Well, the case is that customer loyalty is bound to customer retention, as well as to your marketing strategy and marketing efforts. As well as an increase in customer retention is an increase in customer loyalty. But if everything had been that simple, we would have never written this article. Customer retention isn’t the identical thing as customer loyalty, and you have to track and improve customer retention separately from customer loyalty, but still, one thing will influence another.
Customer loyalty is one of the most vital factors that determine the success of your customer retention strategy, and that’s why many customer service leaders point out that the importance of customer loyalty is higher than some business owners can think.
Even though we already know that improved customer loyalty is a vital part of your customer service and customer experience strategies, there are many unanswered questions. Is increasing customer loyalty difficult and expensive as some people say? How to measure customer loyalty? What is customer loyalty definition? What are the benefits of customer loyalty? What is customer loyalty measurement and how to measure customer loyalty over time? What are customer loyalty programs and how to create and use them? What is the real difference between customer loyalty and retention? And how to improve customer loyalty? Finally, how to make your customers happy?
Let’s find it out.
What is customer loyalty?
Meaning of loyalty, basically customer loyalty, is a customer’s decision to stay connected with the company and make repetitious buys and interactions with the company because of positive experiences and the high level of customer service provided during previous customer interactions. This means that customer loyalty correlates with the possibility of new customer purchases and customer lifetime value and customer retention, too. In most cases, customer loyalty is considered to be linked with customer loyalty programs, but to be honest, customer loyalty is a much wider term because customer loyalty is a customer service metric and one of the most influential factors in customer retention. Customer loyalty is also a strong emotional connection between the firm and the customer, so customer loyalty is a special kind of customer relationships with the brand that are full of trust and stability.
As it is generally known, customer acquisition costs up to 25 times more than retaining clients, and that’s the reason why retaining customers is more beneficial and resultative for your business. Nonetheless, we have already stated that customer loyalty and retention are two separate things, and we are going to explain why.
What is the difference between customer loyalty and retention?
First of all, customer retention and customer loyalty are customer service metrics, and they point to different aspects of customer service and the overall performance of your business. As you could guess, those rates have different formulas, too.
Customer retention points to the percentage of customers who haven’t left your brand during the chosen time frame. To avoid boring definitions, let’s look at the formula of customer retention rate.
How to measure customer retention rate?
CRR = (Number of customers who are retained per X time/Overall numbers of customers per X time) * 100%
Take into account that customer retention is diametrically opposite to customer churn rate.
How to measure customer loyalty scores?
Customer loyalty rate can be calculated in two different ways: the first one is based on a customer loyalty survey, and the second one is about calculating the percentage of customers who do repetitive purchases during one time period.
Let’s find out both formulas:
For the first method, to measure customer loyalty we will use the formula based on customer responses to the customer loyalty survey, almost the same as it works with customer satisfaction surveys. Mentioned customer loyalty survey can include three questions, like “What is the possibility that you’ll buy again from our firm?”, “Will you recommend our service?”, and so on. Customers can choose answers from 1 to 6, where 1 is “Very likely”, or 100% (it is needed for further calculations), and 6 is “No way”, or 0%. The same way it works with other marks.
To measure customer loyalty score using this method you will have to calculate the average score from the three answers. Let’s look at how it works in practice: if the customer answers 1,3, and 6 for each of the questions, we get 100%, 60%, and 0%. So, the formula is easy:
Customer Loyalty Score = ((100+60+0)/3) = 53,3%
To measure the customer loyalty score that is calculated based on the number of repetitive purchases, let’s say that different companies count it differently.
For instance, we select four purchases per year as a standard for determining loyal customers. So, to measure customer loyalty the formula would be:
Customer Loyalty Score = (Number of loyal customers(who have made four or more purchases per year/Total number of customers per year) * 100%
Why is customer loyalty important?
Customer loyalty has a strong influence on your business success, and let’s say the truth - loyalty in business means much more than some other things, like advertising and so on. The importance of customer loyalty is the factor that builds stability and guarantees development for your business, as well as it eliminating risks because of the fact that loyal customers will stay with your company and bring you predictable and stable incomes.
Anyhow, let’s define the main factors why customer loyalty is vital.
To feel confident about your future and the prospects of your business, you must have stable revenue to have a budget for investments and scaling up. Who will bring you money regularly if not loyal customers? Loyal customers are the guaranteed basis of your safe and crisis-free future, as well as a great source of additional revenue - cross-sales and up-sales opportunities are easier to use with loyal customers than new ones, are not they? Customers loyalty is also a strong factor in building a brand’s image as loyal customers are those who will stay with the company for years.
