software, apps and songs from Apple’s Store?

All these activities decide that you are loyal customer of Apple or not.

The point is…

A business can not call a customer as loyal customer just because that customer buys products frequently from same store or brand. Customer must be emotionally attached with the brand to be loyal.

Customer loyalty is more about engagement and relationships between a brand and its customers.

Now question is…

Why does a brand or business need customer loyalty?

Because,

There are many benefits of customer loyalty. Let us discuss few here.

Customer Loyalty Benefits:

1. Repeat business

Repeat business is when a customer buys products and services from a same store or brand frequently.

It has huge impact in any business because…

80% of a company’s revenue comes from just 20% of its existing customers. (Source: Gartner)

 

Acquiring a new customer is five times costlier than retaining an existing customer. (Source: Forrester)

Above 2 statistics explain a lot why retaining existing customers matter for a company. To retain existing customers, business needs to build or improve customer loyalty.

Loyal customers are more likely to buy products and services again and again from the same store or brand because it has already won their hearts.

2. Cross and Up selling opportunities

This is another benefit of customer loyalty because…

According to the book Marketing Metrics “Probability of selling to an existing customer is 60 – 70% where probability of selling to a new customer is 5-20%.“

As existing customers trust you more than a new customer, it is easy to cross sell or up sell products or services to them without much effort. It increases sales volume as well as revenue without acquisition of new customers.

3. Reduce marketing costs

Tell us,

What do you trust more – friend’s recommendation or a TV advertisement?

In this digital age, Word of Mouth is still the most effective way to do advertisement.

According to Nielsen’s latest Global Trust in Advertising report, 92% customers trust earned media like recommendations from friends and family more than any other forms of advertising.

Not only that,

Second most trusted source of product or brand information is online consumer reviews.

Loyal customers talk about your products, give real feedback, recommend friends and families. Business can use feedback to improve services, launch new products and get better customer insights.

4. Stand tall among competitors

In this super competitive market, it is really difficult to make your brand separate from others. Only loyal customers can create the difference by doing repetitive business, recommend products and services and share feedback.

(To know more, read this – Importance of Customer Loyalty)

Loyal customers are the real asset of your business.

But the problem is…

78% of customers are not loyal to a particular brand. (Source: Nielsen)

So,

How can a business retain its existing customers?

How to build or increase customer loyalty?

There are 15 factors that can help business to build an amazing customer loyalty.

Factors to build or improve customer loyalty:

1. Improve Customer Service
2. Say Hello and Good Bye
3. Ask for feedback
4. Introduce a loyalty program
5. Build a personal relationship
6. Know your customers
7. Know your competitors
8. Invest in a self-service channel
9. Educate your customers
10. Make quality a priority
11. Social Media presence
12. Live chat
13. Communicate using preferred communication channels only
14. Safeguard customer personal details
15. Walk an extra mile

We have discussed these factors in details in another article. Read this – Building Customer Loyalty.

Now you know what is customer loyalty, its importance and how to improve it.

But, wait!

Here is the most important part…

Types of customer loyalty and customers.

Why it is important?

Because,

Before implementing customer loyalty program, you must know your customers and different types of customer loyalty. Otherwise whole loyalty program will fail DEFINITELY.

We can divide customers and customer loyalty in 5 distinct types.

Types of Customer Loyalty / Customers:

1. No loyalty

Few customers purchase goods or services from you whenever they feel to do so but never develop loyalty.

But these customers could be loyal to other brands.

For example, one of your customers goes to any shop to get a haircut where he does not need to wait. But he uses only Apple products and services.

Though that customer is loyal to Apple brand but certainly not to any salon.

It is very unlikely that even the best loyalty program can make these customers loyal to the business.

Frankly speaking, business should not target these customers as they bring very little value for the company.

2. Satisfied but Not Loyal

You will always have few customers who are satisfied and look like loyal to your business.

But in reality they are not loyal. They are satisfied with your products and services but it’s only satisfaction.

While they don’t dislike you, don’t love you either.

They will be with you until your competitors offer better service and customer experience.

However,

You can put extra effort to glue these customers with your business.

First find out this kind of customers and then ask what can make them happier and offer it.

3. Loyal to Low Price

Product or service cost plays an important role in customer loyalty.

Moreover,

61% Americans and 54% Europeans switch brands just because of price. (Source: Nelson)

Few customers are loyal to your business till you offer lowest price. If they find lower price elsewhere, they will leave you.

It also includes those customers who purchase products only when you give discounts.

Remember,

If you are competing in low price arena, then make sure you charge lower than your competitors. Otherwise you will lose these customers.

4. Loyal to Convenience

Few customers buy products from same store just because it is nearby their home / office.

Another reason could be that the customer has good personal relation with one of your business representatives.

It means, these customers are loyal to convenience, not your shop.

If these customers move their home or business representative quits the job, they will stop doing business with you.

You can make these customers loyal to your brand by proving that convenient is not always a reason to do business.

5. Real loyalty

These customers are your real strength.

They do repeat business, recommend your products, give valuable feedback and generate leads.

These customers will never leave your business unless they have very bad experience.

You must show extra care to these customers. You must talk to them regularly, listen their problems, try to fix it and must thank them.

The more you give, the more you receive from these customers.

Before closing this article, let us see couple of successful loyalty programs.

Customer Loyalty Examples:

1. Amazon Prime

Amazon Prime is one of the most successful loyalty programs.

Just for paying $99/year, prime members gets exclusive access of movies, ad free music, fast and free shipping, unlimited photo storage. It gives enough value to its members to do repeat business.

As a result, prime members spend on average $1500/year, compared to $625/year for non prime members. (Source: Consumer Intelligence Research Partners)

2. Starbucks Rewards

This is another example of best loyalty programs.

Every time you use Starbucks loyalty card to buy something from Starbucks stores, you earn a Star. You can redeem these Stars to get Starbucks rewards like a free drink or card upgrade .

Now,

It is pretty clear – What is Customer Loyalty and why it is important for a brand or store.

Here is an interesting fact:

Research shows that women are 22.19% more likely to buy the same product or services regardless of price, quality, convenience, or brand promise than men. (Source: Crowdtwist)

Want to know more about such interesting facts? Read this: 29 Exciting Customer Loyalty Statistics

And now,

It is your turn…

Let us know what you think about customer loyalty. What are those factors that make you loyal to your favourite brand?

Please share your feedback below.

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Next article: Importance of Customer Loyalty