Today’s eCommerce landscape is competitive. Not only can new businesses get up and running in just a few clicks, but mega-companies like Amazon are also artificially keeping product prices low in a bid to attract more customers.
To thrive, merchants must double down on their customer retention efforts by driving customer loyalty. But what does that mean? And how can you get started?
Below, we’ve detailed everything you need to know about customer loyalty, including why it’s important, ways to measure it, and strategies you can implement to keep customers coming back for more.
Let’s start with a definition.
What Is Customer Loyalty?
Customer loyalty is the act of consistently choosing one company’s product or service over another company. It’s the result of a positive customer experience and the value of the product or service the customer receives. In other words, it’s an indicator of how likely a customer will continue to shop with a company.
Why Is Customer Loyalty Important?
Customer loyalty is significant for numerous reasons. The most important of which is that it takes fewer resources to keep customers than it does to acquire them.
Over the last 5 years, customer acquisition cost (CAC) has increased by 60%. Additionally, studies show that it’s 5-25X more expensive to acquire a new customer than it is to retain an existing customer.
There are also several other reasons.
Loyal customers buy more and spend more
Loyal customers trust your brand. Because of this, they’re more likely to continue to purchase your products and try new products. Research shows that existing customers are 50% more likely to try new products and spend 31% more, on average, compared to new customers.
Loyal customers drive referrals
Consumers are more likely to trust your business if they’re referred by a friend or family member. This makes your most loyal customers an invaluable asset, as they provide social proof that your product is amazing.
To drive the point home: Referrals represent a phenomenal opportunity. The Wharton Business School reports that the lifetime value of referred customers is 16% higher than customers acquired through any other means.
Loyal customers are a defense against competitors
Loyal customers are a hindrance to your competitors and help protect your position in the market. For example, loyal customers will help shield you from competitor price drops, a tacit favored by large businesses like Amazon. In fact, research shows that consumers are willing to spend more on brands they actually care about.
Loyal customers also deter new competitors from trying to move into your space. Think of it this way: It’s significantly easier and more cost effective to poach shoppers from brands with poor customer loyalty.
Loyal customers act as a focus group
In addition to driving more revenue, loyal customers are a powerful resource for gaining consumer and product insights. Loyal customers are more engaged with your brand and as a result, are more likely to answer surveys or provide feedback. Merchants can use this data to quickly improve their product or services.
But how do you actually increase customer loyalty? How do you turn new customers into brand advocates who not only come back for more but tell everyone they know about you and your product?
6 Strategies to Increase Customer Loyalty
1. Make customer service a priority
Customers’ perception of your brand is intimately intertwined with your customer service. A positive customer experience can cause shoppers to spend more and recommend you to their friends and family. Conversely, a single negative customer experience can drive them away forever.
If you’re serious about improving customer loyalty, make customer service a priority. Start by training and educating your customer service team. They’re the people who speak directly to your customers and most often represent your brand. In fact, 73% of customers say they fell in love with a brand because of a friendly employee or customer service.
If you need more convincing, consider this fact: 86% of consumers will pay more for a better customer experience.
Tips to improve customer service:
- Personalize your messages and replies
- Offer omni-channel support
- Reward loyalty (more to come)
- Actively seek feedback
- Invest in a customer service tool
2. Get personal
Over the last decade, personalization has become vital to success. In fact, McKinsey called personalization a “hygiene factor,” i.e., consumers take it for granted, but will abandon a company if they get it wrong.
So how does personalization build loyalty? Essentially, personalization gives consumers what they want, when they want it, making their lives more convenient.
Personalization also builds on the foundational emotions used to establish a strong customer-brand relationship.
Ways to deliver personalization:
- Collect quality data
- Implement a guided selling experience
- Use data-driven recommendations
- Segment your marketing list and tailor your communication
- Reach out about more than sales and promotions (EX: Say happy birthday)
3. Implement a subscription program
A subscription offering is one of the best ways to increase customer loyalty. Today’s consumers crave convenience and cost savings — the two primary benefits of a subscription offering. In other words, the very nature of a subscription offering generates customer loyalty, as they make shopper’s lives easier to manage.
Subscriptions are also a data gold mine. Because customers receive products on an ongoing, regular basis, merchants have the ability to rapidly generate customer insights, which enables them to fine-tune their products to provide even more customer value.
- Unboxing Subscription: A Guide to eCommerce’s Fastest-Growing Business Model
- Why eCommerce Subscriptions Are a Win-Win for Brands and Consumers
- Why 2021 Is the Right Time for eCommerce Subscriptions
4. Incorporate a loyalty program
A customer loyalty program is a marketing strategy that recognizes and rewards customers who purchase and engage with a company on a recurring basis. Typically, a company will reward customers with loyalty points, discounts, gifts, or perks. Loyalty programs are designed to encourage customers to purchase more products.
