A Step By Step Guide To Building Customer Loyalty

Inci Rodoplu
Updated on

We are creatures of habit. We wake up around the same time everyday, practice our morning routine, take the usual route to work and when we need to buy something, we look for it in familiar places. Familiarity and practicality goes a long way but true customer loyalty, where repeat customers actively demand your goods or services is actually harder than it looks. 

First of all, let’s answer the basic question: What is customer loyalty and how can we build a loyal customer database?

What is Customer Loyalty?

In a nutshell, customer loyalty is having happy customers who repeatedly prefer to purchase your goods or services instead of your competitors’. If you keep them satisfied with quality products, strategically planned benefits, impeccable customer care and after sales services, and say “Hi!” to them from time to time, they will tend to not only return to you for further purchases but also recommend your brand to others. 

More importantly, these customers make up a significant portion of your regular income. So the better you know your customer, the brighter your company’s future will be.

The most beloved of all: The loyal customer base

Customer loyalty comes in different layers. The most loyal customers choose your brand for both regular and special purchases. These dream customers are already satisfied with their shopping and product experience. Collecting and understanding their insights can help you meet their needs better and offer them pleasant incentives, such as reward or referral programs, to come back for more. 

On the other hand, some customers are loyal to your brand either for regular shopping or for special purchases. Gathering insights about their shopping preferences and perfecting your satisfaction scores on both sides can give a boost to your loyal customer base. 

Why Is It Important To Build Customer Loyalty?

According to two surveys of web shoppers conducted by Bain & Company and Mainspring, loyal customers tend to buy different types of products from their online retailers of choice. They also spend more and make larger transactions over time while referring your brand to a larger group of people. 

Another answer to why customer loyalty is important was given by Amy Gallo in her Harvard Business Review article “The value of keeping the right customers”. She declares that, depending on the industry you’re in, “acquiring a new customer is anywhere from five to 25 times more expensive than retaining an existing one.”

It is clear that loyal customers are the backbone of an enterprise and they bring more business, along with stable income. But how to build customer loyalty from scratch may not be that clear for all. 

How To Build Customer Loyalty

We have explained the loyal customer types but long before being loyal, they need to be actually present. You may have heard about the 5 stages of customer loyalty, which is also known as the customer lifecycle. 

Loyalty is the last step of this journey in fact. It all starts with awareness, in which the consumer finds out that your product or service stands as one of the solutions for a specific need. Either you’ve placed an ad on social media or your brand’s name came up during chit chat, it means that you have reached a potential customer. 

If you have peaked enough interest, the potential customer will find more about you on the vast jungle of the internet. They will look for clues like Sherlock Holmes to see if you’re dependable and accountable in your order fulfillments. Accessibility, fair prices and great customer service – especially on social media – is a big plus in this consideration period, which leads to desire and purchase.

Bain & Company and Mainspring’s study shows that businesses don’t break even on one-time shoppers. As mentioned before, customer acquisition is expensive. Just to break even, an establishment needs to convince first-time shoppers to engage with their products or services again and again. This means that it’s not quite enough to meet the needs of your customers but promise them something special that will encourage them to come back for more. 

Create a Loyalty Campaign With 3 R’s

From coupon offers to charity donations, there are several different ways to build a loyalty campaign. But any successful loyalty campaign incorporates 3 R’s. Marketing executive Paulo Claussen coined the term, referring to “Rewards, Relevance and Recognition”.

Rewards: The classic loyalty campaign offers rewards to those who join. It can be a coupon for the next purchase within a set time scale, miles for each flight, cookies for every 10th cup of coffee or access to special experiences. The key is to keep it simple. Easy to understand campaigns create leads but those potential customers don’t like to fill out lengthy forms. Getting the basic information and collecting more with tests, surveys, e-mailings and so on from time to time can work better.

rewards
While many coffee brands offer free drinks with their loyalty programs, Starbucks’ mobile app differentiates with birthday treats, convenient payment options and bonus star challenges. Both rewarding and engaging, the app adds thousands of loyal customers to Starbucks database.

