What is Customer Loyalty?

Customer loyalty defines repeat business and creates brand ambassadors. 

Customer loyalty is the force that returns your customers to you after they’ve already reached the end of the sales funnel. It comes from providing those customers with consistently positive experiences and satisfaction, and results in increased revenue and repeat business.

It’s no secret that the cost of finding and nurturing new leads is significantly higher than the cost of actively retaining existing customers. But more than that, loyal customers help further the brands they believe in. Your loyal customers recommend your brand to their friends and associates. They are interested in trying your new products and services. They provide honest, actionable feedback. When loyal customers genuinely like you, and they are invested in seeing you and your brand succeed.

To fully grasp the importance of customer loyalty, let’s discuss customer lifetime value

39% of customers prefer not to shop around

Loyal customers would rather keep doing business with those who meet their needs over shopping around to competitors according to research by the Customer Communications Group.

What is customer lifetime value?

Customer lifetime value (also called CLTV, or simply CLV or LTV) is the measurement of how much revenue a specific customer will generate for your brand throughout their entire relationship with your business—from acquisition through final purchase.

Customer lifetime value is an effective way to quantify the total business value of individual customers.

Simple customer lifetime value formula

Average order total x average number of purchases in one year x average retention time in years = lifetime value.

Of course, your customers don’t exist in a vacuum; they likely also spend money with other businesses, probably even some of your competitors. To get a sense of how loyal your customers are, it’s important to track share of wallet.

Share of wallet takes a look at the total amount of money your customers spend on all products and services within your industry, and then identifies how much of that total they are spending on your products or services.

Share of wallet is one of the most reliable indicators of brand preference. It shows businesses how they compare to competitors—not merely in terms of sales, but in terms of customer loyalty.

Although we often talk about customer loyalty in terms of metrics and equations, the truth is that there are near-countless different factors that can influence how loyal a customer is to a particular brand. Many of these factors are relatively consistent across industries: Value, convenience, and service are all essential elements in determining brand loyalty. However, just how loyal customers are may also be influenced by industry and channel.

Communication and support channels

Online customers may be more loyal overall than customers that prefer to shop in person, and this loyalty may tie back into the rise of self-service and other support channels.

For many customers, being able to connect via their preferred channels is a major factor in having a positive customer experience. Physical stores tend to limit contact and support options—customers can only speak with a store employee, or possibly call a support line. Online businesses have a wider selection of possible service and support options, unrestricted by store hours.

Google reports that 75% of online grocery shoppers are still shopping with the first retailer they tried for online grocery services.

Types of products and services

The kinds of products and services being sold can also play a key role. In industries where every option delivers essentially the same service, oftentimes the only distinguishing elements are cost and service. For example, in areas where customers are able to choose between more than one internet service provider, customers will probably prefer the provider who offers the lowest overall price with the least number of hurdles. And, should a different provider start offering a better discount and improved service, the customer will likely switch to the new service without much concern for loyalty.

On the other hand, industries that rely more heavily on providing a distinguishing customer experience (such as mobile device service providers) will see increased impact in customer loyalty rates.

Frequency of purchase

Industries that offer products or services that customers purchase regularly are more likely to have increased customer loyalty than industries that only see customers make occasional purchases.

As an example, consider restaurants and grocery stores; as customers purchase food and other consumables on a weekly (or even daily) basis, they build relationships and develop brand awareness. As a result, they are more likely to return to the same business. Conversely, an airline might see decreased customer loyalty, particularly among customers who do not fly regularly, and are only looking for the best available deal.

Your industry and the kinds of products or services you provide can help determine how loyal your customers are, but it’s not the end of the discussion. Even the least customer-loyal industry can improve, by implementing customer-loyalty strategies.

As previously stated, the three things at the heart of customer loyalty are value, convenience, and service. As such, improving your customer-loyalty rates is a matter of improving in one or more of these key areas. Here, we identify several strategies for improving customer loyalty

Excel at customer service

The customer service you provide can make or break your business—particularly when it comes to customer loyalty. Your customers’ experiences, positive or negative, will shape how they view your brand, and will determine whether they want to do business with you in the future. There are countless strategies for improving customer service, but most of them come down to how well you listen to the people you do business with, and how you use that information to improve your customer service.

