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12 min read
Feb 3, 2022
I bet that when it comes to business, nothing makes you happier than having a large group of loyal customers. And it’s hardly surprising since not only are they responsible for bringing 65% of revenue, but they also tend to spend more than new clients. It also shows that all the time and effort you’ve put into building the brand is paying off!
In the following article, I am going to explain what customer loyalty is, take a look at the metrics you can use to measure it, as well as discuss how to build customer loyalty. Let’s start with a question.
What is customer loyalty?
Customer loyalty is a term used to measure a customer's willingness to buy from a brand on a regular basis. There are a few factors that contribute to customer loyalty, i.e., client satisfaction, good customer experience, and the perceived value of the purchased products or services.
In case you’re wondering how to spot a loyal customer, here are some characteristics that you should seek:
- They’re not on the constant lookout for new brands.
- They happily recommend you to their friends and family.
- They’re willing to test other products from your portfolio.
- They’re more forgiving if any issues occur.
How can you measure customer loyalty? Five key metrics explained
With the question “What is customer loyalty?” covered, let’s take a look at how you can measure it. I have listed several metrics that will help you assess the customer loyalty levels for your brand.
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Net Promoter Score (NPS)
Net Promoter Score (NPS) is a great indicator of how loyal your customers are; it’s also effortless to run! It takes the form of a single survey question asking customers to rate on a scale from 1-10 how likely they are to recommend the brand to their family and friends. Those who give you a rating of 0-6 are called detractors; those between 7-8 are considered neutrals, while respondents who rate you 9-10 are your promoters.
To calculate your NPS score you should subtract the percentage of detractors from the percentage of promoters. Easy peasy, right?
When it comes to an NPS score you should aspire to, there isn’t a universal one, I’m afraid. It depends on the industry you're in, so it’s worth taking a look at a few benchmarks to get an idea of where you stand.
Customer Lifetime Value (CLV)
Customer Lifetime Value (CLV) is a metric you can use to estimate the total revenue that you can generate from a single customer account. To calculate it, you have to identify the average purchase value and multiply it by the average number of purchases. After figuring out your average customer lifespan, multiply it by the customer value, and you’ll get your customer lifetime value. The more loyal your customers are, the longer they stay with you, which positively impacts your CLV.
Repeat purchases
Another way of measuring customer loyalty is by looking at the number of repeat orders. Dive into your customer analytics tool and check how many purchases, on average, your return customers have placed so far. Also, how frequently do they buy from you?
Let’s assume you sell an item that needs to be restocked every 4-6 weeks. If you don’t see any “gaps” in continuity, the chances of clients shopping for the same product from another brand are relatively low. On the flip side, if you’re seeing a drop in orders and a customer is now buying every 8-12 weeks, it means you’ve got some investigating to do!
Purchases from multiple categories
I also recommend checking the variety of product categories your repeat customers buy from. You might now be wondering, “Is it bad for clients to only buy one type of product?” In this regard, I’m afraid I have the classic answer: it depends.
On the one hand, many loyal customers will keep returning to your company for years and years and will recommend the product to others in a heartbeat. On the other hand, it’s difficult to assess whether the customer vests their trust in your entire brand or just that one particular item. It’s simple: the more categories they buy from you, the more goals you’re helping them achieve (which means more reasons to love you!).
So, how can you measure customer loyalty by analyzing multiple product orders? I recommend two methods: (i) check your overall customer purchase history in your customer analytics software, and (ii) observe how clients respond to your cross-selling campaigns.
Customer Loyalty Index (CLI)
Finally, there is the Customer Loyalty Index (CLI), which is built on the three metrics I mentioned above: NPS, combined with repeat purchases and cross-selling ratios.
To calculate your CLI score, run a survey where you ask respondents to provide an answer on a 1-6 scale to the following questions:
- How likely are you to recommend us to your family and friends? (i.e., the NPS question)
- How likely are you to buy from us again?
- How likely are you to try out other products from our brand?
Note: Unlike in the case of NPS and other popular customer survey ratings, “1” stands for “definitely yes,” and “6” for “definitely no.” You rank the answers according to the following scale:
1 — 100 points
2 — 80 points
3 — 60 points
4 — 40 points
5 — 20 points
6 — 0 points
The CLI for a customer is the average score of their three responses.
Anything under 70 indicates alarmingly low customer loyalty levels. Results between 70-80 translate to an average score, while 80-100 points to an exceptionally high level of customer loyalty.
How to build customer loyalty — eight proven strategies
Since you already know how to measure customer loyalty, we can move on to discussing specific strategies you can use to keep your customers for longer.
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1. Offer loyalty/reward programs
Offering loyalty or reward programs seems like a no-brainer, and rightly so! It’s even endorsed on New York’s NASDAQ stock exchange blog as a way to strengthen the bond with your repeat customers.
Reward and loyalty programs make customers feel special and more valued while giving you an opportunity to differentiate yourself from the competition. Most people are willing to share personal data in exchange for highly customized offers, so make sure to create deals that are perfectly tailored to your customers’ needs. I am sure it will pay off; just look at Sephora!
Their Beauty Insider program generates 80% of all their transactions. Sephora’s VP of Interactive Media said, “One of the smartest things Sephora has done is that we created a robust loyalty program. I think it was 2007. We created the Beauty Insider program and we made it compelling for our clients to tell who she is at every touchpoint.”
