Customer loyalty is when a person or organization does business with your company on a repeat basis. Does that sound like something you can take for granted? Before you say “yes,” or even “I think so,” consider that the Havas Global Meaningful Brands Study of 2019 found that 77% of brands could vanish from the face of the Earth completely, and it would hardly be a blip on the radar of most consumers.
No matter how great your products or services are, or how many times a customer has bought from you in the past, their future purchases can never be taken for granted.
But don’t panic. The challenge of earning customer loyalty is a healthy thing for a business, one that represents an opportunity to continually check in with your values, mission, and cross-departmental alignment. Let’s explore not just what customer loyalty is, but how to build this growth-sustaining phenomenon in authentic and meaningful ways.
What Is The Meaning Of Customer Loyalty?
Hey, wait, didn’t we just answer this question? Well, yes, we discussed the basic definition of customer loyalty. But when it comes to understanding the true meaning of customer loyalty, consulting the dictionary is just the beginning.
Customer loyalty means your customers trust you. Okay, that’s a pretty basic definition too. But in action it is anything but basic. Today’s customers are obligated to trust their vendors, providers, and consultants with not just their livelihood and well-being, but an increasing amount of sensitive data. Winning customer loyalty means you are honoring and valuing this trust, as well as earning it over again with every renewal or transaction.
For businesses, especially those serving other businesses (you know, B2B companies), achieving customer loyalty means you’re doing good work internally as well. It means from the top down, your employees are committed to providing customers with a great experience. That includes a specific set of priorities and behaviors, each of which builds trust:
- Empathy: Whether your customers are happy as larks or extremely dissatisfied, they all still universally want empathy. Stepping into their shoes and understanding what they feel, need, and want is not just the key to resolving negative customer experiences, but also to conceiving of new service offerings or products that will grow customer loyalty.
- Gratitude: Making customers feel special and valued for doing business with you is another behavior that drives loyalty. 68% of customers leave a business because they perceive the business is indifferent toward them. While discounts and promotions are one easy way to show gratitude, I encourage you to move beyond the discount mentality as well—more on this in a later section.
- Conscientiousness: Lastly, customers want your business to behave as though you care about doing your work well. This might be part of your mission, vision, and values statements, but if every employee isn’t walking the walk, customers won’t be coming back.
When you’re trying to answer the question, “what is customer loyalty?” Remember that a business where empathetic, grateful, and conscientious relationships are valued and rewarded will earn the loyalty of customers and employees alike. People want to feel seen, heard, and valued.
What Are The Types Of Customer Loyalty?
In her book Keep Your Customers, Ali Cudby defines three types of customer loyalty:
- Lazy Loyalty: These customers buy repeatedly out of convenience, plain and simple. If another brand becomes more convenient for them, they will leave yours without a backward glance. There are still only upsides to treating these customers well, but spending marketing dollars or investing other resources to retain them is often a lost cause. Consider the finding from Zodiac Metrics that 50-80% of customers are one-time buyers no matter how amazing a company is. If your lazy loyals keep coming back for more, that is itself something to celebrate.
- Limited Loyalty: These customers are long-term repeat buyers who are somewhat interested in their relationship with you. But on the flip side, that doesn’t mean they necessarily love doing business with you. They might remain loyal due to a switching cost, a barrier to exit, or the simple fact that there is no better alternative. In these scenarios, you have won their long-term business, but not through emotional engagement and connection. In fact, their main interest in the relationship may be thinking about whether or not to continue it when a convenient opportunity to exit arises.
- Lucrative Loyalty: These customers are those who are excited about the fact they get to work with your company. They not only purchase from you consistently themselves, but also refer other customers to your business and leave you reviews on social media. Identifying and gathering feedback from this group can help you understand how limited loyals could become lucrative through messaging and offers. But those insights are usually better-applied to simply attract more lucrative loyal customers through product design and marketing that addresses the needs and values of this profile.
Along the spectrum of “we are just looking for the best deal” to “we love your company and would never work with anyone else,” where do most of your customers fall? And who are you marketing to? Regardless of these answers, remember that any type of customer loyalty is never something to be taken for granted. It takes the average customer between three to six purchases to consider themselves loyal to a company, but it only takes one bad experience to send them back out into the market looking for another option.
Why Focus On Customer Loyalty?
If you’re asking yourself, “Why does customer loyalty matter?,” you’re not alone. Business leaders are asking this question more than ever before. They’re also starting to act on the truth they discover—customer loyalty is everything.
According to the LoyaltyOne 2019 Loyalty Big Picture, 71% of businesses are now investing at least 2% of annual profits back into customer relationship management and loyalty. This might not sound like much, but it is an improvement from even the recent past. The same report by LoyaltyOne found that 69% of C-suites had increased their customer loyalty spending in the last 2 years, and 55% of those intended to increase it further in the next 2 years.
