While you already know it costs more to attract new customers than retain current ones, truly understanding what customer loyalty is – and what drives it – can be challenging. But it’s worth the effort when you consider stats like these:
- Customers that continue to support your brand over time will spend 67% more than new customers (Edelman)
- 60% of customers will tell friends and family about a brand they’re loyal to (Yotpo)
What is Customer Loyalty?
Most broadly, customer loyalty occurs when a consumer purchases a product or service from a brand on an on-going basis. Or, when consumers give a specific brand the first chance to earn their business. Businesses themselves often break this definition down further to consider whether loyalty happens when a customer purchases only from them, or whether it’s about more than financial transactions and includes brand advocacy.
Why it Matters
According to The Loyalty Effect author Frederick Reichheld, increasing loyalty in just 5 percent of customers can lead to an average profit increase of between 25 and 100 percent per customer. What’s more, BIA/Kelsey research shows that repeat customers spend 67 percent more than new ones. But the benefits of loyal customer go beyond the bottom line. Loyal customers are more likely to give feedback, share their good experiences with others, overlook mistakes, and endure price increases and other changes.
Obviously, it makes sense to understand how your business nurtures customer loyalty. Here are four factors to consider:
- Expectations: What value do your customers get from your product or service? What problem do you solve for them? Do they get what they expect in terms of cost? Identify customer expectations and then determine how to exceed them.
- Service: Research has shown that a customer’s experience with your brand is becoming more important than any other differentiator. You can spend time and resources on a widget that amazes, but if the service that backs that widget is anything less than stellar, it won’t be successful. Don’t skimp when it comes to investing in customer service and experience. Build a strategy, monitor and analyze performance and consider every customer interaction channel.
- Engagement: Beyond proving products and services backed by stellar customer experience, it’s important to create an ongoing relationship with customers. This includes regular communications such as email newsletters, social media posts, loyalty programs and other incentives.
- Values: Increasingly, customers are choosing brands based on how they match their own values or identity, such as environmental responsibility or community involvement. When you meet a customer’s values, you create a loyalty-earning moment with every interaction.
While each of these factors play a role in bolstering customer loyalty, not all four are required in every case. For example, some customers will be loyal based on price alone, while others will show loyalty because of brand values, regardless of the other factors.
Although customer retention is cheaper than customer acquisition, it’s not necessarily easier. Cultivating customer loyalty requires brands to consider many factors, all driven by a customer-focused culture.
OptimumCX has experience helping companies grow customer loyalty. Contact us today to learn more.