It’s a common oversight in countless companies: almost all resources are channeled into acquiring new customers while existing customers receive only a fraction of the attention.
New customers are a significant growth engine, but you take many risks if the balance between customer acquisition and retention is off.
Loyal customers may feel they’re no longer important to you and could turn to your competitors – taking their money with them. This guide will show you how to improve customer loyalty and prevent customer churn.
What is customer loyalty?
A company achieves customer loyalty when customers don’t just buy once but become regular patrons, spending money on the company’s offerings over an extended period.
Customer loyalty: a detailed definition
Customer loyalty definition, or customer retention, refers to a customer’s commitment to a specific provider. The goal is to generate as much revenue as possible from the same customer by continually motivating them to make repeat purchases, deliberately enhancing customer lifetime value.
Improving customer experience is a central part of customer loyalty. You can do this, for example, through outstanding product quality and good customer service. However, it’s also important to develop specific strategies and customer loyalty programs to retain customers. Well-known methods include bonuses or special discounts for loyal customers.
Why is customer loyalty important?
Acquiring new customers is laborious and expensive. Tempting existing customers to make another purchase is much easier and cheaper. Consequently, investing in customer loyalty analytics can pay off.
Good customer loyalty creates a stable foundation for your company’s long-term success as loyal customers continue to buy. They develop an emotional connection to your company and remain loyal even in tough times, easily resisting enticing offers from competitors.
You increase and stabilize your market share with every customer who stays and continues buying. This makes your company more resilient against crises and unexpected market developments.
From this perspective, customer loyalty is the foundation for healthy business development. Focusing solely on acquiring new customers is unsustainable and could be risky in the long run.
Goals of customer loyalty: what’s in it for you?
Promoting good customer loyalty offers immediate and long-term benefits, supporting a healthy business overall and enhancing the benefits of customer loyalty in the short and medium term.
The longer a customer uses your products or services, the better you can accompany them on their customer journey. You get to know your customers more precisely with all their desires and needs, can support them individually, develop tailored new offers if necessary and ensure that each customer achieves the desired result.
This can increase customer loyalty, creating a deep, solid customer relationship with great satisfaction and trust.
This makes it easier for you to achieve contract renewals or sell new products. If your regular customers already trust you, they don’t need to be convinced of your competence.
Selling to existing customers saves time and money. Whereas acquiring new customers requires investment in advertising, content marketing and intensive sales calls, good customer loyalty allows you to sell through a solid sales page, emails or a simple personal conversation.
In the best case, you even raise customer satisfaction to such a high level that customers enthusiastically tell their family, friends, and colleagues about your company. You could hardly wish for better, free referral marketing.
The chain of effects of customer loyalty
Of course, a company can’t survive on satisfied customers alone. For this reason, customer loyalty should always be considered a pathway to economic success.
Marketing and business management professor Manfred Bruhn captured this aspect in his model, the so-called chain of effects of customer loyalty, which consists of five phases:
Initial contact. Typically, in marketing, the first contact is perceived as a customer becoming aware of a company. Bruhn starts the chain of effects with a customer’s first purchase at a company.
Customer satisfaction. In the second phase, the customer compares their expectations with what they received as a product or service. Only if they’re satisfied do they move to the next phase.
Customer loyalty. The customer remembers their positive experiences from the second phase and associates positive feelings with the company. They’re open to renewing their contract or booking another offer. Switching to other providers seems unattractive to them.
Customer retention. In this phase, the customer makes another purchase. According to Bruhn, true customer retention is achieved when the customer does not just repeat the purchase but decides on another offer (cross-selling). In phase four, the customer also starts recommending the company to others.
Economic success. The company benefits from higher revenue and referrals from loyal customers.
The five types of customer loyalty
There are several reasons customers bind themselves to a company, but they all culminate in five different types of customer loyalty.
Situational customer loyalty. This type of loyalty occurs when customers have no choice but to turn to a specific company. This might happen when only one company offers what they need. Local circumstances can also play a role, like in a village where only one hairdresser is available.
Technical customer loyalty. This occurs when a customer buys into a closed system where accessories, spare parts and support can only be obtained from the same brand. Apple is a notable example, as it is hesitant to allow customers to service their devices through unauthorized shops or third-party partners.
Contractual customer loyalty. Also known as legal customer loyalty, this type arises when a customer enters into a contract that binds them for a certain period. This is common with telecommunications providers, for example.
Economic customer loyalty. In some industries, customers must bear switching costs if they move to a different provider or canceling a contract might mean that pre-paid services are forfeited. If customers stay with a company simply to avoid these barriers, it indicates economic binding.
Emotional customer loyalty. This is the gold standard for companies because it is the only type where external factors don’t influence customers. Customers enter into emotional loyalty entirely voluntarily. Achieving emotional connection involves focusing intensely on quality, service and personalization.
Customer loyalty measures: what you can do
Over the years, companies have devised, tested and refined numerous measures for fostering customer loyalty.
