Customers have an abundance of information and choices in today’s market. With so many different products and services available, many customers don’t have a strong loyalty to one brand. They also want experiences these days, not mere transactions, and they’re always on the hunt for the best deals.
How can brands and marketers make customers feel valued, appreciated, and respected? This guide will cover how you can build customer loyalty and measure your success.
Table of contents
- Why brands need to create customer loyalty
- Pro tips on how to build customer loyalty
- Customer loyalty metrics to measure success
Why brands need to create customer loyalty
Customer loyalty is also about advocacy. You want satisfied customers that make repeat purchases and refer your products and services to others.
Building customer loyalty will help you create customer advocates, the best source of word-of-mouth marketing (and new sales). Over 69% of executives have increased spending on customer loyalty programs, and 55% plan to continue doing so in the next two years.
Besides advocacy, loyal customers also bring in more revenue. They not only shop repeatedly but also spend more money. A loyal customer is worth ten times more than a first purchase.
Here are some statistics that show the importance of customer loyalty.
- 59% of US consumers report once they become loyal to a brand, they’re loyal to it forever.
- 61% of global consumers stop shopping from a brand due to poor customer service
- A 5% increase in customer retention can grow profit by 25%
- 37% of US consumers consider themselves loyal to a brand after a minimum of five purchases
- Ever since the pandemic, ecommerce companies have begun to prioritize customer retention over acquisition or conversion.
- 74% of ecommerce brands are personalizing their websites for better retention
- Customers who subscribe to a loyalty program are 60% more likely to buy
7 pro tips on how to build customer loyalty
Customer loyalty doesn’t develop overnight and certainly isn’t a given after the initial few purchases. As mentioned, most customers make about five purchases before they are loyal to your brand.
That gives you enough time to foster customer loyalty. Here are some tips for building customer loyalty from—and even before—the first purchase.
1. Establish clear, strong brand values
Brand values drive every step in your operations from product sourcing and manufacturing to delivery. Distinct and clear brand values can help you stand out from the competition.
Apple and Microsoft have built customer loyalty by offering quality products with a strong sense of brand identity. These companies go above and beyond to ensure their products stand out from the rest, whether it’s through exceptional design or providing helpful support. This commitment to quality creates a strong bond between the companies and their customers that’s difficult for competitors to break.
They also play an important role in customer attraction and retention since people are attracted to brands with shared values. Around 66% of customers will switch companies to purchase from a purpose-driven company.
For example, a beauty brand’s values could be cruelty-free testing and environmental consciousness. With rising awareness, the younger population is buying from cruelty-free brands. Around 50% of the US and UK GenZ buyers say they won’t purchase skincare from a brand that’s not cruelty-free.
Customers also want brands to speak up for societal issues. A reported 48% of customers complain if they’re disappointed by how a brand responds to a social problem. So, having brand values is not enough. Brands must also keep their words and actions—especially on social media—in line with them.
2. Deliver quality, consistent customer service
Excellent and consistent customer service is critical to retaining customers. Around 60% of companies report an improvement in customer retention due to good customer service.
Zappos and Nordstrom have built a reputation for providing excellent customer service, which has led to high levels of customer satisfaction and trust. These companies make sure their customers are well taken care of, whether it’s through answering questions quickly or offering free returns on products.
Besides building customer loyalty, quality customer service also impacts overall growth. In one study, 64% of companies reported that customer service fueled growth.
In 89% cases, a positive customer service experience results in a second purchase. Something as simple as personalizing customer service to your customers’ needs will result in 90% of them spending more on your brand.
Give your customers several options for support. With an increase in phone call anxiety, more people prefer to find answers without talking to someone. Around 89% of customers will spend more with your company if they can find answers without having to reach out.
3. Create a customer loyalty program
The customer loyalty management market is worth $5.5 billion globally. Reports estimate that it will grow to $24 billion by 2028.
Loyalty programs increase customer retention and referrals. They also give customers an incentive to make repeat purchases. The four main types of customer loyalty programs are:
- Paid loyalty programs – members pay a fee to access perks, discounts, and more. (Amazon Prime)
- Tiered loyalty programs – these encourage members to take specific actions like repeat purchases to move up into higher tiers with more perks. (Travel, airline, and hotel loyalty programs.