But does this increased spend reflect a deep cross-organization understanding of why customer loyalty is important? At some of these businesses the culture to make this investment worthwhile might already be in place. But it’s also possible the importance of customer loyalty isn’t being conveyed with the same message and intention to every department of the business. That lack of alignment adds up to an increased spend on customer engagement technology and initiatives that might not actually translate to more loyal customers.
Why Is Customer Loyalty Important?
Without customer loyalty and retention, you must constantly be focused on customer acquisition. Attracting one-time revenue might be a short-term source of cash flow, but it’s no long-term way to grow a business.
The Pareto Principle, introduced by Italian economist Vilfredo Pareto in 1906, is still commonly cited today when talking about customer loyalty. Also called the 80/20 principle, this theory asserts that around 80% of a company’s revenue comes from just 20% of its customers. A 2017 study found that across both B2B and B2C industries, the top 20% of customers generated 67% of revenue.
Although the Pareto Principle isn’t exactly accurate, this “law of the vital few” is a key idea when thinking about loyal customers. Why? Because loyal customers do more for the business in three key ways.
How Does Customer Loyalty Affect A Business?
Customer loyalty makes customers stay longer, spend more, and refer new customers. Let’s examine each of these benefits of customer loyalty in turn.
Loyal Customers Stay Longer: According to a survey by InMoment, 77% of loyal customers purchase from the brands and companies they love for 10 years or more. 60% of Millennials (age 25-40) have already formed these loyal connections with businesses.
Loyal Customers Spend More: Dan McCarthy, a professor at Emory University, and Russell Winer, New York University, found that the top 20% of a company’s customers generate 105-155% of its revenue. How is this possible? Because not every customer is profitable. Referring back to the Pareto Principle these high-performers at the top are making up for net losses among other customers.
Loyal Customers Refer New Customers: According to an annual customer referral program report by Amplifinity, the top 1% of customer advocates make 22% of the referrals, and the top 10% of satisfied customers make over 50% of the referrals.
Customer loyalty affects a business today by strengthening the foundation of success. But understanding why customers are specifically loyal to your company will also help you grow. Pinpointing the characteristics that unite your loyal customers allows you to better-target marketing spend and other initiatives that attract new customers just like them. That’s the kind of customer acquisition strategy that will exponentially grow your bottom line long-term.
How Are Small Businesses Capturing Customer Loyalty?
What causes brand loyalty for small businesses? Well, small businesses have a bit of an advantage when it comes to customer loyalty, especially for Millennials and Gen Z, who make up a huge chunk of the consumer base (22% and 40%, respectively). These generations are extremely conscientious and tend to do a lot of research before they spend their dollars – authenticity is key for these consumers.
If you’re looking to get a piece of the nearly $3 trillion that Gen Z (ages 9-24) and Millennials (ages 25-40) spent in 2020, look at some ways that small businesses can connect with communities and customers. One major way is transparency and showing the human side of business. Sharing vulnerable moments can make your customers feel like there are people behind the slick ads and lead to that greater feeling of authenticity.
That’s just one example, but there are plenty of ways small businesses can have big impacts. Pay attention to the way they interact with their customers and how their customers interact with them.
Do Loyalty Programs Increase Sales?
Reward programs may increase sales, but they don’t grow customer loyalty. Why is loyalty more important than increasing sales? Because in the long run, loyalty increases sales more, and more passively for your business.
A loyalty program or reward program requires an investment of time and resources by your business. You have to devise the program to begin with, and in today’s tech-empowered world, you likely also have to invest in loyalty program technology to make it work. Then there’s the discount or promotion itself that customers earn through the program.
In scenarios where the loyalty program is the only thing attracting and retaining business, there is no long-term profitability, because the customer will rarely if ever be inspired to pay full price. In fact, customers will just be trained to wait for the discount before making a purchase. And even if they do pay full price at some point, when a cheaper or more convenient offering becomes available from a competitor, those customers will be lost.
Reward programs are a tactic. Cultivating loyalty is a strategy. As a tactical element of your strategy, loyalty programs can have a short-term use to get new customers interested in your brand, or as a benefit to reward your most-loyal customers for their support. But if the only way your company can increase sales is with discounts and promotions, you haven’t really achieved a long-term increase, just a short-term solution.
How To Build Customer Loyalty
Now it’s time to get down to brass tacks and answer the question, “how do you encourage customer loyalty?” Let’s look at the practical steps of how to build brand loyalty in B2B customers, though these strategies will work for B2C as well. But since B2B customers have a longer buying cycle and may buy less often, it’s important to be extremely intentional about how you take these steps.
- Gather Data: First, to build customer loyalty you need to know your customers. This means understanding what it is about your business that attracts their support. What you hear may align with one or two of the types of customer loyalty above, or you may meet customers along the whole spectrum of loyalty motivations. Aside from asking about your business, don’t forget to ask about them. What information do they want to learn? What are their pain points adjacent to your business?