This leads to the next strategy below.
2. Personalize your communication
One of the perks of doing repeat business with customers is gaining access to a ton of valuable information regarding each client’s purchase history, preferences, and shopping behavior. This data can be used to tailor your communication for various customer segments. One way of doing so is by referring to your customers’ previous purchases or inquiries.
For example, if a client asked you about an item you never had in stock but is now available, they’ll appreciate it if you reach out with a message like this one: “Hi! I remember you asked about [product name] a few weeks back, and I wanted to let you know that we now have it in our store. Here’s the link: [URL].”
3. Offer discounts
If you’re thinking about how to increase customer loyalty, then consider offering discounts. Not only can they encourage customers to buy more from you, but they’re also a great purchasing incentive during periods of lower demand. Have you noticed how cinemas offer lower ticket prices from Monday to Thursday? It’s when fewer people go to watch movies. It helps them boost demand during low peaks and invites their loyal visitors to come more often.
4. Maintain human interactions
Gartner predicts that by 2021, 15% of all customer interactions are going to be automated, which is an increase of 400% from 2017. While it’s beneficial to automate part of your business operations, especially customer service, it’s crucial to realize that some interactions are just not meant to have human involvement removed. When your customer experiences a serious issue — for instance, all their client data disappears from the CRM — they’d much rather talk to a real person who’ll be able to show them empathy and come up with a solution instead of chatting to a bot.
Maintaining human interaction helps you build close connections with customers, which in turn boosts their brand loyalty.
5. Retain consistent communication across every touchpoint
If you want to build customer loyalty, then it’s worth making sure that your communication is consistent across every touchpoint — both online and offline. After all, you’re likely more willing to buy from brands that always offer a great shopping experience, irrespective of where you shop (in-store or online), right?
A study conducted in the UK has proven that shoppers who were greeted with a smile spent up to 67% more than those who weren’t. While it seems like a minor factor, the way brands communicate with clients can make a hell of a difference.
Irrespective of whether you use a chatbot, phone support, or communicate via social media, you should make sure that you maintain the same communication standards. Using positive language and a friendly tone of voice across all your channels will help you keep a solid customer experience, which will positively impact loyalty.
6. Keep customer data to enable faster purchasing
Storing customer data makes it easier for clients to shop with you in the future. The best way of doing so is by allowing customers to create an account via your mobile app or website that securely stores their shipping and payment information. Then they have a one-touch solution for ordering rather than having to re-add their credit card number every time they want to make a transaction. Suffice to say, it’s now becoming a customer experience standard; by 2024, nearly half the global population will be using digital wallets and in-app payments.
If you’re looking for inspiration, take a peek at how Amazon has approached the concept of instantaneous orders. Amazon Prime members can switch on the “Buy now” option on their accounts, which enables one-click orders on each product page. It functions as a great alternative to the standard “Add to cart”, which they can still use for multi-item purchases.
7. Consider introducing subscriptions
Subscriptions have long been a go-to favorite among SaaS companies, and for good reason as it allows them to predict recurring revenue for their services. However, it’s also been gaining popularity among online-based B2C brands. Even before the pandemic, 23% of e-commerces said they were considering implementing a subscription service, with 10% admitting that they already had one in place. Ask yourself this: does your product or service require regular, repeat purchases? Can you offer it to clients at a better per-unit price upon an automatic renewal?
If so, it’s worth drawing inspiration from a few brands. One such company is the (now famous) Dollar Shave Club, a brand that launched in 2012 as an online razor store. They took away the hassle of restocking on shaving equipment by turning their business into a subscription, door-to-door service, and they acquired millions of loyal customers.
Eventually, they sold to Unilever at an astronomical price. And while you might not see yourself turn into an overnight millionaire after implementing subscriptions, it’s easily one of the best customer loyalty tactics out there worth exploring.
8. Collect customer feedback and use it to improve your offer
Lastly, I wholeheartedly recommend a tried-and-tested method, i.e., collecting feedback from clients. One easy way of doing so is by asking them to answer a survey or respond to a question via live chat software while they’re either active on your site or talking to your support team.
Here are a few customer loyalty use cases you can leverage surveys for:
- Ask customers to give you the above-mentioned NPS score, i.e., ask them how likely they are to recommend you to their family and friends. This will help you assess how attached to your brand they feel.
- Use feedback from happy customers to understand what your strong sides are. Next, leverage them in your marketing collateral and communication to strengthen your bonds with clients.
- Collect improvement ideas and pass them on to relevant teams. If you see repetitive requests which also make sense from a business perspective, bring these ideas to life! Finally, inform your clients that you’ve used their feedback to improve your services. If you make your customers feel heard, it can work wonders for their loyalty levels!
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How to increase customer loyalty – final thoughts
Anyone who runs a business knows that particular thrill of seeing return customers walk through the door. And since, as mentioned above, loyal clients are responsible for the majority of recurring revenue, it’s worth going above and beyond to make them happy.
So, how do you build customer loyalty? Make sure you identify customer needs and maintain cohesive communication across all channels, both online and offline. Also, experiment with loyalty programs and subscription plans — remember Sephora and Dollar Shave Club? They make all the difference. Finally, customize your offer and CX by continuously collecting feedback. In the end, there’s no better way of understanding how to increase customer loyalty than asking at the source. Keeping my fingers crossed!
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