By offering rewards for loyalty, merchants build a rapport with their customers and deepen their relationship. This, in turn, makes it less likely that they’ll leave for a competitor.
Loyalty program tips:
- Make it easy for customers to earn and redeem points
- Encourage referrals
- Offer unique rewards like experiences and exclusive content
- Get creative in how you reward points (EX: offer free points for birthdays and anniversaries)
5. Start texting
Text messaging, or SMS, is one of the most direct ways merchants can communicate with customers.
Ninety percent of SMS messages are read within 3 minutes of being sent — a drastic increase over the average email open rate of about 20%. What’s more, text messages are viewed as a more personal form of communication than other channels like email.
If you want to increase your customer loyalty, incorporating SMS into your marketing strategy is a great start.
Ways to us SMS:
- Inform customers about new products
- Offer promotions
- Send receipts
- Enable customers to ask questions
- Congratulates customers (anniversaries, birthdays)
- Appointments reminders
- Send customer feedback surveys
6. Build a community
One of the strongest ways to improve customer satisfaction is by building an online community. Doing so will transform your website and brand into a social destination, instead of simply a place people go to purchase an item and leave.
The key to building a community is to remember that people don’t connect with companies, they connect with other people. Because of this, you want to encourage your customers to interact with members of your company and each other. For example, a beauty company might have a forum on their website that encourages their customers to share makeup tips and looks.
Tips for building a community:
- Offer valuable content such as blog posts and videos to spur discussion
- Reward your most active participants
- Emphasize that your community is fun (so people will want to come back)
Now that you know how to cultivate happy shoppers, it’s time to tackle ways you can measure customer loyalty.
How to Measure Customer Loyalty
The five metrics below will help you identify how loyal your customers are and which customer segments offer the best return on investment (ROI).
Customer lifetime value
Customer lifetime value (CLV) measures the revenue you can expect to earn from a customer over the entire duration of their relationship with your business. It’s a way for brands to measure the value of a customer.
CLV is important because it helps merchants determine how much they should invest in acquiring and retaining customers. For example, if you know a customer’s CLV is $100, you know not to spend more than this to acquire and retain the shopper. Doing so might actually cost you money.
Additionally, a high customer lifetime value can be a competitive advantage. A high CLV means you can spend a greater portion of your budget to acquire customers. This is beneficial because, as we mentioned up top, CAC is creeping up.
While there are many ways to measure CLV, this is a common formula:
Net promoter score
Net promoter score (NPS) measures the willingness of a customer to recommend a company’s product or service. By identifying your customers’ NPS, you can take a strategic approach to improve your relationship with them.
NPS scores are generated with a single-question survey that asks customers how likely they are to recommend a product, service, or organization on a scale from 0 (not at all likely) to 10 (extremely likely).
Customers are then divided into one of three categories depending on their response:
- 0 – 6: Detractors
- 7 – 8: Passives
- 9 – 10: Promoters
Promoters are loyal customers. Passives are satisfied customers. Detractors are unhappy customers.
Your NPS score is the percentage of promoters minus the percentage of detractors.
You should aim for an NPS of 30 or above.
Customer loyalty index (CLI)
Similar to NPS, CLI is a standardized metric that is derived from customer surveys. It’s used to measure the degree of customer loyalty toward a brand. Unlike NPS, however, CLI asks multiple questions and focuses on repeat purchases and multiple purchases, in addition to recommendations.
Customers are asked to answer three questions on a scale from 1 (definitely yes) to 6 (definitely no). The questions are:
- How likely are you to recommend us to your friends and family?
- How likely are you to buy from us again in the future?
- How likely are you to try our other products?
A merchant’s CLI is the average score of the three questions, using this scale:
Obviously, the higher your CLI, the better.
The benefit of CLI is that it incorporates more loyalty indicators. The downside is that it asks for consumer intent, which is less reliable than measuring actual behavior.
Repurchase rate is the percentage of customers who placed another order within a particular time frame. Typically, repurchase rate is calculated 30/60/90/180/360 days from first order. Also, note that multiple items purchased in a single order don’t count.
Repurchase rate is important for two reasons:
- It tells you how many customers are returning for your product, which provides insights into the shoppers you should spend more time acquiring and retaining.
- It provides insights into which of your products are popular.
Upselling is a sales technique to get customers to spend more by purchasing upgrades or premium versions of a product or service. Upselling is distinct from cross-selling, which is when a company offers customers a related product or service.
Upselling ratio is a straight-word metric. It measures how many customers are increasing their total spend with your organization. It’s a simple way to gauge customer loyalty, as customers who trust your brand and products tend to purchase more.
How to measure your upselling ratio:
Increasing customer loyalty is the best way to grow your business. Not only do loyal customers help offset your CAC, but they also deliver valuable insights that will push your business forward. To increase customer loyalty use innovative strategies like implementing a subscription program to make your shoppers’ lives more convenient.