Customer Loyalty Study

Related Literature 1

Customer Loyalty: The Ultimate Guide

Written by Sophia Bernazzani
@soph_bern
https://blog.hubspot.com/service/customer-loyalty

Did you know it costs a business about 5-25X more to acquire a new customer than it does to sell to an
existing one?

Not only that, but existing customers spend 67% more than new customers. In short, customer loyalty
really pays off -- and customer loyalty programs end up paying for themselves.

How to Build Customer Loyalty

In light of statistics like these, businesses need  to think about what they are doing to keep their
customers coming back to their business. 82% of U.S. adults say they're loyal to brands, and if you're
like more than half of the brands surveyed by L2, your company has already implemented a loyalty
program.

In this post, we'll dive into everything you need to know about customer loyalty: what it is and why it's
important, and all about customer loyalty programs and the value they can add for your customers and
your business.

What is customer loyalty?

Customer loyalty is a customer's willingness to buy from or work with a brand again and again, and it's
the result of a positive customer experience, customer satisfaction, and the value of the products or
services the customer gets from the transaction.

Why Is Customer Loyalty Important?

Customer loyalty is something that all companies should aspire to simply by virtue of their existence:
The point of starting a for-profit company is to attract and keep happy customers who buy your
products to drive revenue. Loyal customers convert and spend more with brands they're loyal too more
often, and they tell their friends and colleagues about those brands, which helps drive free referrals.

There's a lot of data to support the value of cultivating customer loyalty:

 Loyal customers convert and spend with brands they like more often.

 Loyal customers spend more than others.
 Loyal customers tell their family and friends about positive experiences. Word-of-mouth
marketing is more effective at driving new customers than branded content and advertising,
 and in turn, these referred customers become loyal customers that are likely to spend more
than average.
 In the U.S., 40% of online shopping revenue comes from repeat customers, who make up only
8% of site visitors.

And in a world where hundreds of different options for virtually any product or service a customer might
purchase, the fact that so many keep coming back to the same brands is really saying something. It
indicates that a customer trusts and loves a brand -- and that the value they get from being a customer
outweighs the potential benefit of a lower price or a different product from another brand.

Since we know that it costs more to acquire a new customer than to retain an existing customer, the
prospect of mobilizing and activating your loyal customers to recruit new ones -- simply by evangelizing
a brand -- should excite marketers, salespeople, and customer success managers

How to keep Customers Loyal?

1. Use a simple points-based system.

This is the most common loyalty program methodology. Frequent customers earn points, which
translate into some type of reward. Whether it's a discount, a freebie, or special customer treatment,
customers work toward a certain amount of points to redeem their reward.

Where many companies falter in this method, however, is making the relationship between points and
tangible rewards complex and confusing.

2. Use a tier system to reward initial loyalty and encourage more purchases.

Finding a balance between attainable and desirable rewards is a challenge for most companies designing
loyalty programs. One way to combat this is to implement a tiered system which rewards initial loyalty
and encourages more purchases.

Present small rewards as a base offering for being a part of the program, and then encourage repeat
customers by increasing the value of the rewards as the customer moves up the loyalty ladder. This
helps solve the problem of members forgetting about their points and never redeeming them because
the time between purchase and gratification is too long.

The biggest difference between the points system and the tiered system is that customers extract short-
term versus long-term value from the loyalty program. You may find tiered programs work better for
high commitment, higher price-point businesses like airlines, hospitality businesses, or insurance
companies.

3. Charge an upfront fee for VIP benefits.

Loyalty programs are meant to break down barriers between customers and your business ... so are we
seriously telling you to charge them a fee? In some circumstances, a one-time (or annual) fee that lets
customers bypass common purchase barriers is actually quite beneficial for both business and customer.
By identifying the factors that may cause customers to leave, you can customize a fee-based loyalty
program to address those specific obstacles.
According to a study of 500 leading global brands, cart abandonment rates reached 75.6% across retail,
travel, and fashion. This abandonment is often caused by "sticker shock" after tax and shipping prices
have been applied. Below, we'll take a look at Amazon, the ecommerce giant that's found a way to
combat this issue using a loyalty program with an upfront fee.

