How Do You Define a Loyal Customer?

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How does your company define a loyal customer? Is it someone who's purchased from you more than three times? Or maybe you count Facebook "likes," or Twitter followers? Do you have a rewards punch card, or a store credit card?

Knowing which of your customers are most loyal to your brand and having the capability to act on that information are important parts of maximizing your marketing dollars. However, according to a recent study conducted by Loyalty 360, less than half of the marketing executives that were surveyed could identify their best customers.

In fact, only 10 percent of respondents strongly agreed with the statement that they "know who my most loyal customers are, and I know the best way to reach out to them and get them to engage with my brand."

Only 10 percent! That leaves 90 percent of marketing professionals failing to capitalize on potential revenue that's wrapped up in possible spending by loyal customers.

So how do you target your loyal customers and profit from doing so? You follow the steps of a Top 500 Internet Retailer.

Loyalty Program Strategy Increases Conversion by 68 Percent

Folica, an online retailer of hair and beauty products, wanted a more personalized approach to engaging with and rewarding its loyal "Elite Members." It began with what it felt was the most valuable piece of customer data it had available - its customer email contact list. (Author Disclosure: Folica is a client of my company.)

Of course this list was invaluable, but sending an email alone wouldn't be enough. The company wanted to show its shoppers it appreciated their business and also reward them with an incentive to buy and save. By using a behavioral-based analytics platform capable of delivering onsite ads and offers to segmented shoppers based on their past purchases, Folica was able to immediately increase loyalty sales.

How did it do it? Folica simply segmented its Elite Members (shoppers who had made more than one purchase in the past year) and then sent them an exclusive email offering free shipping on their next purchase. When Folica Elite Members clicked through to Folica's website, an onsite offer appeared reinforcing the email campaign, reminding the shopper that she earned free shipping.

By understanding and marketing to its most valuable customers, Folica was able to increase conversion by 68 percent without having to spend any marketing dollars to acquire new customers.

How Much Are Your Most Valuable Customers Worth?

Does your company have a way of determining which customers are your most loyal? Is there a system in place to measure the value that word-of-mouth referrals hold?

By calculating things such as the "lifetime value of a customer" and the "value of a referral," you can figure out how much it costs to replace a former loyal customer with a new one. In addition, it can also help you determine which customers are worth going the extra mile for and which aren't.

By figuring out things like:

• How many years a customer has been active with your company
• How much money a customer spends per year with your company
• Your cost to serve a customer

You can start to understand the costs or values associated with:

• Acquiring a new customer
• Marketing to a past, or loyal customer
• How much a referral is worth to your business

There are certain tools, like those found in Net Promoter System's resource area on its site, which can help you learn how to calculate these things.

The bottom line: engaging with your loyal customers can play a significant factor in your sales numbers, but it's definitely not an easy thing to figure out. You need a way to analyze the data you have about your customers and implement a marketing campaign that capitalizes on that data in a very specific way. The process of better understanding - and ultimately serving - your best customers will involve a good deal of trial and error, but the payoff of getting it right cannot be ignored.