What do loyal customers do when they get repetitive excellent customer service and customer experience? They are likely to share their customer satisfaction and positive experiences with their friends and family, colleagues, and other people they communicate with - that’s classic loyalty behavior called also mouth marketing. And isn’t social proof and advice from your acquaintance the best convincing factor for a purchase? Here you get another great source of new customers. Brand advocacy is also vital because those people who get acquainted with your brand via their friends are much “warmer” leads and are more likely to make a purchase without being processed for long. In other words, another word for loyalty is brand advocacy.
Better customer satisfaction
Customer experience consists of four main elements, including customer satisfaction, customer effort, Net Promoter Score, and First-Contact Resolution. When you start focusing on customer loyalty, you also improve your customer experience and pay more attention to customer satisfaction and customer expectations. It is axiomatic - loyal customers are happy customers because only loyal customers are ready to promote your brand, so loyalties' synonym is satisfaction and positive customer experience. Customer loyalty will likely fall when your customers won’t be satisfied, won’t it? All of these factors are interdependent, and by improving customer loyalty you improve all other aspects of customer service across all customer journeys. The loyalty of customers is your fundamental part of building a community of delighted customers.
Better agent engagement and agent experience
Isn’t it true that agents are frustrated when they have to deal with angry customers? By improving customer loyalty, you also pay a great contribution to your staff performance and agent satisfaction. Agents will be much more engaged when they will see the results of their work and handle requests from loyal customers instead of dealing with frustrated and annoyed clients.
Higher customer lifetime value
Who doesn’t want customers to spend more? Nonetheless, only customers who will return to your services and purchase from you, again and again, are your loyal customers. No need to say that increasing customer lifetime value is a challenging but crucial goal for any manager. Loyal customers are more likely to buy more and do additional purchases, so the overall customer lifetime value of loyal customers is much higher than it will be for regular “bought-and-forgot” clients.
How to improve customer loyalty?
Many experts and decision leaders state that customer loyalty is only about customer loyalty programs. Well, that is not true, because loyal customers can do repetitive purchases and promote your brand even without customer loyalty programs. Anyhow, customer loyalty programs are one of the most prevalent instruments related to increasing customer loyalty and this makes sense as it is a perfect way to motivate and retain your clients. Nonetheless, our main goal is to discover all ways and methods for improving customer loyalty, and as you already know, it isn’t limited to customer loyalty programs only.
Focus on customer service personalization
Numerous studies prove that customer service personalization is the key to finding new customers and providing a positive customer experience. People want you to understand their personal needs and preferences, starting from their name and preferred communication channels and finishing with proactive service and understanding of customer needs even before customers themselves. Based on that, what can be more effective for building customer loyalty than focusing on customer personality? No one will leave a company that understands them from half a word.
People appreciate service that is human and understands their emotions. No one would like to talk to robotic agents who can’t do anything but put customers on hold and use massive call transfers without any results. Empathy is not only about saying “sorry” and “thank you”, it is also about understanding customer problems and pain points. If the customer says “I really don’t have time for that, please, do all you can to solve this faster” you have to do your best to solve customer issues as fast as possible. Empathy is also closely linked with customer service personalization because you can’t personalize your service without understanding customer emotions, feelings, preferences, and needs.
Invest in customer experience
Customer experience is one of the most influential factors in customer loyalty. As it is generally known, customer experience consists of four main components such as customer satisfaction, customer effort, brand advocacy, and first contact resolution. Numerous studies state that customers will never come back to a company that provides a bad customer experience, and on the other hand, positive customer experience is the main factor that determines customer decisions about the next purchases and interactions with the company, As we have already mentioned, providing positive customer experience is almost synonymous with improving customer loyalty. Let us define what each of the four main components of customer experience means.
Customer satisfaction is a customer service metric that shows how customers are satisfied with the product or service provided by your company during each customer interaction. The higher customer satisfaction is, the higher the chance that this satisfied customer will be a loyal customer.
Customer effort is a metric that shows how effortful or vice versa effortless is your service for customers. This points to such things as close accessibility of your customer service teams, an average speed of response, average resolution time, average wait time, and other factors that influence the easiness of reaching your customer support team and getting needed assistance.
Brand advocacy measures are a possibility for your business to be promoted by your current customers, who are truly happy with the service and product super white and are ready to become advertisers of your business. Basically brand, advocacy, or net promoter score is quite similar to customer loyalty, and this is the main component of customer experience that influences building Customer loyalty.
