When customers are loyal to your business, they will recommend you to their friends and family by 86%, 66% of them will write a positive review, and 46% will remain loyal despite a bad experience.
Customer loyalty boosts word-of-mouth marketing, user-generated content, customer retention, and increases sales and revenue.
What is Customer Loyalty?
Customer loyalty describes the positive relationship you have with your customers. It measures how reliable and consistent your customers are.
Given the fierce competition in the current retail industry, customer loyalty can set your retail business apart. Retailers also observe shorter sales cycles, meaning loyal customers return to make purchases more frequently.
Why is Customer Loyalty Important?
Customer loyalty is essential for several reasons.
Increased revenue and profits: It is more expensive to acquire new customers compared to retaining those who know and love you. Customer loyalty not only drives new sales for your business, but also increases profits as marketing costs decrease.
Additionally, customer loyalty contributes to increased average order value (AOV), meaning loyal customers make larger and more frequent purchases over time. This also leads to an increase in customer lifetime value (CLTV).
Enhancing Brand Reputation and Publicity
Word-of-mouth marketing is the most powerful form of advertising. Loyal customers not only love shopping at your store, but they also enjoy telling their friends and family about it.
When you cultivate customer loyalty, you build an audience. Strong customer loyalty contributes to brand discovery and increased reach – the more loyal customers you have, the more likely they are to promote your business or refer it to their friends and relatives, resulting in increased sales.
Gathering Valuable Feedback and Expanding Customer Base
When customers become loyal to your business, they want to see it succeed. Cultivating a loyal customer base allows you to gather valuable feedback and insights from customers that help you grow.
Customer loyalty programs also allow you to leverage your customers’ networks through referrals. Collecting referrals enables you to track new converters, loyal customers, and partner with loyal customers to create user-generated content.
“One way we’ve leveraged to build customer loyalty for our business is through partnerships,” says Gary Renshaw, Manager at Modelers Central. “We have partnered with well-known enthusiasts who are loyal customers to create our own products and educational materials, which really set us apart from the competition and helped us expand into the international market.”
Types of Loyal Customers
Customers can be loyal to your business in various ways.
Price-Loyal Customers
Price-loyal customers shop with you because you offer the best prices, and they respond better to discounts and deals. These customers are not influenced by quality or convenience, and they are likely to switch to your competitors if you raise prices.
Convenience-Loyal Customers
Convenience-loyal customers shop with you because of ease of use, such as a convenient location or fast shipping. They are not as price-sensitive as price-loyal customers and are often willing to pay more for convenience.
Brand-Loyal Customers
Brand-loyal customers shop with you because they believe in your brand and/or brand values. Regardless of product quality or price, these customers will prefer your brand over competitors.
Program-Loyal Customers
Program-loyal customers shop with you only to take advantage of your loyalty program. They benefit from all the perks and discounts available to them.
How to Measure Customer Loyalty?
The following metrics can help you monitor how customer loyalty is increasing and why it is increasing.
Net Promoter Score (NPS)
The Net Promoter Score (NPS) helps you understand the likelihood of customers recommending your services to others. To measure customer loyalty through NPS, ask: How likely are you to recommend our brand to your friends and family?
Index
Customer Loyalty Index (CLI)
CLI is a benchmark measure of customer loyalty over time. It takes into account NPS, upselling, and repeat purchases. CLI differs from NPS in that it measures customer intent versus actual behavior.
To track your CLI, add these questions to your NPS survey: How likely are you to buy from us again in the future? How likely are you to try our other products?
Customer Effort Score (CES)
CES measures the effort it takes for your customers to solve a problem or purchase/return a product. Customers tend to be more loyal to products and services that are easy to use.
To measure your CES, ask: “On a scale from ‘very easy’ to ‘very difficult’, how easy was [insert action]?”
Repeat Customer Rate
The repeat customer rate measures the number of customers who are willing to make a second purchase from you and helps you estimate how likely they are to buy from you in the future.
Calculate your repeat customer rate using this formula: Repeat Customer Rate = Number of customers who made more than one purchase / Number of unique customers
The health of your store depends on customers returning and doing more business. The repeat customer rate should be one of your key performance indicators in retail to increase customer loyalty.
Purchase Frequency
Purchase frequency measures how often customers make repeat purchases – an important metric to track as repeat purchases are often the largest contributor to annual revenue. In fact, a 2018 study showed that purchase frequency is the most effective factor in driving retail growth.
