Benefits of customer loyalty
The first article in this mini-series established a working definition for ‘customer loyalty’. We went beyond the standard references to the methods and measurements used and demonstrated that customer loyalty is really about creating a strong, positive and emotional connection between the consumer, the product, and the respective brand.
Now we know what it is truly about, it is necessary to highlight the benefits of customer loyalty, and explore why businesses should focus on creating and improving their brand loyalty in 2021. Interestingly, the data shows that the COVID pandemic has actually led to an increase in customer loyalty year-over-year from 2019 to 2020. There is a real willingness from consumers to support businesses that have been good to them and this is enhanced by the fact that people are seeking stability in the current climate and sticking with what they know rather than taking a risk on new products and services.
There is no way of getting around it: building a loyal customer base that repeatedly and predictably comes back to purchase your product is an incredibly effective way of developing a healthy, consistent revenue stream and thereby providing stability for your business. It has been shown that if you increase customer retention rates by just 5% profits increase by 25% to 95%! Furthermore, loyal customers spend 67% more on products and services than new customers whilst the Pareto Principle reveals that loyal customers make up 20% of your customer base whilst providing up to 80% of your revenue.
Research also shows that it costs a lot less money to focus on customer loyalty; it can be up to 25x more expensive to acquire new customers. This fact that building customer loyalty is less expensive and easier to do than winning new customers, reduces the risk and heightens the appeal for business leaders who are looking for ways to secure income streams and avoid wasting resources.
Furthermore, in building a successful loyalty scheme and retaining more customers, the data gathering systems that are built into reward propositions offer multi-faceted benefits to your business. As you learn more about your consumer through this continual relationship, the feedback and insights about their preferences and pain points can be used to refine the product, service and customer experience. Building a complex and deep profile of a customer is only possible when you have this type of ongoing relationship; it wouldn’t be possible to get to know them in the same way from a one-time purchase. In addition, as you get to know your customers better, you can step up your personalisation in communications, which in turn makes them more likely to be loyal. It is an upward spiral where better knowledge begets better retention rates and results.
Loyal customers can be an effective way to acquire new customers. Customers who like a brand and are loyal to it are often incredibly effective marketeers of it. They often become brand advocates without being provoked into doing so, and because their promotional activities are authentic, people are much more likely to believe their testimonials and referrals. This type of brand advocacy beats growth hacking techniques and other more aggressive forms of marketing, including PPC advertising, event marketing and social media campaigns, with 76% of individuals in this survey saying they were more likely to trust content shared by “normal” people than content shared by brands.
More loyalty, more growth
I’ve highlighted some of the most significant benefits to building customer loyalty; from the explicit financial rewards to the relatively low risk, and the brand promotion that results. It makes sense to invest in this area.
If you want to learn more about this topic then visit our CXcon page and pre-register for our upcoming online conference on customer loyalty on 24th March.
You can also check out the other articles in this mini-series on customer loyalty: