Customer loyalty

Loyal customers:

• Are significantly more profitable
• Buy more from you
• Are less price-sensitive
• Are more cost-effective
• Are less likely to leave you for the competition
• Bring in other attractive customers

How do things stand with your company? Are your customers loyal? Are they profitable?

Understand the difference between loyal customers and satisfied customers

It’s easy to tell the difference between satisfied and dissatisfied customers – but how do you tell satisfied and loyal customers apart? Let’s start with a couple of definitions. A satisfied customer is a good thing, because they’re happy with you and their purchase. They are also happy to be your customer – unless a better offer comes along.

A loyal customer, on the other hand is so happy with their customer relationship that it’s extremely difficult to convince them to shop elsewhere – unless you betray that loyalty. They will defend you and recommend you to others, and they will be understanding about any minor mishaps that might occur.

Amazon and IKEA have satisfied customers – Apple and Tesla have loyal customers.

There are also major differences in what the two concepts mean for your business. Customer satisfaction looks in the rear-view mirror – loyalty looks out the front windshield. Of course, both are important as sources of experience and your way forward, respectively, and there are many different models and matrices for mapping your customer relations. While each have their strengths and weaknesses, any one of them is better than nothing.

For example, NPS^®, or Net Promoter Score^®, is a popular tool built up around one simple question: How likely is it that you would recommend XXX to a business associate, colleague, or friend?

Today, many companies conduct NPS^® surveys, and we also use this tool. NPS^® is a fine tool for taking the temperature of your customer loyalty – but if you want to generate value and growth, it’s important to ask why, as well. A baseline mapping and strategy should be built on reliable data.

Spot your customer-loyalty challenges

Dissatisfied customers are rarely discreet and easy to spot, but identifying problems related to customer loyalty takes a more analytical approach. The typical signs of issues with customer loyalty are:

• Higher churn rate
• Low NPS^®, Trustpilot, and similar scores
• Rising number of customer service issues and complaints
• Decline in repurchase rate
• Drop in market share and share of wallet
• Fall in added sales and basket size
• Weakening customer profitability

Individually, these issues can indicate a wide range of problems, but when they start to appear together, it’s time to take steps and conduct a detailed analysis of your customer loyalty.

Look at profitability to determine the potential in relation to loyalty

The longer you have had a customer, the more profitable they are. There are two reasons for this: customers are rarely profitable from day 1 and loyal customers are much more likely to buy more from you than customers who don’t have the same sense of loyalty – even though they are basically satisfied.

Repurchases and returning customers have a positive impact on your bottom line. 100 of your most loyal customers typically spend twice as much as customers who think what you have on offer is satisfactory. Want to learn about these insights and much more? Click here to read our white paper: “Show Me the Money”.

It often makes better financial sense to sharpen your focus on existing customers as opposed to attracting new ones. Once you’ve learned what it takes to promote customer loyalty, then it’s time to start investing in new customers.

Drop the notion of price as the most important parameter

Loyal customers are much more interested in experiences and relations than price tags. That’s what makes investing in improving customer loyalty so worthwhile – because it provides an opportunity to position your company in way that makes price less important to your customers. When the customer experience and level of service are on point and you exceed customer expectations, then it takes a much greater price difference to convince a loyal customer to leave you in favor of the competition.

Satisfied customers don’t want to shop elsewhere

A loyal customer is – well, loyal. As long as you uphold your end of the deal, meet or exceed their expectations, and don’t mess up in some way, then their repeat business is guaranteed. Customer loyalty is a brilliant way to anchor your market positioning, because it ensures the competition doesn’t benefit from your lost customers.

Lower maintenance and better bottom line

There is often a correlation between poor customer relations and a high churn rate among employees. Bad customer relations are draining, and companies that aren’t concerned about their customers often aren’t all that concerned about their employees either. This is a costly and dangerous path to follow – especially in light of post-pandemic quitting and the younger generations that are now entering the labor market. Decent working conditions will be the single most important requirement for your future employees – and good customer relations are part of the package.

Loyal customers have an impact on every level of your company. Loyal customers know your company and your products, and their expectations are well-aligned with what you deliver. The result is a company that is both stable and more cost-effective to run, and this typically has a positive effect on the job satisfaction of customer-facing employees. The more loyal customers you have, the fewer complaints to be handled and fires to be put out by sales and customer service.

Boosting your customer loyalty results is savings on firefighting– which can amount to quite a lot.

Loyal customers breed new customers; dissatisfied customers breed bad reviews

But what makes a loyal customer?

There is no right answer when it comes to customer loyalty. It’s easy to look at Apple and Tesla and envy the love and enthusiasm they garner from their loyal customers. A market position as a lifestyle brand that underpins a positive, personal story is hard to transfer to a telecoms provider, a manufacturer of plumbing parts, an average webshop, or a supplier of semi-finished goods for the manufacturing industry.

For these types of companies, it’s often the classic virtues that make a difference – like good customer service, fully aligned expectations, and feeling valued as a customer and a person.

Providing these things is easier said than done, however, and there are many pitfalls along the way from the decision in the board room to be more customer centric to the customer’s experience in real life.

Fortunately, you don’t have to fight the good fight on your own. We’ve helped many companies with these types of challenges over the past 30 years.

Loyalty starts at the top

Customer loyalty starts with senior management and trickles down through the organization. It’s about promoting a customer-first culture so everyone is on board, which requires impactful arguments. As our research and many years of experience show, companies that anchor the process with the CEO are most successful in this endeavor.

Furthermore, a senior management that is visible throughout the process is key to ensuring a coordinated effort. To ensuring that one hand knows what the other hand is doing. If everyone isn’t on the same page, it’s easy to appear unreliable or amateurish.

Sales and marketing need to find the right role

When it comes to customer loyalty, sales and marketing have to assume a different role than they’re used to. It’s no longer just a matter of boosting sales – they need to make sure to bring in the right customers. This means they need to avoid overselling and off-the-cuff sales. Those days are a thing of the past.

The role of sales and marketing is to support the strategy, which is why it also makes sense to update their KPIs and performance incentives so they’re aligned with the objective of increased customer loyalty.