What makes a loyal customer? And how do you identify and measure these customers?
While marketers often tend to focus on acquisition, it’s important not to overlook the importance of retention, and building customer loyalty.
In this article I’ll look at the split between acquisition and retention and some examples of how companies are building a loyal customer base.
Customer loyalty: key stats
Stats quoted here from Econsultancy show that marketers tend to focus on acquisition.
40% of marketers in a survey said they were more focused on acquisition than retention, with 15% saying the reverse, and 45% having an equal focus.
The stats are from 2014, so it’s possible that attitudes have changed since then, but it is indicative of what has driven marketing strategies.
The next, oft-quoted stat, is that it’s cheaper to retain an existing customer than to acquire a new one. I’ve read that it costs five times more to acquire than retain. and variations on the stat, but the message is the same. Investment in retention can pay off long-term.
Here are some other stats around customer loyalty:
- The top three reasons consumers switch brands: cheaper pricing (31%), poor/rude staff (18%) and too many mistakes (16%) (Verint).
- 71% of customers have ceased their relationship with a company due to poor customer service. (KISSMetrics)
- The probability of selling to an existing customer is 60 to 70%, while the probability of selling to a new acquisition is 5-20% (Marketing Metrics)
- According to stats from the White House Office of Consumer Affairs, loyal customers are worth as much as ten times to value of their first purchase.
Measuring customer loyalty
Key metrics include:
Customer lifetime value (CLV)
The obvious metric here is customer lifetime value (CLV), which is the total value of a customer to a company over the course of their relationship.
It measures the cost of acquisition against the value of purchases made by customers over the course of their relationship, minus customer retention costs.
The cost varies by sector. So, for example a gambling or firm will pay a lot more to acquire customers (as this list of the most expensive PPC keywords shows) but will calculate that they can recoup the costs and make a profit over the course of the relationship, even if they are paying £50 per click.
CLV will provide a measure over time which will show whether your customers are becoming more or less loyal.
Number of repeat customers
Simple enough. This is the number of customers that have made repeat purchases from you. It’s a snapshot which allows companies to measure how loyal their customers are right now.
If a high percentage of customers are making repeat purchases, it’s an indication that companies are doing the right things when it comes to retention.
Net promoter scores (NPS)
These scores are based on post-purchase surveys which ask how likely a customer is to recommend your company to others.
They are scored on a 1-10 scale. Customers answering nine or more are considered to be promoters, while anyone rating six or lower is a detractor.
The NPS score is the percentage of promoters minus the percentage of detractors. It’s a useful way to measure trends in customer attitudes, and to benchmark your company against rivals.
Other methods include:
- Customer surveys can provide an insight into attitudes towards a business.
- Consumer reviews of businesses from sources such as Feefo, TrustPilot and other sources.
- Social media monitoring can broadly measure positive and negative sentiment towards a brand.
How are companies encouraging customer loyalty?
Here are a few companies that seek to improve retention rates with varying methods…
Great customer service
Zappos has been the poster boy for customer service, and for good reason.
First of all, staff are empowered to solve customer problems as they see fit. There are limits of course, but this is different to the ‘computer says no’ answers customers often hear from call centre agents.
This employee empowerment and engagement in customer loyalty is key. Indeed, stats from Thanx found that, on average, customer loyalty rates are 18% higher when a company’s employees are highly engaged in the retention program.
Zappos takes the attitude that any money spent solving customer issues will pay off in the long term, as these satisfied customers are more likely to make repeat purchases and recommend the company to others.
It sees customer issues as an opportunity to impress customers rather than an adversarial encounter in which staff seek to save the company money on refunds etc.
It works too: Zappos customer retention rates are said to be as high as 75%.
Email marketing / personalisation
Effective messaging can make a big difference when looking to encourage loyal customers.
Graze is one example, and we’ve looked at this in detail in a previous article.
Others, like Majestic Wine, use customer purchase data to deliver targeted emails. Take this one for example. As a ‘loyal Majestic customer’, I’m offered first option on some new wines.
The idea is that this makes customers feel more special, while learning from data and offering relevant products make repeat purchases more likely.
Loyalty programs can help to create more loyal customers by providing rewards based on repeat purchase.
For example, The Container Store introduced a loyalty program and now has more than three million users.
One way to create loyal customers is simply by doing things well. If you’re selling products online that can be bought elsewhere (TVs for example), the main ways to compete are on price and experience.
If companies deliver on promises around shipping and product , provide an excellent online experience, and great after-sales service, they’re more likely to become loyal customers.
For me, there are certain sites I’ll use again and again, even if items can be found cheaper elsewhere, simply because I know from experience that I can rely on them.
Subscriptions and contracts
These provide a way of tying customers in for a certain time period, and have the advantage for companies of more predictable revenue streams.
There are many such examples, from TV and broadband packages, to insurance, to more innovative business like Graze.
Identify and reward valuable customers
Identifying the most loyal and valuable customers can enable retailers to focus their efforts where they would be most effective.
For example, Net a Porter has an EIP (Extremely Important Person) scheme which provides a personal shopper service, exclusive discounts and more.
It’s a way to reward loyalty and make customers feel special.
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