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For Business Owners

The Business Owner's Guide to Customer Loyalty

2/3/2021
By
Lucie MacNeill
customer-loyalty

Many have long understood and respected the notion of marketing when it comes to running a business. The four P’s; product, placement, promotion and price are well recognised across the world as the key focus areas for success. As consumer behaviours have evolved and competition continues to grow, business owners should consider customer loyalty and its priority within their growth strategies.


This guide will walk you through all things customer loyalty including why it’s important and how to achieve it. Plus learn how brands today are building and leveraging customer loyalty for your own inspiration.  

What is customer loyalty?


Customer loyalty is where consumers choose your brand over a competitor and repeatedly return due to a value gained, such as a positive experience, as a result of their custom. 


In a world full of choice, businesses need to consider ways to stand out from the crowd and maintain key relationships with their customers. If a customer is deemed loyal to your brand as a result of a positive experience, your business will see incremental value and financial gain. 


Why is customer loyalty important?


First and foremost, it saves you money. Did you know that retaining customers is a lot more beneficial to your business than trying to acquire new ones? A loyal customer is worth x10 as much as their first purchase with Forbes noting that existing customers are 50% more likely to try new products as well as spend more. 


People will shout about how great you are. If something good happens to you, you’re going to tell people about it right? Data from Yopto found that 60% of consumers who are loyal to a business will tell their friends and family about the experience. Given that word of mouth has been a leading factor in buying decisions and brand discovery in recent years, utilising a technique that only maximises this is a no brainer when it comes to growth tactics.  


They’ll keep coming back. If you provide a service that is deemed positive by your customers, it’s going to take a lot for a competitor to convince them to try them instead. Research shows that 93% of customers are likely to make a repeat purchase with businesses that offer a good service and experience. Maintaining this service will ensure long term success for your brand and thus create loyal customers.   

businesses need to consider ways to stand out from the crowd and maintain key relationships with their customers


How to build customer loyalty?


We’ve gone through why every business needs to prioritise developing and maintaining customer loyalty, but how do you make a customer loyal? 


Stand for something great. It’s not enough today to just exist to sell a service or product. The choice available to consumers is now exceptional and consumers are more informed than ever. Business owners need to truly understand their brand’s purpose because “people don’t buy what you do, they buy why you do it” so start asking yourself, why do I get out of bed in the morning?   


Ask for feedback. The best way to understand how to provide a positive experience for your customers is to have a better grasp of areas of your business that could use some improvement. Nobody is perfect, and a willingness to do better will be well received and noticed by your customers.


Offer great customer service. This is a no brainer but you’d be surprised at how many businesses don’t prioritise customer service in day to day dealings with customers. How you handle a situation will make or break whether or not a customer will spend with you again. 59% of people would actively try a new business in search of better customer service with nearly 70% of customers spending more for a product or service as a result of excellent customer service. Consumers rarely remember the problem, but they do remember how you handled it. 


Reward them when they spend with you. A simple way to give customers a positive experience is to provide benefits and rewards for their custom. This can be as simple as a paper punch card tracking 10 coffees for a free one, to leveraging digital software platforms that have all the tech you need to run a robust customer loyalty program. For some time, customer loyalty programs were deemed only possible for big brands. Tesco and Walmart for years have been using expensive technology to gather data on consumers to provide personalised experiences and offer rewards/discounts. Today, more and more platforms are being created to support small and independent businesses, allowing affordable access to technology making it possible to build customer loyalty at any scale.   




Types of customer loyalty programs


Identifying your brand’s purpose, nailing your customer service and asking for feedback are the simplest ways to grow and maintain customer loyalty. Implementing a customer loyalty program however might sound like a lot of work - but it doesn’t have to be. As we mentioned above, there are various ways to leverage programs that are online and offline, so it’s useful to understand the benefits of each to define a solution that’s right for you in your quest to build customer loyalty.  It’s important to think about your industry, basket values and product/service frequency to identify the right solution for you. 


Points 


Point based rewards are likely the most recognisable technique when it comes to a customer loyalty program. Users accumulate points for spend with a given brand that enables them to use as credit for future spend, typically £1 spent = 1 point. This is great for creating a ‘brand currency’ keeping customers tied to your business. Take Tesco Clubcard for example, for every £1 or £2 spent, you'll gain 1 point which will equate to 1p to spend in store via vouchers.

Image source: tesco.com/clubcard/collect-points/


Things to consider:

The duration for which users get to see the benefits of the points program can be lengthy and consumers could begin to feel impatient waiting for their rewards. This tactic could be troublesome for specific industries that have lower basket values meaning fewer opportunities to accrue points. 



Tiers


This approach is similar to point based rewards. Tiers tie your customer to your brand longer term. The concept has customers gather points that unlock various tiers of rewards. This gamified tactic is great for motivating increased spend as it creates an aspiration to reach new ‘levels’ which provide bigger and better benefits. 

Image source: https://www.britishairways.com/en-gb/executive-club/tiers-and-benefits

Take British Airways for example, their customer loyalty program has three tiers which travellers can unlock depending on how many flights they take with the airline. Each tier will allow customers different access to perks such as priority boarding, lounge access, seat selection and extra baggage. This reward program will motivate flyers to buy with BA over a different airline even if it's more expensive as a result of aspirations to secure the lucrative gold card.