Providing excellent customer service is not a one-and-done task; it’s an ongoing responsibility that incorporates nearly every aspect of a business. This means that as you make decisions throughout your organizational structure, the question of how these changes may affect the customer experience should always be top of mind. Collect feedback from customers as they interact with your product or service, and then loop in the appropriate teams and departments within your organization who can address the root causes. Click here to learn more about managing your customer-service offering.

Anticipate and deliver on customer needs

Delivering on customer needs is a sure-fire way to improve brand loyalty. Unfortunately, if you are only responding to needs as they arise, then you’ll always be a step behind. Anticipating customer needs should be an integral part of the product-design process, built on the problems you want your product or service to solve, as well as the audience you are solving the problems for.

As with most aspects of customer experience, anticipating customer needs relies heavily on your ability to listen to and analyze your customer base. This can be as simple as communicating with customers on social media or asking customers to fill out surveys, or it may be as complex as performing in-depth search-engine keyword research or implementing predictive analytics to identify trends.

As an example of delivering on customer needs, consider a digital service that experiences a brief outage. The customer might not even notice the momentary interruption of service, but you can proactively address the issue by reaching out to the customers who might have been affected, and even offering them some compensation—such as a special discount or free credit. Proactively monitoring and acknowledging service disruptions helps demonstrate your commitment to the customer experience and can improve customer loyalty.

Personalize the experience

Humans are social animals, and customers are much more likely to do business with a brand that they feel a connection with. To promote that kind of connection, companies need to personalize the customer experience on an individual level. This means not only developing detailed customer profiles and segmenting audiences based on preferences and demographics, but also documenting and recalling all of the past interactions you’ve had with your customers.

Being able to speak directly to individual customers, using their names and referencing their past experiences and the products or services they use will help demonstrate that you are invested in their success.

Deliver convenience at every turn

Customers want more than just solutions; they want solutions without the hassle. Convenience reduces friction in the customer experience, allowing for more streamlined, anxiety-free interactions.

To promote convenience, take a look at the customer journey from the perspective of the customer. Is your signup process needlessly complex? What about at checkout? Are support options clearly available across multiple channels, or do you force customers to use only one or two specific channels? Any part of the journey that slows down the process or creates confusion with your customer is an area that needs attention.

Unfortunately, there are times when your support agents themselves might be standing in the way of a quick resolution, simply by virtue of being another step in the process. The ServiceNow®️ Service Catalogue offers a solution—centralizing common, automatable support requests without involving an agent. These requests may include everything from resetting passwords to reporting lost credit cards. By streamlining service and support requests, you can reduce resolution times and provide a better-overall customer experience.

Be the best-in-class option

Easy to say, potentially very difficult to achieve, increasing customer loyalty is simply a matter of being better than the competition. Take a look at your key competitors. More importantly, take a look at their customers.

Read reviews to identify where your competitors are succeeding at providing exceptional customer service, and where they are falling flat. Then it’s a matter of matching what they are doing well and outpacing them where they could stand to improve.

Make feedback a pillar of your customer experience

Feedback is essential in creating an atmosphere of customer loyalty. Make it easy for your customers to contact you with any suggestions, questions, comments, or concerns they might have, and don’t hesitate to reach out to them as well.

As you solicit feedback, be specific about the kinds of answers you’re looking for, and always remember to follow up by providing any necessary solutions and thanking the customer for their honest critiques.

Reward your customers

Loyalty programs are a great way to say ‘thank you’ to those customers who stand by your brand. They’re also a great way to encourage undecided customers to stand by your brand. Rewarding customers with discounts, special treatment, prizes, etc. can help ensure that they keep coming back to do business with you again and again.

Treat your employees well

It can be easy to view the customer relationship as existing between two parties: your customers, and your brand. But the reality is that the customer relationship includes a number of other individuals as well—namely, each and every one of your customer-facing employees.

In your customers’ eyes, your employees are the embodiment of your brand. If your employees are unhappy with your company, that will show through in their interactions, and your customers won’t be happy either. Additionally, your employees will need the right tools, training, and resources for providing efficient service. This includes everything from having easy, on-screen access to the right information, to incorporating machine-language to provide suggested solutions while they interact with customers. Treating your employees well, rewarding exceptional behavior, and giving them the necessary assets will inspire them to provide a more positive experience to your customers.

