What is customer loyalty?
Customer loyalty measures the strength of a customer’s preference for a particular product, service, or company. Loyalty is about more than just retention. Even unhappy customers will stick around if they lack satisfying alternatives, whereas loyal customers actively choose to buy again, feel good about their choice, and tell others. Loyal customers are key to building profitable products.
Why does customer loyalty matter?
Customer loyalty is a strong predictor of a businesses’ long-term viability because loyal customers are durable. Unlike customers that feel neutral or even negatively about a product or service, loyalists actively want to remain customers. They’re more resistant to competitors’ marketing and more likely to purchase again, purchase additional products, and tolerate errors such as outages or irritating support interactions. Businesses with a loyal customer base often enjoy:
- More repeat purchases
- Higher retention
- Higher average order value (AOV)
- Higher engagement
- Forgiveness for poor service
- More vocal customer advocates
Of all the benefits of customer loyalty, advocacy is among the most valuable. Loyal customers often share their experiences online and with friends, and their recommendations typically carry more weight than recommendations from brands. “Today’s buyers simply don’t trust your company’s slick marketing messages,” says Chris Newton, VP of Marketing for the advocacy software Influitive. “Instead, they seek out recommendations before purchasing. Buyers trust the authentic words of their peers. That’s why you need to find a way to systematically improve your customer loyalty so they spread their love of your brand. Marketing messages are more meaningful coming from advocates, and they’re much more likely to influence your prospects.” By increasing loyalty, businesses activate their customers to market their products more credibly for little or no additional cost. To consistently earn customers’ loyalty and get advocates talking, however, it helps for teams to first define ‘loyalty’ and learn to calculate it.
How to measure customer loyalty
To earn their customers’ loyalty, teams must measure it. This can be tricky because loyalty exists in users’ minds and they aren’t always able to articulate their preferences clearly. Surveys and user interviews, for example, offer an incomplete view because consumers often tell multiple organizations that they feel loyal to them. Consumers’ feelings can also change from day-to-day and even hour-to-hour. Their true preferences aren’t clear until they perform an action, such as churning, renewing, or leaving a review. Teams can judge their users’ loyalty along six parameters:
- Repeat usage: Does the customer continue using or buying the product?
- Expansion: Has the customer purchased other products the company offers?
- Action: Is the customer actively seeking alternatives?
- Tolerance: Does the customer overlook errors or poor service?
- Stated preference: Does the customer claim to be loyal in CSAT and NPS surveys?
- Revealed preference: Do the customer’s behaviors suggest they are loyal?
Most companies collect loyalty data through qualitative surveys, but these can be error-prone. Surveys reflect a self-selecting contingent of users who are motivated to reply and whose responses frequently skew very positive or very negative. Revealed preferences, also called observed behaviors, are often a more precise measure—they’re evidence of users’ true beliefs, often gathered using customer loyalty analysis. With user analytics, teams can observe their users in the wild, so to speak, and view the actions they each take. Every time customers take an action or trigger an event that’s indicative of loyalty or disloyalty, the system captures the data and helps the team uncover the full story. An enterprise SaaS platform, for instance, could see that while a customer’s CSAT survey came back positive, the users are actively downloading their data—a possible sign of churn—and alert the customer service team to reach out. Every business measures loyalty slightly differently and has their own process for customer loyalty analysis. Whatever the metrics they choose, the Loyalty Research Center advises businesses to develop a score that allows them to sort their customers into three cohorts:
Teams can examine each cohort and compare the size of each, the amount of revenue each group contributes, and the cost to support each group with services. This provides a baseline for companies to measure their progress toward increased loyalty, as well as estimate the dollar-value of more loyal customers. A financial services app that knows that 20 percent of customers are loyal, 30 percent are neutral, and 50 percent are vulnerable, for instance, can begin testing changes to its marketing emails or in-app notifications, see how they might nudge each group to grow more committed, and measure changes month-over-month.
How to increase customer loyalty
Customers feel loyal when they get good value from a service. What that value is varies from company to company. A baseball fan could feel keen about a sports news site because it does the best job of delivering the right statistics, fast. A clothing stylist could feel loyal to an e-commerce site because he feels that it reflects his aesthetic values. And a marketing manager could feel loyal to an enterprise email software because she’s deeply familiar with it. In all cases, the customers feel they’re getting exceptional value, recognize that the product helps them solve a problem, and feel resistant to switching services. To help customers identify with a product and increase the perception of value, teams can:
Build a great product
Of course, the best offense in the battle for customer loyalty is to have the best product on the market. Value speaks for itself. If an app or site is satisfying and helps consumers solve their problem faster than the competition’s does, it’ll attract them and keep them coming back. Google, for example, beat Yahoo in the search war by relentlessly investing its profits into improving its search algorithm to deliver more and more useful results. Users eventually chose Google because it became synonymous with finding the right answers. Tools like user analytics can help teams observe their individual users and their journeys to identify drop-offs and adjust the product to make it stickier. The messaging app Viber, for example, deployed user analytics and found that users were going through a frustrating number of steps to open a group chat. The product team added a button that allowed users to invite friends into an existing chat faster, and it led to 10 percent more group chat creation.
Sometimes products are never able to live up to their hype (like Segways, 3D TVs, etc.). When marketing and sales teams oversell a service, they give new customers an inflated sense of its potential and their expectations often give way to disappointment and anger. To mediate expectations, teams should focus on removing points of friction from the customer journey and improving the customer handoff. Specifically, leaders can give customer success teams a channel for providing feedback to sales and marketing teams so the company doesn’t oversell itself.
Launch a customer loyalty program
Teams can increase customer loyalty with a program that rewards loyal behaviors. For transactional purchases, this could be a discount program, such as Amazon’s Prime membership. For a gaming app, it could be bonus in-app purchases for achieving higher levels of weekly use. For a SaaS business, it could be an awards program like Marketo’s Fearless Marketer campaign where the team rewards their top users with public recognition. It’s difficult to overstate the importance of customer loyalty. Loyal customers are the foundation to successful, profitable products. Their eagerness to purchase from one company makes them resistant to the allure of competitors, tolerant of fluctuations in the quality of the service, and more vocal in their advocacy. If teams focus on building great products and rewarding loyalty, they can nurture an audience of enthusiastic users who happily buy again and again.