- Make a Plan: Once you have all the data, it’s time to translate it into actions that either enhance the benefits you discovered or remove the blockers to deeper loyalty. For instance, if a customer told you they only stay loyal to you because of price, they may also share insight about what they need beyond your current services. What are you going to do with that information?
To help you with that plan, we can help you develop your Bullseye. This is a clear, actionable message that each employee can rely on to guide their decision making in every situation that determines a customer’s perspective of your company. Creating a Bullseye message around your goals for customer loyalty helps everyone involved keep the core promises you are making to your customers in mind.
- Apply Your Purpose: Part of your plan should include how to make feedback from customers visible across the departments at your business. If marketing is able to collect great insights from a customer, but then the support or customer service team doesn’t get access to their feelings and perspectives, the customer might be confused or even alienated next time they reach out. This is called creating a holistic, intentional customer experience.
Wouldn’t it be great to have a step-by-step guide to follow? Playbooks is just that—a customized plan that helps you apply your purpose and make the right moves to capture customer loyalty.
- Giveaways and Discounts: Lastly, based on what you heard, you can probably think of some ways to offer add-on services or promotions to your existing and new customers. This is great insight! However, discounts don’t really build loyalty, and they won’t get you remembered. Have you opened the promotions tab on your email inbox lately? Rather than attracting and retaining customers who want more for less, consider other ways you can make them feel special with personalized outreach, and clear, consistent, excellent service.
A great way to think about this area is to take the approach of cultivating loyalty by elevating customer experience rather than issuing discounts. For example, consider a hotel that adds a box on their booking form asking why customers are traveling. When their patrons indicate it is for an occasion like a honeymoon or anniversary, rather than issuing a standard email with a discount for a future stay, consider the impact of a bottle of champagne waiting in their room. Upgrading their stay creates a more memorable experience rather than an impersonal discount code that may be overlooked.
The Four Phases of The Customer Life Cycle And Why They Matter For Customer Loyalty
What are the four phases of the customer life cycle? A customer relationship lifecycle consists of four main stages:
- Marketing: This is where you attract your prospective customers with your offerings and get them interested in interacting with your business.
- Customer Acquisition: Once they are interested, they move into this phase where they would be placing orders or using your services.
- Relationship Management : Now that you have these customers, next comes retaining them and nurturing the relationship in order to increase the value of these customers.
- Customer Loss/Churn : In every business, there is some amount of churn with customers. They stop buying and you have to employ win-back strategies in order to try to get them back as customers.
So what is the importance of the customer life cycle when you’re thinking about customer loyalty? Well, when you’re thinking about how to build your customer loyalty, you should be tailoring your efforts to fit each of the stages of the customer lifecycle.
When thinking about why customer loyalty and retention is important, remember that you shouldn’t treat a prospective customer the same as one in the relationship management phase. There must also be a separate strategy for those who are currently in the process of being lost, particularly the lucrative loyals. There will always be some people you lose, but chasing lazy or limited loyals may end up costing you in the long run. By focusing on building your customer loyalty with your lucrative loyals, you may be able to reduce the amount of churn in that category and keep your high-revenue customers happy.
After all, current customers spend 67% more than new ones on average, so building your customer loyalty is important to reduce that churn rate and keep your revenue high.
How To Maintain Customer Loyalty
It’s not enough to simply build customer loyalty, you also need to keep it. Once you’ve identified where you can make improvements, you need to set a schedule of checking in to make sure the changes are actually implemented and that you don’t revert to “business as usual” in a few months time.
For example, let’s say that you found that your customer support team had been so focused on short call times that they weren’t being empathetic and taking the time to really listen. After a new initiative to re-train employees to focus more on customer service, it’s important to check in with customers and employees to make sure those changes stick (and to make sure your employees understand why the change of pace and buy in to the changes).
Essentially, maintaining customer loyalty boils down to this: follow up! Follow up with your employees and your products or services and make sure that every aspect of your business is staying at the level of quality that you expect.
Unlock All Benefits Of Customer Loyalty With Alignmint Growth Strategies
Every employee at a business must understand that customer loyalty is the biggest driver of profitability and success. Your team also deserves to understand how customer loyalty is achieved—by making customers feel seen, heard, and valued.
Lastly, your team deserves a clear, repeatable, and goals-focused process for building customer loyalty across departments and customer touchpoints. The intention to build customer loyalty is not sufficient for success. Nor is increasing spending without first getting everyone on the same page about why customer loyalty is the goal.
Alignmint Growth Strategies specializes in helping companies make customer loyalty a goal any company can achieve. We achieve this first by listening and understanding the internal and external blockers that are preventing customer loyalty from already developing. Then, we define measurable steps between your current reality and the end goal and equip you with Playbooks that translate our findings into actionable steps for employees at every step of the business.
Contact us to start the process of growing customer loyalty a little more every day, and we’ll cross the finish line to celebrate together before you know it.