Use the same time frame you used for the repeat customer rate to calculate purchase frequency using this formula: Purchase Frequency = Number of orders placed / Number of unique customers
Average Order Value
Tracking the average order value allows you to see the average value of each customer’s order and helps you identify your high-value customers.
Calculate the average order value using this formula: Average Order Value = Total sales / Number of orders
How to Build Customer Loyalty
Try some expert-recommended tactics to cultivate customer loyalty for your retail business.
Provide Excellent Customer Service
Exceptional customer service is essential for building customer loyalty. When all else is equal – price, convenience, etc. – great customer service can bring customers back again and again.
Customer service includes everything from the first interaction with your business, the quality of your products, to how your team responds to questions after purchase. By answering questions, resolving issues, and trying to help your customers, you not only satisfy your customers but also ensure that you have a loyal long-term customer.
In fact, more than 50% of consumers say that customer service is what keeps them loyal to their favorite brands.
Create Customer Feedback Loops
Customer feedback is not just a benefit for customer loyalty, but also a way to build it (thus, the loop).
Encourage customers to provide feedback – whether positive or negative. When customers feel heard, valued, and respected, they are more likely to respect your company, even after a bad experience.
In turn, asking for feedback can make customers feel appreciated, thus encouraging them to remain loyal. Use customer satisfaction surveys to find out how customers feel about your services and how you can improve. Leverage social media, and check customer reviews and mentions of your business.
Customer feedback loops not only enhance customer loyalty but also make your work as a retailer much easier. “It’s easy to fall into the trap of thinking you know everything about your industry and the space you’re in,” says Jack Meredith, VP of Marketing at Kettle & Fire. “Like, I think we all want to be like Steve Jobs in consumer goods and be able to predict everything. But at the same time, having this feedback loop makes things ten times easier.”
Segmentation
Customers and Personalizing Experiences
Customers want to feel seen, and you can achieve that by segmenting your customer base and personalizing their experiences.
Most merchants like to increase customer loyalty through bulk discounts and incentives. Jeremy Ulrich, co-founder of Shopify store Lash Fridays, takes a different approach: “Using Segments by Tresl, we were able to analyze the products that drive repeat purchase frequency and the customer segments that drive repeat purchases. This feeds into expanding our customer base – we now know which customer segment is likely to buy more and which of our products are likely to drive them to larger quantities of purchases.”
This approach has allowed the Lash Fridays team to increase customer repeat purchase frequency by 20%. The lesson? “Focus your energy and efforts on attracting the right kind of customers and loyalty and retention will flow from there,” says Jeremy.
Subscription models can also help create personalized experiences for customers. Shopify client Hiya Health drives customer loyalty through its subscription service.
“To stand out from the competition, we send you a reusable glass bottle – and we’re willing to absorb the cost because we hope to recoup any revenue from the customers who stay with us,” says co-founder Darren Leith. “We offer customers a really easy way to unsubscribe or get a refund. That way, there’s no reason not to give us a shot. At Hiya, we even have a tough-to-eat guarantee, so you can easily unsubscribe in the first month if the kid doesn’t like the vitamins. We also delight our customers with stickers so that the child can personalize their vitamin bottle and make it their own.”
Finally, personalize your customer experience through your marketing – email, text messages, and even handwritten greeting cards during holidays or after purchase. Even a phone call post-purchase to ask, “How was your experience?” can set your business apart in today’s world.
Providing Consistent Customer Experiences
One of the key factors contributing to building customer loyalty is consistency. When your customers interact with your brand, they expect a consistent experience. If the brand experience varies each time, customers will find it difficult to build a relationship.
Consistent customer experience delights customers, builds customer loyalty, and improves overall retention rates. It also gives customers a reason to stay with you when competitors come along.
Take Apple as an example. Customers go to great lengths to show their loyalty, such as standing in long lines for product sales and passionately advocating for Apple products.
“Brands like [Apple] succeed because they understand how to use exclusive experiences like product reveals, sales, and launches to attract customers,” says Will Cannon, CEO of Signaturely. “It’s important to view customer experience as more than just using your product – it’s also how they feel throughout their engagement with your company.”
Treating Employees Right
Employees are the face of your business, and nurturing the people who represent your brand to your customers is essential for building customer loyalty. Merchants should appreciate employees who promote your business, assist in its growth, and define the customer experience.
Merchants should appreciate employees who promote your business, assist in its growth, and define the customer experience.
Emphasizing Shared Values
Consumers have more choices than ever. Differentiating your product solely by price or quality may not be as attractive as it once was. One surefire way to attract and retain customers is through shared values.