Things to consider: 


Tiers are great if you wish to create an air of exclusivity when it comes to your brand. The approach allows you to double down on rewarding your most valuable customers but this will mean you’ll require a cohort of customers who see your brand as high value and are prepared to spend big, frequently. 



Cashback

Cashback continues to grow in the customer loyalty program space thanks to innovative and secure technology. In its most simplest form, consumers receive a proportion of money back when they purchase a product or service. It might sound like you’re giving away free money, but offering cashback can often be cheaper than discounting your inventory.  According to Forbes, "more brands see increased revenue via rewards (36%) compared to discounts (28%)". It all comes down to the instant gratification customers experience in which they perceive a higher value attributed to their spend, in fact research by The Centre for Generational Kinetics discovered that brands who offer at least 5% instant cashback will see greater sales. 


Image source: https://www.americanexpress.com/uk/credit-cards/platinum-cashback-everyday-credit-card/

American Express utilises this technique offering up to 1% cashback on spend in order to deviate customers away from competitors, a smart move in a highly saturated market. Notably the consumer does have limitations around when they're viable for the cashback, with the fine print highlighting that it is only applicable on minimum spends of £3000.


Things to consider: 

With new technology like card linking, customers can see the money go straight into their bank account. Although American Express requires high spend in order for customers to benefit, this approach is also great for industries with low and basket values and heavy competition, because what’s more attractive than cold hard cash?   


Swipii for example, is a customer loyalty program for local businesses. There's no minimum spend for customers to receive cashback and businesses can decide how much they want to offer customers and when, there's no limit. Great for drumming up business when it's quiet or if you want to target to your best customers to say thank you for their loyalty.


Punch Cards 


Punch cards are definitely a simple way to reward your customers. Businesses provide e-cards or small paper cards for customers to accrue stamps with each purchase. After a defined number of stamps have been collected a customer gets rewarded with a free product, such as coffee or cake. 

Image source: Zazzle.co.uk



Things to consider: 

Just like the tiered approach, the gamification gets customers aiming to reach the ‘finish line’. Whilst likely the most affordable and self sufficient approach, the program may end up having the opposite effect, frustrating customers when they forget about their card (on or offline) and lose out on rewards.  


How to measure customer loyalty?


So you’ve identified that building customer loyalty is important and established the right way to achieve it for your business. Now how do you know if it’s working or not? The right way to measure customer loyalty will all come down to your approach and tracking capabilities, we’ve rounded up a few suggestions. 


Retention Rate


Retention rate is widely used in marketing for measuring customer loyalty. The calculation looks at the proportion of people who carry out an action in a given time frame. The more people carrying out that action in that defined time frame suggests that your frequency is high and you’ve secured loyalty. This approach is beneficial for businesses that run an app or a website where data is easily accessible.


Image source: Mixpanel


This approach will also be feasible if you are using a third party platform to execute your reward program. It’s important to ensure you have a benchmark for your retention rate to help you identify good, bad or normal performance. You can do this by establishing trends within your own data, and if you don’t have any to review yet, take a look at your competitors to see what is typical in your industry. 


Net Promoter Score (NPS)


A Net Promoter Score, also known as NPS score, is a tried and tested approach to measuring customer loyalty. The concept looks at how satisfied your customers are with your product or service and can indicate the likelihood of them returning. 


This approach is useful for businesses who don’t have granular data on their customers but do have a means of contacting them, for example via email. Simply ask your customers a question about your brand, such as; ‘how likely are you to recommend [brand] to family or friends?’ against a scale from 1-10. 

Image source: Netpromoter.com

There are three buckets that your customers will fall into based on their answers:


Promoters: loyal enthusiasts who will fuel growth


Passives: satisfied but enthusiastic customers, vulnerable to competition


Detractors: unhappy customers who can damage your brand 


By subtracting the detractors from the promoters, you are left with your Net Promoter Score. 


Any NPS score above 0 is "good". It means that your audience is more loyal than not. Anything above 20 is considered "favourable". Bain & Co, the source of the NPS system, suggests that above 50 is excellent, and above 80 is world class. Perceptive Consumer Insights Team 


If you’re unhappy with the score established or see lower results from past scores, you know you can do more to improve customer loyalty.



Customer Loyalty Index 


Identifying and ultimately tracking your Customer Loyalty Index will help you measure customer loyalty in association with your business over time. The approach is similar to measuring your NPS in that it asks questions against a ‘scale’, but delves a little deeper into the future intent of your customers. 


  1. How likely are you to recommend us to your friends or contacts?
  2. How likely are you to buy from us again in the future?
  3. How likely are you to try out other of our products/services?

The Index is calculated by taking the average score of each of the three responses with ‘1’ equaling “Definitely Yes” and ‘6’ equaling “Definitely No”.  

Image source: capillarytech.com

By carrying out this exercise over time (be sure not to do it too frequently and end up in the spam folder) you will start to identify trends of your customer’s perceptions towards your business and see if there is any room for improvement or if what you’re doing is working.  

Start growing your revenue

There you have it, a one stop shop on all things customer loyalty and everything you need to know to grow your bottom line. There’s no one size fits all approach, so think about your business, products and services and establish the right solution for you.  

Own a local bar, restaurant or cafe and want to provide your customers cashback when they spend in store? Check out Swipii for business and see how you can start building your customer loyalty today.