Relevance: You wouldn’t want to send lipstick coupons to a male customer so the more knowledge you have, the better. Building a customer-centric campaign means, providing the customer with some kind of personal engagement and moving the purchase beyond transaction. Online shoppers are accustomed to product and content suggestions so they expect the reward to be more personal. Allowing the customer to choose his/her reward among several will also work if you don’t have enough relevant information.

relevance
Not only a retail giant but also a champion of customer loyalty, Amazon Prime offers its members free shipping and several streaming capabilities through Prime Video. The exclusive deals include video, music, books while “No-Rush Shipping” offer rewards for future purchases.

Recognition: Convincing first-time consumers to become repeat customers is a great achievement but the cycle is far from being complete. As mentioned before, the repeat customer can choose you either for routine or special purchases or both. Making the customer a proud member of a select community for increasing loyalty, such as offering personalized deals, giving a head start for the rewards or supporting a common cause with them will deepen their engagement with your brand. Happy customers would not only choose you for their next purchase but also become a brand advocate and share their great experience with others.

recognition
The North Face approaches customer loyalty with a creative and encouraging way. The members of XPLR Pass program gets 10% off their first purchase but the fun starts when they start earning points. Based on how much they spend, they get access to exclusive gear and product field testing.

Working on the 3 R’s is an efficient way to plan a loyalty program. If you can create a seamless experience and back it up with great customer service, you can increase retention rates along with long-term profits. 

But none of this would matter if you can’t measure the results and plan ahead.

How To Measure Customer Loyalty

It is easy and logical to imagine that a large portion of your sales are coming from a select few customers. But to make realistic plans on your future, you’ll need to be able to calculate the outcome. Here are the main metrics to measure customer loyalty:

  • Customer satisfaction levels

Traditional satisfaction surveys are easy to use and customers are accustomed to select from a series of smiley faces after transactions. But these surveys reveal only a part of the answer you’re looking for. You might try Net Promoter Score instead, where you ask this essential question: Are you satisfied enough to refer my service to others? If they are happy enough to refer, they should be happy enough to purchase your products or services again as well.

  • Churn rate

Churn rate measures the percentage of customers who end their relationship with a company in a given period. It can be measured by month, quarter and year. Measuring it monthly is especially important for subscription based companies who expect monthly paying customers. If your churn rate gets higher than usual, there might be an underlying problem in your system that affects customer satisfaction. The best way to find out is to ask the customer. 

While checking churn, also take a look at the repeat purchase (or customer retention) rate. If this ratio is low while churn is high, you might need to review your marketing strategy and stop wasting your budget on one-timers. 

  • Customer lifetime value

Customer lifetime value is the metric that shows how profitable a customer is to your business throughout the entire relationship. As mentioned earlier, not all customers are equal. Some are worth more than a pat on the back and for some the juice is just not worth the squeeze. You’ll need to identify, prioritize and reward your most valuable customers in order to keep them loyal. Knowing who to focus on will provide sustainable growth opportunities for your business. 

  • Customer engagement score

Customer engagement score shows you if a customer is really using your products or services. Take a subscription service for example. If the user is heavily utilizing your service, it’s unlikely that he/she will be leaving soon. You can measure inputs such as activity time, visit frequency, number of actions taken, etc. Based on their individual activity and usage, every customer is assigned a score. The lower the customer engagement score is, the higher risk of churn.

  • Referrals and complaints

Checking your customer satisfaction levels is one thing but if they actually talk about you on social media or write a review, you’ll have actionable data in your hands. Since brand ambassadors bring more business, it will be beneficial to know what they like about you and their further expectations. But remember that bad news travels faster than good ones. Always be alert about complaints in order to keep your churn rate low.

Keeping track of a repeat customer’s experience can help you analyze and improve your products or services. So you can offer consumers memorable shopping experiences and enjoy the long-term profits of a loyal customer base. 

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