- Points-based loyalty programs – customers receive points for each purchase or action and redeem those points for rewards. (Starbucks Rewards)
- Value-based loyalty programs – instead of giving rewards or discounts, these programs usually support a cause. (Contribute a percentage of sales to charity.)
There are several examples of customer loyalty programs you can look to for inspiration.
Starbucks and Amazon have mastered building customer loyalty with rewards. Both companies offer rewards programs where customers accrue points or earn discounts with each purchase they make. This incentivizes customers to keep coming back.
Amazon Prime has over 200 million global members, and an average member spends about $1,400 per year. That is over double what a non-member spends—$600 annually. Likewise, Starbucks has 24 million active members and represents 51% of all sales in the company’s US stores.
4. Show customer appreciation
To show customers they’re appreciated, sometimes the little things mean the most. Here are ways that you can show customer appreciation:
- Provide exceptional customer service – Listen to customers, respond promptly, and take their feedback seriously.
- Send a thank-you card or email – A thank-you note goes a long way and is likely to remind customers of their good experience with your company.
- Make customers feel special – Offer special discounts or exclusive loyalty rewards, which could be something as simple as a free gift on their birthday.
- Contribute to the community – Companies should also focus on being active in their local community and supporting good causes. This not only helps build customer loyalty but can gain positive exposure for your company as well.
5. Provide value
Creating value for your customers means providing products and services that meet their needs and are worth their money. The two components of value are cost and benefit.
While customers generally gravitate toward lower costs, they’re not reluctant to spend more money if you deliver their desired benefits. Some examples of benefits are:
For example, Patagonia is known for its high-quality products. The company backs it up with its repair policy.
The best way to provide value for your business is to listen to customer needs. Get feedback from your customers through social media and reviews. Use customer data to learn about their pain points and strive to resolve them.
For example, if customer feedback shows that people have difficulty navigating your website, work on web design and mobile-friendliness. Similarly, if customers want more payment options or quicker delivery times, implement one-click pay or two-day shipping.
6. Find your advocates
Word-of-mouth marketing generates $6 trillion of annual consumer spending and accounts for 13% of all sales. We mentioned advocates earlier—they’re loyal to your brand and will refer others.
To find customer advocates, look at repeat purchases, social mentions, positive reviews, and referrals.
You can use first-party data to find advocates. For example, track and analyze your CRM data to check for repeat purchases and high engagement. Depending on your CRM’s capabilities, you can set up automatic alerts that flag potential advocates that meet your criteria.
Once you find advocates, engage with them consistently. Share information about your incentives, such as a rewards program or a change in your points systems.
7. Keep innovating
The Harvard Business Review recommends innovating consistently, even if it’s something as simple as an upgrade to your existing product or an improvement in customer service features.
Innovation is essential because you can’t solve new problems with old solutions. Here are some ideas to help you innovate consistently:
- Revisit your brand values and identity at least once every year.
- Test performance and iterate your marketing campaigns at least every month.
- Track and identify customer trends.
- Routinely analyze your customer loyalty programs to identify what works and what doesn’t.
Customer loyalty metrics
Customer loyalty metrics are the benchmark for performance. They help you track and monitor your efforts through actual numbers rather than speculations and estimates.
To find out how loyal your customers are, track the following:
1. Retention rate
Retention rate is the number of customers that remain loyal to your company over a specific period. Measuring customer retention rate tells you whether your product or service meets the customers’ needs. A higher retention rate indicates customer satisfaction. It will also help you answer questions like:
- How many customers did you retain after six months?
- Are customers repeating purchases?
- Which products do customer purchase repeatedly?
To calculate customer retention, subtract the number of new customers from the number of total customers during your reporting period. Then, divide it by the total number of customers at the beginning of the reporting period. Multiply the answer by 100 to get a percentage.
Suppose you had 500 existing customers on January 1. Your company attracted 100 new customers by December 31. The total number of customers (who stayed) during the year is 520.
