The Importance of Building Customer Loyalty


 Building customer loyalty

Customer loyalty impacts all facets of your retail business. Keeping your customers happy and ensuring they keep coming back for more is crucial to the success of running your business, and that also helps to keep your profits steady. Acquiring new customers is 5 times more costly than customer retention strategies, so from a business point of view, rewarding customer loyalty just makes sense. It helps you to grow and keeps your profits heading in the right direction.

Customer loyalty is decreasing as the amount of competition on the market increases, and that’s not the only thing that can impact your business. In today’s online climate, it’s estimated that 85% of consumers start searching for their products online, instead of in local brick-and-mortar businesses.

In order to attract customers to your business and then retain them, you need to invest in building company satisfaction, and that starts with two things: trust and loyalty. 83% of consumers said that they would only recommend a company that they trusted, meaning that customer satisfaction can not only help with your retention plan, but also assists you with gaining new customers.

 83% of consumers would only recommended a company that they trust

How is customer loyalty defined?

Customer loyalty is defined as a continuing positive, trustful relationship between a customer and their favourite brands. It’s what encourages and maintains repeat purchases, and means that existing customers will choose your business over a competitor that offers similar products, service and benefits.

This isn’t limited to customers who visit your shop with a high frequency – it can also extend to occasional repeat customers, such as people who only visit monthly when they’re in the area, but still choose your business over your competitors.

There are six stages of customer loyalty:

  1. Awareness – the customer is aware of the company and the products or services it offers

  2. Research – the customer is considering their purchase and has visited the company’s website

  3. Buy – the customer has bought the product or service from the company

  4. Use – the customer uses the product or service they purchased

  5. Repeat – the customer purchases from the company again

  6. Refer – the customer refers friends and family to the company

What are the benefits of customer loyalty?

Customer loyalty is one of the biggest variables that determines a business’s success.

Losing customers, which is the opposite of what you want, is called churn. It has a large effect on business growth in a negative capacity. On the other hand, however, a 2% increase in customer retention can have the same effect on profits as cutting costs by 10%. A 5% increase in customer retention can improve business profits by between 25% and 95%.

83% of consumers said that they’re more likely to visit and continue doing business with a shop that has a customer loyalty card system in place, and 88.2% of consumers use at least one loyalty card in their day-to-day shopping. Loyalty members will spend more to reach their reward, and then spread the word about your scheme to their friends and families.

 83% of customers are more likely to do business with a shop that has a customer loylaty card system

Make sure you’re encouraging people to sign up to your loyalty scheme, as cardholders will spend between 5% and 20% more than non-members. There are plenty of ways to do this, including online advertising, in-store signage and ensuring your staff are asking customers about your loyalty scheme when ringing customers up.

Perhaps the most important statistic of all is that customer retention via loyalty programmes increases overall revenue by 5-10%.

How do you encourage customer loyalty? 

If you want to encourage customer loyalty to aid the growth of your business, there are metrics you can use to come up with a retention plan.

Customer Value is one way of measuring each individual customer’s potential loyalty to your business – the amount of money they will spend with you from their first purchase, to their last. To work it out, calculate the average order value for your customer and multiply it by the frequency of their purchases.

 Money and time equals customer value

From there, you can work out their Lifetime Value (LTV). Simply multiply each customer’s value by the average lifespan of your store.

 Customer value times store lifespan equals lifetime value

It’s important to work this out because it provides you with important information on your customer base. It lets you know how much they spend on products from your business, and how frequently they make purchases with your business.

And you should constantly work on improving that number. It has a positive reflection on customer retention as it means the number of purchases increase, but also encourages your loyalty customers to refer your business to their friends and family who they deem perfect fits – people who will benefit from your products or services. Lifetime Value for customers have been referred is 16% higher than non-referrals.

It’s also important to have some processes in place to monitor the success of your plan. Focus on:

  • Monitoring and observing the growth of each customer’s loyalty
  • Collecting accurate data
  • Calculating and processing information
  • Constant improvement of customer retention strategies

Don’t be afraid to make regular adjustments to your plan, because you will soon begin to see the benefits.

Firstly, it’s important to understand why customer loyalty can take a hit. 68% of customer defections happen because the customers feel as if they’re being met with an attitude of indifference, so having good customer service and rewarding customers for their purchases is crucial.

 68% of customer defections can be prevented with good customer service

Some businesses can build customer loyalty with little or no effort, but during such a difficult period when customers are likely to feel uncomfortable inside shops, you need to give them a reason to visit. Encourage new and existing customers alike to visit your shop by rewarding their loyalty. Investing in a customer loyalty system allows you to incentivise customers to repeatedly visit your shop and gain rewards.

Customer loyalty schemes allow you to see how your customer retention strategy is going. Use the data you’ve collected, such as purchase habits and spend frequency, to measure the success of your customer retention plans. If it’s not going quite as well as you’d hoped, then you can use the same data to make any necessary adjustments to help it thrive.

Investing in a customer loyalty scheme can increase your profits by as much as 10%. Get in touch today via our Contact Us page or by calling 020 8266 1600 to find out more.