Engage your customers in a community

No matter how fairly you deal with your customers, they are always going to be more willing to trust their peers. The downside of this universal truth is that any mistake, real or perceived, that you make in dealing with your customers has a chance of spreading like wildfire across forums and social media, negatively affecting your standing with other customers. The upside is that you can use this desire for community to your advantage.

Building a community forum into your customer self-service portal will encourage customers to interact over their shared experiences with your brand. Positive experiences will strengthen trust among more of your audience, and even negative experiences will give you the opportunity to step in and set things right before it gets out of hand.

ServiceNow has helped a range of companies create exceptional customer loyalty programs.

7-Eleven

7-Eleven worked with ServiceNow Customer Service Management to create the 7-Help customer help desk. 7-Help brings together 20 different help desks—including HR, payroll, merchandising, IT, and facilities management help desks—giving users a single platform for reporting issues. This has resulted in a 205% increase in resolution rates, a 75% reduction in response times, and a 93% reduction in case volumes.

Read the case study here.

Capita Software

Capta Software was facing an issue with an overly complex customer support system, including 26 independent service desks and 23 different ticketing tools serving seven separate business units. ServiceNow proved to be an effective, enthusiastic partner who could provide the right functionality to create a simplified, standardized service desk for the entire organization. As a result, Capita saw a 50-point increase in their Net promoter Score—a reliable measurement of customer loyalty and satisfaction.

Read the case study here.

Basware

As a result of fielding many, non-integrated legacy systems, Basware having trouble was seeing a drop-in customer satisfaction, particularly in the areas of timely and professional support. Partnering with ServiceNow, Basware was able to adopt a unified, cloud-based solution integrating every workflow into the customer service operation. This led to a 30% reduction in resolution time and an 11% increase in customer satisfaction scores.

Read the case study here.

Outstanding customer loyalty programs - ServiceNow

With so much riding on customer loyalty, and so many different strategies designed to inspire it, it only makes sense to want to measure how effective your loyalty campaigns are. Here, we identify and briefly describe the most effective metrics for measuring customer loyalty:

Net Promoter Score®

The Net Promoter Score (NPS) consists of an index ranging from -100 to 100, detailing the willingness of a business’ customer base to recommend its products or services to others. NPS is relatively straightforward, easy to use, and provides a clear indicator of your overall customer loyalty.

Negative churn

Negative churn describes a situation in which your total revenue from existing customers is more than the revenue lost from downgrades and cancellations. Negative churn demonstrates that the business is working well with existing customers, and that they are spending enough money to make up for any customers that you might be losing.

Customer retention rate

Customer retain rate measures the number of customers that continue to do business with your company through a predetermined period of time. Customer retention is an essential factor in determining customer lifetime value.

Repeat purchasers

Repeat purchasers go hand-in-hand with customer retention rates. Comparing new, first-time customers against the number of return customers will give you an idea of how your customer retention rates are improving or decreasing.

Customers buying multiple offerings

If your repeat purchasers are regularly buying the same products, that means that they have faith in and loyalty to the product itself. However, if your repeat purchasers start branching out and buying your other products, that means they have faith in and loyalty to your brand. They are demonstrating their trust in you and showing that they enjoy the experience you provide.

Customer loyalty index (CLI)

The customer loyalty index takes into account multiple factors, including NPS, repurchasing, and upselling, paired with a customer focused questionnaire. Customers ‘score’ your business based upon how likely they would be to recommend it to others, how likely they would be to try more of your brand’s products, and how likely they would be to return and do business with you in the future.

Customer brand engagements

How often do your customers engage with your brand across social media, leave reviews, or simply visit your website? Tracking customer engagements across all available channels can help you develop a clearer overall picture of your customer loyalty.

Customer loyalty is a driving force behind business success. That said, it takes more than simply having the best prices or offering fun rewards to inspire true loyalty to your brand. Customer loyalty initiatives are generally very long term, and require reliable analytics, deliberate strategy, and clear coordination between every aspect of your business. Perhaps even more importantly, they demand constant improvement of the customer journey to quickly identify and resolve potential issues as they arise, creating an improved experience for the customers who come after.

When these factors are in place, customer loyalty leads to better feedback, improved revenue, increased repeat business, and—perhaps best of all—enthusiastic brand ambassadors who are ready to share your message with others.

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