“There’s a big difference between a satisfied customer and a loyal customer. Never settle for ‘satisfied’.” – Shep Hyken
We are often asked what customer loyalty even means, and how it can be relevant to a business. The answer to these queries, like most business-related queries, lies in numbers.
- According to Martech, the cost of bringing new customers to the level of profitability of a single lost one is 10 times to 16 times more. This data is acquired through 3 separate studies. Loyal customers are, on an average, 16 times less expensive than new customers.
- A mere 2% increase in customer retention has the same effect as cutting costs by a whopping 10%.
- As per a 2016 research by Accenture Interactive, customers who become a part of a retailer’s customer loyalty program generate 12% to 18% more revenue.
Customer Loyalty Programs
Two friends, Bill and Bob, opened hardware stores in the same neighbourhood. One fine day, a customer came to Bill’s store and asked him whether she could get a box of crayons. Bill politely refused, stating that his store hardware. The lady went away. She next visited Bob’s store and asked him the same question. Bob told her that he had no crayons but pointed her to a stationery three blocks away. The lady was reluctant to go all the way to a place three blocks away. So Bob left his son at the counter and went to the stationery himself to purchase a box of crayons, and brought it to the customer.
Based on the story above, whose business would you expect to grow more in the next 10 years? Bill, or Bob?
If your answer was Bob, you understand the first and foremost cardinal rule of running a business. Understanding your customers is key to driving customer retention and profits, measuring and enhancing customer loyalty is imperative.
A customer loyalty program is any campaign, effort, or policy that is implemented to ensure that customers choose to keep coming back to your business rather than use the products or services of other brands or companies. A successful loyalty program would be able to drive customers to consistently purchase solutions from the target business or brand over an extended period of time. Loyal customers, through frequent transactions, tend to generate a lot more business than one-time customers.
73% of customers are more likely to recommend companies with strong loyalty programs.
Can I Measure Customer Loyalty
“I often say that when you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind. If you cannot measure it, you cannot improve it.” – Lord Kelvin.
Customer loyalty may appear to be a challenging dynamic to measure. How do you really measure something as abstract as the strength of the relationship that you have developed with your recurring customers? The bad news is that there is no single formula in which you can plug in some values and generate some kind of customer loyalty rating for your business. The good news is that by looking at some key statistics about your business, you can measure your relationship with your repeat customers.
- Customer Retention Rate: Are you adding more customers to your business? Good. But are you able to retain your old customers over an extended period of time? The Customer Retention Rate is an important indicator for calculating customer loyalty because it shows the percentage of customers who come back to shop with you repeatedly.
- Customer Lifetime Value: This one is more challenging to measure but important for businesses trying to figure out their customer loyalty. The Customer Lifetime Value, or CLV, indicates how much profit your business can make over one customer’s purchasing lifetime associated with your company or brand.
- Net Promoter Score: One a scale of 1 to 10, how likely are your customers to refer your business or products to a friend? Many businesses invest in surveying their customers and strive to maintain a healthy Net Promoter Score.
How Does It Help My Profitability
A 5% boost in customer loyalty can generate up to a 95% boost in profitability, says a research. On a similar note, Adobe observed in 2012 that your top 10% customers are spending up to 3 times more per order than your average customer while your top 1% customers are spending up to 5 times more. So, loyalty software solutions are not just a means to evade losses due to customer attrition. A customer loyalty program helps your business make more profit by increasing the revenue your customers generate per purchase.
The biggest businesses invest heavily in ensuring customer loyalty for this very reason. Loyal customers can take a business from rags to riches in no time, as the statistics above clearly indicate.
How Do I Improve Loyalty
To the uninitiated, ensuring customer loyalty can appear to be a daunting task. A daunting task it is too, but it is doable. Most successful businesses are doing something or the other to ensure that their customers keep coming back. Businesses and brands of all sizes and categories spend a lot of capital in the effort to ensure that their customers don’t go to the competition. The best business practices for improving loyalty, however, involve very little capital but instead focus on customer relationship. Simply put, a good or bad customer experience can make or break your business. It costs five times more to attract new customers than to retain old ones.
Running a customer loyalty program is another great way to increase loyalty since it vastly improves customer engagement. Customer inclusion is a vital aspect of overall customer experience. The fact that 68% of customers feel neglected definitely doesn’t help. Acquiring new business is great but doing that without investing in customer loyalty is like trying to fill a container with a hole in the bottom. It will never be full, no matter how hard you try.
To Sum Up
Your customers are important. Loyal customers, exceedingly so. Any efforts spent on ensuring that your customers stay with your business are rewarded with exponential growth. This makes customer loyalty a key factor in planning how to run your business.