What is customer loyalty?
Customer loyalty is when customers reward a company with repeat business over time. It means that the company is successful at creating an experience that resonates with people, since those customers are actively deciding to return again and again.
Customer loyalty has a big impact on the bottom line. According to the Zendesk Customer Experience Trends Report 2020:
Customers that reward companies with their business—maybe generations of repeat business—send a message: that they find consistent value in the products, services, and the overall experience they have with the brand is positive. As a business, there is no greater compliment.
Acquiring customers vs. retaining customers
Customer loyalty is closely related to the age-old discussion of whether it's better to acquire customers vs. retain customers.
It is much more cost-effective to retain customers vs. acquire new ones. An article in the Harvard Business Review, citing research by Bain & Company—which invented the net promoter score, or NPS—said that increasing customer retention rates by only 5% increased profits by 25-95%. Customer retention is one way to measure customer loyalty, but there are many other ways, too.
Measuring customer loyalty
Businesses always want to increase customer loyalty—still, many companies struggle to measure the success of their customer loyalty strategy. Many would factor in the length of time they've had a relationship with the customer, while others might think of customers that stayed with them through tough times, like service interruptions or growing pains. Some organizations use metrics like customer churn rate to measure customer loyalty.
Tips for cultivating customer loyalty
One thing is for sure: Loyalty must be cultivated and maintained—it’s not something you can implement once and automate later. When we asked customer experience leaders to give their tips for fostering customer loyalty, they said that many qualities we value in our personal relationships also applied to relationships with brands. Among them: consistency, being a good listener and acting upon what you learn, and being honest.
Taking a customer’s entire experience into account—from customer support to marketing to branding—the ideal formula for customer loyalty is a mix of internal processes and more emotional, human factors. These include:
- Reducing customer effort
- Providing great customer service
- Creating an emotional connection with "emotional data"
- Reevaluating your definition of customer loyalty
Reducing customer effort
One way to drive customer loyalty is by reducing customer effort. This means removing barriers between customers and whatever they want to accomplish with the product or service. An easy experience makes customers more likely to return to the brand.
Providing “low-effort” experiences—using customer effort score as a benchmark—is a better indicator of customer loyalty than even a high customer satisfaction score (CSAT) or NPS. This was a key finding in a study into customer service and loyalty by the Corporate Executive Board (CEB), which interviewed more than 97,000 customers across geographies and demographics to compile the data.
A 2017 Harvard Business Review article says that "performance is sustained not by offering customers the perfect choice but by offering them the easy one. So even if a value proposition is what first attracted them, it is not necessarily what keeps them coming."
In other words, while low-effort, convenient experiences contribute to customer loyalty, it’s not the only thing to consider when encouraging customers to become repeat customers.
Providing great customer service
Companies known for inspiring customer loyalty with great customer service say that being proactive is key. This includes anticipating the customer’s next question and helping them head off problems that may be imminent in coming weeks or months. By providing excellent customer service, a support team positions the brand as a strategic partner, not just a one-off problem-solver.
The behavior of going above and beyond is most strongly linked to good customer satisfaction scores (CSAT) and customer loyalty. A well-trained customer support team can fix an immediate problem, but agents who can also provide good customer service help build relationships that can grow into a true partnership. This is where the connection between traditional customer support and customer service comes into play.
Encouraging and hiring for non-technical skills on a customer support team can help make this happen. That includes developing empathy and rapport in the team, and even evaluating traditional support KPIs to ensure they're evolving with the business.
At Magnolia, for example, the number of tickets solved or time to resolution aren’t the best KPIs for the company. The reason is that Magnolia's definition of customer service success includes much more than helping customers with billing or shipping issues. Magnolia customers are just as likely to need “transactional” support as they might want to share experiences with customer service agents trained to be a kind ear.
Creating an emotional connection with "emotional data"
There many ways to create an emotional connection with customers. Maybe surprisingly, a top-notch reward program, a brand-specific credit card, or "buy one, get one" coupons aren't high on the list. Even strategic campaigns focused on customer loyalty marketing, including those leveraging the power of influencers, won't be make an impact if the emotional connection to the brand isn't there.
Magnolia empowers front-line support teams create this connection on the front end. But businesses can also tap the power of emotional data to help define the path forward, helping identify the behaviors of high-impact customers—those who present the most opportunity for a lasting relationship. A recent study by Deloitte found that using emotional data smartly can increase customer lifetime value and turn customers into brand ambassadors. In many ways, a brand ambassador is the ultimate customer loyalty program.
As in all relationships, you can’t force an emotional connection with consumers–with or without data. But the best way to connect with customers on an emotional level is to acknowledge and respect their needs, at all levels of the business. That means using their data wisely: such as for personalizing their experience instead of to sell that information for a quick buck. It also means meeting them on their preferred channels of support. In some of the most customer-centric cases, it means organizing the entire business around their needs: by only making products customers have expressed a desire for. In all cases, data can help businesses determine how they can best serve customers.
Reevaluating your definition of “customer loyalty”
Understanding what inspires customer loyalty isn’t a destination. It’s an ongoing journey with factors that aren’t set in stone. Consumers—their demographics, needs, preferences, environments, and worldviews—will change, as will each business, the business climate, and the technologies that support everyone along the way. Earning a dedicated core of loyal customers will depend on a company’s ability to identify and respond nimbly to those changes.
Part of that process includes throwing outdated definitions of customer loyalty out the window when it makes sense.
For example, a more traditional definition of customer loyalty might be unwavering dedication to one airline, one brand of shoes, or one car manufacturer for years on end. A more modern definition acknowledges that “disloyal” customers—those who pledge brand loyalty to several, even competing companies across multiple verticals—are more common. Forward-thinking businesses accept that that behavior is completely OK. Joel Percy, Chief Strategic Consultant at ciValue, and Julie Currie, SVP of Retail Product Leadership at The Nielsen Company, outlined customer disloyalty—as well as what retailers can do about it—at the 2019 National Retail Federation Big Show.
“In the age of disloyalty, it is the selfless retailer who will win over customers,” Currie said. “Throwing retail allegiances to the wayside, today’s retailers must be extremely well-informed and tuned into the needs and wants of the individual consumer—stretching beyond their core consumer and beyond targeting the masses. The selfless retailer will do everything they can to meet the needs of the individual consumer, regardless of the fact that they are or aren’t a current customer.”
Another point for businesses to consider in the long-term: that loyalty is actually a two-way street between businesses and customers. Companies always ask for loyal customers who will stay with them through the ups and downs, but brands don’t always return the favor for customers. Customers have plenty of options, and there are ways modern businesses can help ensure they remain at the top of the short list. Among them, demonstrating in-kind loyalty to customers, by responsibly using data to make customer-centric decisions—such as personalizing their marketing experiences—meeting them on their support channel of choice, and respecting customers’ time and effort.
Why businesses should care about customer loyalty
It's a great honor when customers are inspired to take a company on their journey or evangelize them in their free time. Putting customers' needs and preferences at the center of the business can help ensure that that loyalty remains in years to come.