What Drives Customer Loyalty?
To drive customer loyalty, a company must first be able to identify its loyal customers. Seems pretty obvious, right? So what's the exact threshold that defines a loyal customer for your business?
Recognizing a loyal customer means an opportunity to reward them and reinforce a virtuous cycle of delight and profitability. When companies miss the drivers of loyalty, they can alienate or even lose valuable customer relationships - and that can be an expensive oversight.
What makes a customer a loyalist?
When customers enroll in a loyalty program?
Have you ever enrolled in a loyalty program simply for a one-time benefit? Just because a customer joins a program doesn’t make them devoted. Too many times, businesses look to the number of people who join their loyalty programs as markers of success. That’s a red herring. Focusing on enrollment can lead companies to misunderstand their true loyalists.
What about when customers are consistent users?
It’s true that companies should focus on customers who are repeat buyers of their products and services. No matter how a company defines a customer – a consumer, another business or something else entirely – consistent usage is one prerequisite for customer loyalty. But it’s not enough. It isn’t sufficient to make it over the “loyalist” hurdle. Consider many cable TV providers. Users of those services are generally long-term, consistent buyers. They even upgrade their packages from time to time. But for many of those cable customers, consistent usage doesn’t equate to loyalty.
If long-term usage doesn’t mean loyalty, what does?
For true loyalty, two elements of the customer relationship must be present. One is dedicated usage. There also needs to be some amount of emotional connection to a company. Emotional connections are cultivated when customers feel understood and appreciated by a business, and they are delighted by the outcomes of their transactions.
Ranking Loyalty Factors
Recently, an Australian company called The Point of Loyalty studied the actions a business can take to drive loyalty. Consumers were given a list of these actions, and their responses were ranked.
Here are the top five actions people identified as most valuable:
1. They offer value for money (27%)
2 (tie). The quality of the product or service (16%)
2 (tie). They offer me a loyalty/rewards program (15%)
3. It is convenient to purchase from them (12%)
4. The overall experience when purchasing from the brand or service is consistent (5%)
5. They make my purchase experience easy (4%)
Conversely, here are some of the attributes that did NOT make the cut as most valued actions:
- They make me feel important when purchasing from them
- They resolve my problems/complaints promptly and with understanding
- They make my purchase experience enjoyable
- They utilize my information with respect and relevance
- I believe in what they stand for
- Their connection to a charity or cause
What’s interesting about the Top Five is the focus on the fundamentals.
The Point of Loyalty notes that most of these attributes are driven by getting the basics of customer service right – value, quality, convenience, consistency, ease of use. It’s a valuable insight.
What does that mean for loyalty programs? Are they wasted resources?
In a word, no.
Studies have consistently found that loyalty drives profitability. When companies improve retention by as little as 5%, they see profits rise from anywhere between 25% and 100%. The opportunity to double profits by driving a mere 5% bump in retention should get any business leader’s attention.
When companies fail to get the basics right, there’s less opportunity to take the trust factors to the next level. Without the fundamentals, a focus on loyalty programs will feel hollow to customers and the efforts will backfire.
Now let’s go back to the two-factor definition of loyalty. Loyalty requires both consistent usage and an emotional connection between the customer and your company.
Mastering the fundamentals of value, convenience and consistency will yield your company’s best path to consistent usage. That process will also uncover key insights about the customers most inclined to be loyalists. Savvy companies use these insights drive unique, tailored loyalty programs to speak to the hearts and minds of these customers.
Your result? Deeper and more profitable customer relationships.
To create the emotional connection required for true loyalty, companies must understand their customers, deliver on the fundamentals, and then develop initiatives that deliver on these unique needs.
Get these factors right and your company will drive loyalty and profitability for long-term growth.
Ali Cudby is founder of Your Iconic Brand.