If you plug these numbers into the formula, you will have a retention rate of 76.9%.
2. Customer feedback
Customer feedback helps you understand what consumers like or dislike about your company. You can collect customer feedback through the following:
- Online reviews
- One-on-one interviews
- Social media
- Customer service
Unlike most other metrics, customer feedback is more qualitative than quantitative. Since customers tell you exactly where your brand may be lacking, you can pinpoint problems effectively.
3. Revenue growth
Revenue growth is the amount of money your company makes in a specific time. The ‘time’ could be a month, quarter, or year. To track customer loyalty revenue growth only, look at how much revenue is from repeat purchases. You can also look at revenue from your loyalty programs.
To calculate revenue growth, subtract your previous period’s revenue from the current revenue. Divide the answer by the revenue you generated in the last period.
- Final revenue – starting revenue / starting revenue = percentage of growth
Suppose you want to calculate quarterly revenue growth. You earned $1,000 last quarter and $3,000 this quarter. Your revenue growth is 200%.
4. Customer lifetime value (CLV)
Customer lifetime value is the total revenue you expect from a customer throughout your relationship. The formula for calculating customer lifetime value is:
- CLV = Average purchase frequency x Average customer lifespan x Average purchase value
Suppose your loyal customer has an average lifespan of 12 months, and their average purchase value is $1,000. They make 5 purchases during 12 months. Their lifetime value is:
- CLV = 100 x 5 x 12 = $6,000
5. Net promoter score (NPS)
The net promoter score measures how loyal a customer is to your company. You measure this with a single-question survey. The question is along the lines of ‘how likely are you to recommend our product or service to someone’?
Customers can rate the likeliness on a scale of 1 to 10. Based on their answers, you categorize customers into three types:
- Promoters – They respond with a high score of 9 to 10
- Passives – These are moderately satisfied customers and give you a score of 7 to 8
- Detractors – They give you a score of 0 to 6 and are unhappy with your brand
To calculate NPS, subtract the percentage or number of detractors from promoters. For example, if 20% of your customers are detractors and 60% are promoters, your NPS score is 40%.
A high NPS shows higher customer advocacy. Meanwhile, a low score shows customer unhappiness and unlikeliness to recommend your company to others.
6. Repeat Purchase Rate (RPR)
The repeat purchase rate refers to the number of customers who make a subsequent purchase. To get this metric, divide the number of repeat purchase customers by the total number of customers. Multiply the answer by 100 to get the RPR percentage.
For example, if you have a total of 100 customers and 20 of them made a second purchase, the RPR will be 20%. Ideally, your RPR should be higher as it indicates customer loyalty.
7. Customer Engagement Score (CES)
The customer engagement score shows how engaged your customers are with your company. To calculate CES, you identify core product events and give a weighted score to them.
Core product events include downloading your app, making an account, contacting customer service, etc.
Calculate the event value for each core event by multiplying its weight by its frequency. Add all event values to get CES.
The customer engagement score helps you identify customers who want to convert from a free trial to a paid subscription. You can also use it to identify upselling or cross-selling opportunities.
8. Redemption Rate
The customer redemption rate shows how many customers use the loyalty program perks or rewards. Here’s how to calculate it:
- Calculate the number of customers who have earned points or rewards
- Determine how many customers have used their points or rewards
- Divide both numbers
If 100 customers received points or rewards and 30 used them, the redemption rate is 30%. A lower redemption rate is a red flag. Get customer feedback to learn how to increase the use of special offers and rewards.
Build customer loyalty for your brand
By tracking customer loyalty KPIs like these, you can gain invaluable insights into how your customers are interacting with you. You can create more effective marketing campaigns that target your most loyal customers, and you can identify best practices, trends, and areas of improvement that best increase customer loyalty and overall revenue.
Taking care of existing customers is the smartest move brands can make. Happy customers are more likely to remain loyal to your business. They can also act as advocates who promote your brand and help bring in new customers.
With the right strategies and digital media mix in place, building and measuring customer loyalty can help you achieve your business goals.