The following have proven effective across various industries and business models:
1. Live customer centricity
Initially a marketing and sales concept, customer centricity is now a corporate philosophy. It’s about focusing not on products but on aligning all business decisions with customers’ needs and expectations. This affects all areas, from product development and marketing to customer service.
Customer loyalty means improving the usability and relevance of all touchpoints where customers interact with your company. Ideally, you shouldn’t only meet but exceed their expectations.
2. Expand customer service
The quality of customer support has a significant impact on the customer experience and customer loyalty. Here’s what you can do to enhance your service:
Implement a multichannel strategy so customers can reach you through their preferred channel, whether it’s your website, phone or social media. Ensure they find competent contacts across all platforms who can provide quick responses.
Make important information about your products and their usage easily accessible, perhaps through a company blog, knowledge base or tutorials.
Enable customer self-service so customers can help themselves anytime efficiently without relying on a service team member.
Offer guarantees and a return policy.
Cover shipping or return costs.
Establish a robust complaint management system. Unhappy customers should be able to voice their concerns, be taken seriously and be provided with suitable solutions.
3. Personalization
Personalization is a popular way to convey appreciation to customers.
Engage deeply with your target audience to understand their desires and needs. The better you understand different customer groups or individual people, the better you can support them.
You can segment leads and customers using a Customer Relationship Management System (CRM) by criteria like age, location, interests and more. Then, send them real value – relevant content specifically for them. This is especially effective with personalized emails.
Consider assigning customers a dedicated contact person for all matters. This makes them feel seen and important and connects them personally with your company. Building a relationship with a person is easier than with a company.
4. Utilize customer loyalty tools
Customer loyalty tools such as bonus programs, discounts, and special offers can also enhance loyalty. Your creativity is the limit:
For instance, award points for each purchase that customers can later redeem for rewards. Major carriers like Delta, United and American Airlines have robust frequent flyer programs. Additionally, several supermarket chains use this customer loyalty tool.
Set certain milestones for customers to achieve and reward them when they do. Rewards could be prizes or virtual certificates. For example, Audible awards medals in customer accounts when a customer has listened to a certain number of hours or tried different genres. Online games, meanwhile, offer rare items that advance players.
5. Engage customers in a community
People are social beings and feel most comfortable when they’re part of a group. You can leverage this by building a community.
Customers can interact, ask and answer questions, give feedback, share successes or showcase newly acquired products within the community, possibly via a forum or social media.
The more comfortable customers feel in the community, the more connected they’ll feel to your company. They may even make new contacts they don’t want to lose or appreciate being inspired by others.
Measuring customer loyalty: how it’s done
Measuring customer loyalty is relatively straightforward if your company has been around for a few years and you have many customers. Then, you have many valuable data points from which you can calculate metrics like the conversion rate, customer retention rate and churn rate.
You can actively track which customers buy which products and how often purchases are made. What does the customer journey look like in different cases? Are there any patterns?
However, these data points need to be collected first. Here are some simpler ways to get a sense of customer retention:
Send out surveys to your customers. You can have them rate specific aspects of your service on a scale or ask open-ended questions.
Conduct random interviews with customers. Inquire about their experiences.
Use mystery shoppers to test your sales funnel. After they complete the purchase process, ask for feedback.
Request feedback on social media. You can gain valuable insights into customer loyalty, identify areas for improvement and ultimately strengthen your relationship with your most valuable customers.
Why is customer loyalty important in B2B?
Customer loyalty is often considered only in terms of B2C or direct customer interactions. However, customer retention is equally critical in B2B.
Business decisions differ significantly from individual consumer choices. In companies, multiple stakeholders often cooperate to evaluate and decide on offers, making the process more deliberate and strategic. Switching providers, therefore, is rarely a spontaneous action but rather a carefully considered and planned transition.
If you lose a customer, it is much harder to win them back. Also, the pool of potential customers in B2B is significantly smaller than in B2C. If your customers defect, your market share decreases more quickly and is harder to regain. In the B2B sector, customer relationship management is absolutely essential.
Better customer loyalty with a CRM
Customer loyalty is a complex subject that requires a lot of planning, execution, and evaluation. A CRM system, like Pipedrive, helps you save time and use your resources efficiently and profitably:
All customer data is stored centrally, which makes personalization easier.
Easy segmentation allows measures such as discounts and particular actions to be directed specifically at specific groups.
Every team member can access all customer information anytime, allowing the service team to act quickly and effectively.
No matter how customers approach your company, every employee can immediately see their previous interactions, what they have purchased, what discounts they have received and much more. This enables individualized care, boosting customer satisfaction.
Final thoughts: Customer satisfaction and customer loyalty go hand in hand
If there’s one takeaway from this guide, it’s that regular customers are extremely valuable to your company. They make regular purchases, resist offers from competitors and consistently generate revenue. At the same time, you save costs on marketing and acquisition.
The key to good customer loyalty is customer satisfaction: only those happy with the products and service will stay loyal to a company for a long time. For this reason, your business should operate as customer-centric as possible and do everything to continuously satisfy your customers.