This system is most applicable to businesses that thrive on frequent, repeat purchases. For an upfront
fee, your customers are relieved of inconveniences that could impede future purchases. Amazon's
mastered this for ecommerce, but this model also has potential to work forB2B businesses that deliver
products to businesses on a regular basis.

4. Structure non-monetary programs around your customers' values.

Truly understanding your customer means understanding their values and sense of worth, and shared
valued have a huge impact on if a customer will be loyal to a brand. In fact,  CeB surveyed consumers on
customer loyalty and found that customers were loyal "not to companies, but to beliefs."

Depending on your industry, your customers may find more value in non-monetary or discounted
rewards. While any company can offer promotional coupons and discount codes if they want to,
businesses that can provide value to the customer in ways  other than dollars and cents have a unique
opportunity to connect with their audience.

5. Partner with another company to provide all-inclusive offers.

Strategic partnerships for customer loyalty (also known as coalition programs) can be super effective for
retaining customers and growing your company. Which company would a good fit for a partnership?
Again, it boils down to fully understanding your customers' everyday lives and their purchase processes.

For example, if you're a dog food company, you might partner with a veterinary office or pet grooming
facility to offer co-branded deals that are mutually beneficial for your company and your customer.
When you provide your customers with value that's relevant to them but goes beyond what your
company alone can offer them, you're showing them you understand and care about their needs. Plus,
it'll help you grow your network to reach your partners' customers, too.

6. Make a game out of it.

Who doesn't love a good game? Turn your loyalty program into a game to encourage repeat customers
and -- depending on the type of game you choose -- help solidify your brand's image.

With any contest or sweepstakes, though, you run the risk of having customers feel like your company is
jerking them around to win business. To mitigate this risk, it's important to make customers feel like
you're not duping them out of rewards. The odds should be no lower than 25%, and the purchase
requirements to play should be attainable. Also, be sure your company's legal department is fully
informed and on-board before you make your contest public.

When executed properly, this type of program could work for almost any type of company -- even an
off-the-beaten-path B2B company. If your audience enjoys having a little fun and purchases frequently,
this type of program can make the buying process both fun and engaging.

7. Be as generous as your customers.

From the outside looking in, customer loyalty programs can appear to be nothing more than a scheme
to get customers to spend even more money. (Let's face it, we can all be cynics sometimes.)

That's why loyalty programs that are truly generous stand out -- and why customers who are members
rave about them far and wide.

If your customer loyalty program requires that customers spend a ton only to be rewarded with meager
discounts and samples, you're doing it wrong. Instead, walk the walk on showing customers their value
to your brand by offering a loyalty program that's so good, it would be foolish not  to become a member.

8. Scratch the "program" completely.

Considering how many marketers offer loyalty programs, one innovative idea is to nix the idea of
employing a program altogether. Instead, build loyalty by providing first-time users with awesome
benefits, hooking them in, and offering those benefits with every purchase.

This minimalist approach works best for companies that sell unique products or services. That doesn't
necessarily mean that you offer the lowest price, or the best quality, or the most convenience; instead,
I'm talking about redefining a category.

If your company is pioneering a new product or service, a loyalty program may not be necessary.
Customers will be loyal because there are few other options as spectacular as you, and you've
communicated that value from your first interaction.

9. Build a useful community for your customers.

Customers will always trust their peers more than they trust your business. Between social media,
customer review sites, forums and more, the slightest slip up can be recorded and uploaded for the
world to see. But, you can turn this into a positive by creating a community that encourages customer-
to-customer interactions. 

One way to do this is with self-service support resources. If you have a knowledge base, you can add a
community forum. A community forum encourages customers to communicate with one another on
various topics, like troubleshooting the product or retelling service experiences. Even if they leave
negative feedback, at least it's left on your domain where you can respond to it and deal with it
accordingly. 

My colleague pointed out his favorite community forum, the HubSpot Ideas Forum. On this site,
customers can pitch ideas and upvote each other's posts. If the idea is good, the product team will
consider it for an upcoming sprint. If the idea can already be done with the product, the support team
will reach out with a solution. This lets our team provide both proactive and reactive customer service
through one resource. 

As communities progress, you may formalize them to keep things organized. Having a consistent system
in place ensures fairness and keeps customers satisfied over time.