What is customer loyalty?
Customer loyalty is the measure of how likely a customer is to buy again. Some marketers look at loyalty as an indicator of customer satisfaction, retention, and profitability. Some companies spend millions to build customer loyalty.
What Is Customer Loyalty? It's Importance And Why Should You Care?
What is customer loyalty?
What is the definition of customer loyalty? The idea is that customers will remain loyal to a company, product, or service provider usually in exchange for preferential treatment. Companies spend billions of dollars each year on customer retention programs, but it seems like those dollars are largely wasted. According to the Harvard Business Review, customers who retain their loyalty to a company, product, or service provider typically do so because they think they are getting a better deal than they can get elsewhere.
Customer loyalty is an important component of a successful business. Loyal customers are your best customers. They buy from you repeatedly, and they are more likely to refer you to their friends and family. When a company constantly meets and exceeds customer expectations, it gains loyal customers that are likely to do repeat business with a brand. According to a study, about 83% of customers believed that their loyalty towards a company came from trust.
Companies provide customer support to retain their existing customer base by boosting customer loyalty. Brands build loyalty programs that encourage customer engagement and repeat sales as a result. One great example of customer loyalty is Sephora's Beauty Insider rewards program which is a points-based loyalty program. Sephora offers rewards points to loyal customers every time they purchase products. Customers make a choice on how they can spend these points that makes it one of the most popular loyalty programs.
Brands have rights reserved to provide their products and services. Every brand has different terms to use for its loyalty programs. Always remember to read them before signing up.
Why is customer loyalty important?
Customer Loyalty is important because it is the lifeblood of any business. Having said that, what is customer loyalty? Customer loyalty is the measurement of the extent to which customers are willing to continue to do business with you, even though you may not be giving them the very best experience.
Customer loyalty is important for the long-term growth of a business. When brands exceed customer satisfaction by constantly providing high-quality products and services and something extra that makes them happy, it strengthens the customer-brand bond. This emotional connection helps brands increase sales and customer lifetime value.
Customer loyalty is directly related to a happy customer experience with a brand and is necessary for a brand to survive in the long term. According to research, existing customers spend money every time they visit their favorite brand compared to new ones. Plus, many companies spend more money on acquiring new customers, while retaining existing customers is less expensive. Repeat customers are likely to spend 5 times more than newly acquired ones. Let's read on to understand why building customer loyalty is important-
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Loyal customers spend almost 70% more on repeat purchases of products and services compared to new customers. When customers trust a brand, they tend to spend more frequently. Loyal brand customers are more likely to try new products. Small businesses need to retain customers than spend a large amount on new customer acquisition. Existing customers repeatedly spend more when they trust your brand.
Create brand advocates
Loyal brand customers are natural advertisers of their favorite brand since satisfied customers spread brand awareness through word-of-mouth marketing to their family and friends. Existing customers attract new ones through referrals. Brands can reward existing and new referred customers through loyalty reward points, special offers, discounts, and perks. Customers earn loyalty points for referring new customers and get rewards points that can be redeemed on their next visit.
Do You Know-: Loyal brand customers are natural advertisers of their favorite brand.
Build customer data
Customer rewards programs help create a customer database that is useful in maintaining a large customer base. To register for a loyalty program, customers provide their personal information, including email address, phone number, name, etc. Brands can use customer information for building customer data for future reporting and analytics. Brands can build great customer relationships by sending emails and texts to strengthen their relationship. Plus, brands can make data-driven decisions on Customer Loyalty and retention.
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Get customer feedback
Brands can gather customer feedback at the checkout or on social media platforms and implement it to improve their customer retention rate. About 97% of customers continue brand loyalty that implements their feedback. Customers build trust in brands that listen and implement changes to improve their service and customer satisfaction.
How to measure customer loyalty?
How can you measure Customer Loyalty? It is an important question with a lot of answers. But with that said, it is not that hard to measure customer loyalty. Brands can maintain customer loyalty and retention by measuring various customer success metrics. Factors like customers coming back rate, how much they spend, and how they rate their experience all factor into customer loyalty. If you are not sure how to measure customer loyalty, here are some ways to go about it.
Note-: Customers trust brands that listen and implement changes to improve their service and customer satisfaction.
Customer Churn Rate
Customer churn rate can be defined as the percentage of subscribers or customers who discontinue their subscription for a given time. Customer churn rate is calculated by tallying the total number of customers acquired and the number of customers churned out during a period. Then divide the number of churned-out customers by the total number of customers and multiply the result by 100%.
Churn rate is an essential metric for your business growth. It provides an insight into customer behavior when you add or remove a product or a service or change the pricing. A high churn rate affects business growth and slows down future profits. The churn rate determines how well you can retain your customers. The churn rate determines your business growth and allows you to make data-driven decisions about your future business direction.
Customer Retention Rate
As the name suggests, the customer retention rate is the percentage of the number of customers a brand retains who continue to spend money with your brand during a time.
Customer retention rate is calculated in the following way-
Retention Rate = ((number of customers during a period - number of new customers acquired during the period)/number of customers at the start of period)) X 100
We know that a loyal customer base is necessary for long-term brand growth. It is also essential for a company to keep an eye on its customer retention rate, as it is one way of understanding your business trajectory.
Net Promoter Score (NPS)
Net Promoter Score is used to check Customer Loyalty and satisfaction with a brand. NPS includes every aspect of a business from products, services, marketing, customer experience to customer service for the measurement. It is calculated through a customer survey and asking them to rate how likely they are to recommend the brand to their friends and family. Customer ratings on a scale of 1-10 determine how loyal they are to a brand. If customers rate between 9 and 10, they are considered loyal customers, plus they are likely to stay loyal for some time. However, if customers rate the survey below 6, they are likely to churn out after a while. Typically, an NPS survey also includes follow-up questions about why did the customers choose their response.
Brands need a loyal customer base for long-term business growth. We know loyal customers are less expensive and five times more likely to return for repeat business and are easier to convert than first-time buyers. Research has shown that when brands can retain 5% loyal customers, profits go up by 5-25%. When a brand provides a loyalty program to customers, they tend to return to redeem their loyalty points, resulting in higher customer engagement and retention for a while. Various case studies have shown customer loyalty programs strengthen the business-customer bond. Loyal customers make around 20% of your total customer pool but provide almost 80% of your revenue. Loyal customers who trust a brand and repeatedly buy their favorite products are easier to convince to purchase related articles from the same brand compared to new ones.