Brand awareness is no longer enough. You need to stand for something… people should know more about what you sell. When shoppers have a better idea of what you stand for, it builds loyalty today. Paige Arnof-Fenn, CEO and Founder of Mavens and Moguls
It is considered
Jared Pope, co-founder of Caldera + Lab, a luxury skincare brand for men, shares the common values: “Our goal is to help our customers find happiness through caring for their loved ones. This value brings us back to our loyal customers,” he says. “Our content around our best natural ingredients and sustainable business practices shows customers that the products they buy from us are not only good for their skin but are also made in a way that reduces our carbon footprint,” he says.
Jared and his team are currently using artificial intelligence to optimize product quantities tailored to each customer’s needs, ensuring that no purchased skincare products are wasted and further reducing the company’s footprint.
“By taking our customers on our journey to help create a clean and healthy world for future generations, we strengthen our bond and build loyalty through the sincerity of our mission,” says Jared. “We validate the success of our customer retention strategy by measuring the monthly revenue growth rate from our existing customers. As long as this number continues to rise, we know our efforts are working.”
Building Community
Customer communities are a win-win for both your business and your customers. A dedicated forum for conversation allows you to share important information and solicit customer feedback. Regular communication with your customers keeps you top of mind and makes them feel valued and wanted – increasing customer loyalty.
One of the easiest ways to build customer loyalty is to make it easy to engage with you. I call this “closeness to the customer” – whoever is closest to the customer wins. This means staying in touch with [customers] on social media, through email newsletters and text notifications, and even by hosting exclusive virtual events. The more you can surround the customer with touchpoints, the more loyalty you can foster. Tim Parkin, CEO of Parkin Consulting
Brian Lim, founder and CEO of iHeartRaves, attributes the recent success of his Shopify store to his customer community: “We found that customer loyalty is crucial, especially during the COVID-19 pandemic. We were in a challenging position because we sell fashion products for music festivals, and these events were canceled or postponed across the country.”
“We had to find a different way to engage with our customers, so we created the #RaveFromHome series to keep the festival spirit alive for our amazing community,” he says. “Every Friday, we provide tips for dancing at home and ways to spend time stylishly. We share curated Spotify playlists with some of our favorite dance music, along with some specials and discounts for shopping. In turn, customers tag us in their living room dance parties, home photo shoots, dance moves, and lighting skills.”
Building a Customer Loyalty Program
A successful customer loyalty program can significantly influence your audience’s shopping patterns, encouraging them to shop with you instead of competitors or to return more frequently for rewards. Building a customer loyalty program is one of the best and perhaps most cost-effective ways to reward customer loyalty.
Katerina Bell, founder of The Copper Bell, has successfully increased her Shopify store’s volume through her loyalty program.
“By tracking my repeat customer rate – 31% in Q1, 39% in Q2, and 60% in Q3 – I know that people are happy and returning to my website,” she says. “I initially used general discount codes to encourage people to make repeat purchases but I achieved real personalization with this [program] using Smile. These loyalty apps provide bigger rewards for more money spent, so my VIP customers get better discounts than other customers.”
Exceeding
Customer loyalty efforts for Katrena include offering a discount program; its customers also engage with the brand on social media. It works to keep the brand voice consistent across its website, social presence, and email marketing channels to build trust and recognition among its customers.
You can implement a customer loyalty program through email vouchers, free shipping, or reward points. Consider offering a mobile app for your program – 69% of consumers agree they are more likely to participate in a customer loyalty program if a mobile app is available.
However, KPMG found that “points and rewards were less likely to earn loyalty than transparency and corporate honesty.” Remember that a well-thought-out customer loyalty program cannot compensate for a poor experience or service.
Examples of Customer Loyalty Programs
Here are some examples of customer loyalty programs that keep customers coming back.
Starbucks
As much as I can, I support local coffee shops here in Chicago. However, I find myself returning repeatedly to Starbucks because its loyalty program is hard to beat. Using the app, I am rewarded for each purchase I make with a certain number of stars that I can redeem in the future for drinks.
In the Starbucks® Rewards app, users can redeem stars for larger purchases like coffee mugs or ground coffee – an added bonus during the holiday season.
Starbucks’ customer loyalty program is successful because it is straightforward. Users in one app can scan their loyalty cards, reload their balances, order drinks and food in advance, and find nearby locations.
Sephora
Sephora is known for its customer loyalty program, Sephora Beauty Insider. The program has over 25 million members, who account for what could be
Source: https://www.shopify.com/retail/how-to-create-a-retail-loyalty-program
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