First contact resolution rate is one of the primary metrics that determine the quality of your customer service and the possibility for a team to resolve customer issues during first contact. No one wants to be put on hold for five minutes or to wait in call queues for a while if there is an opportunity to get needed service faster, and more efficient way.
Implement customer loyalty programs honestly
Your customers aren’t idiots, are they? There are many examples of the implementation of customer loyalty programs that can give nothing to customers, even if it is not about saving money. By the way, such customer loyalty programs are more about a cheaper way of advertising, not about customer care at all. This is the way you should never use it. On the other hand, two-thirds of customers are more likely to purchase from brands that offer customer loyalty programs. Building customer loyalty is more about trust so when you are focused on designing and implementing customer loyalty programs, you have to think about customers in the first place, not about your own impact. That means that customers have to see what impact will they get after becoming loyal customers and becoming a part of your customer loyalty programs. If you are honest with your customers, your customers will be honest and grateful to you. This also means that you will be able to get much more from them in the field of brand advocacy or in the case of a customer lifetime value, than if you are not. Also, you have to create a loyal customer base to track those who are your most loyal customers and who deserve to be included in the referral program, rewards program, online community forum, or tiered loyalty program.
Customer loyalty programs should be beneficial for your customers, and that’s how the loyalty of customers is achieved. What is meant by beneficial customer loyalty programs? Well, such customer loyalty programs mean that your customers have to see the real benefit - material benefit, surely - that will be available to them if they will become loyal customers. You can lose some revenue on it, but the fact is your spending on customer loyalty programs will never be higher than you will earn on repetitive purchases and new customers who will be acquired by your satisfied customers.
Types of customer loyalty programs
Tiered programs for building customer’s loyalty
This is one of the most popular types of loyalty programs offering various benefits for customers based on their tiers. They work simply: the more customer spends, the more benefits they get. Most tiered programs use a third-level model: silver level, gold level, and platinum level (names may differ).
Subscription-based customer loyalty programs
This reward program is used to retain customers for a long period of time. We all know such examples of customer rewards programs as Amazon Prime, Telegram Premium, and so on. Such a membership program offers customers to pay for a subscription that includes some benefits, such as free services, unique features, VIP service, and so on.
Value-based customer loyalty programs
These customer loyalty programs don’t include any benefits for customers, but they are based on connecting customers with the brand based on similar values, like charity, eco-friendly position, and so on. A great example is McDonald’s - you can always include a charity fee to your order.
Point-based customer loyalty programs
The point-based loyalty program is a very popular type of customer loyalty programs, and it is used almost everywhere in the world and in most industries. Customers earn points after each purchase, and they can use a specific number of points to get a free product or service.
Use, not collect customer feedback
Customers are humans and personalities, so they want you to hear them and pay attention to their thoughts, opinions, and complaints. There are many companies Z just collect customer feedback and do nothing with it. What do people think of such companies when spending time explaining their thoughts, and complaints, and getting nothing at the end? There are studies that prove that over 70% of customers think that companies will not pay attention to their feedback, and this is a big problem in the industry of customer service. On the other hand, you can positively surprise your customers, especially loyal customers, if you will implement things that customers want you to implement and resolve problems with customers, I want you to resolve. That is the way customer care works, and your main goal is to show that customer care is your priority.
Build a strong and transparent community
We often discuss such things as social media's influence on customer service and the call center industry. Social media isn’t just a tool for providing customer service only, it’s also a tool for building communities and such communities can become one of the best brands’ friends in the case of building customer loyalty. Such communities of loyal customers aren’t only a platform for discussion, but they are also the platform to share information and knowledge about your products and services problems ways of zero resolution, and other things that can ease customers' life and help you to get more loyal customers, because of your transparency and readiness to communicate with your customers honestly and in open space.
As you can see client loyalty is one of the most important factors in building a successful, stable, and loved business that will get enough permanent and loyal customers to be confident in its crisis-free and successful future. The loyalty of customers will not only bring you more revenue but advertisers for your products and services as they are also people who drive your business forward. Nonetheless, in the era of technology, you need a specific solution that will assist you in constructing and enhancing customer loyalty. Is there any way to build customer loyalty using modern software, tools, and technologies? Yes, there is and it is called a cloud-based contact center solution as it is the only solution that gathers workforce management tools, customer experience analytic tools, customer service tools, and tools for lead generation and cold sales in one place. Such a solution will help you not only improve customer’s loyalty, but get more sales, improve customer experience, and provide exceptional customer service. Check its capabilities now!
Contact us to discuss your needs and see Voiptime Contact Center in action!