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June 1, 2018

How to measure customer loyalty?

Jagoda Hryszko
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The research shows that acquiring a new customer is 7 times more expensive than convincing a client to re-purchase. In the world of omnipresent competition, having a circle of brand enthusiasts and advocates can emerge to be essential. In this post, we’d like to show you what's critical to build a loyal audience, and how to measure the strength of the relationships with your customers.

‍Photo by rawpixel on Unsplash

Awaken customer loyalty

Customer loyalty is built on the provided experience. That is why in order to instill loyalty in your buyers, caring about customer experience should be paramount. This is also a chance for small budgets to win the chase after the customer with leading brands. When it comes to loyalty, your product or service is just as important as a general impression left after the purchase.

What stands behind the loyalty of your customers? It may seem as if prices, discounts, and marketing efforts around them are what creates the retention rate. Well, we already know they don't.

As studies show, there is much more behind customer loyalty.

Define your values and stand behind them.

Defining values which your customers can share is the key to instilling loyalty. According to a global study of 7,000 consumers, “64% of those who said they had a brand relationship cited shared values as the main reason for the relationship”.

You need a good story here.

When you decide what values your brand represents, you should shout them out loudly. And sound real.

The most common examples of shared values are around supporting particular social aims, charities, or building spaces for societies sharing the same passions, e.g. cooking with eco-friendly products, running marathons, riding motorbikes, and so on and so forth.

Support to engage.

Give your customer as much time as is needed. No less and no more. The way you support your customers impacts the level of their engagement. Competent and helpful service keeps clients willing to come back.

On the other hand, every time your visitors interact with your brand, the overall experience may be ruined. The biggest myth about customer support is that the faster it is, the better it is. For everyone who requests time from your staff, the more important priority is to solve the issue on the first attempt, not the amount of time they needed to spend.

Besides a decrease of problem awareness, serving your customer "on time" is potentially the loss of a chance for a more personalized and outstanding experience. Of course, if you're on some urgent requests, then the speed of your reaction is crucial. Otherwise, you can spare a couple of minutes to dig into a customer profile and send a fully personalized answer.

Remember that loyal customers are your best advocates. Although, even your most devoted group of clients need a little nudging to share their endorsement with others. Referral programs with codes for every customer who has re-ordered can be the spark needed for word-of-mouth to spread more effectively. With a referral program, you can easily track and measure the number of recommendations which ended with a purchase. Personalized gift cards or unique discounts wrapped into an email message motivate satisfied clients to share their experience with friends. Without well-targeted incentives, you’re giving up one of the biggest advantages of a loyal audience; their loud advocacy.

Build omnichannel experience.

The way you communicate with your audience really matters. There is no competent and helpful service without technologies your audience feels comfortable with. Testing different channels enables you to focus on those most effective in reaching and solving your customers’ issues.  

People are losing the need to talk. That’s a fact, and building loyalty requires understanding the needs of modern consumers. Phone support slowly dies for channels like emails or live chats. If your customer support is still based on traditional phone calls, it's time to confront it with other channels.

Emails and live chats extend the opportunities for a personalized and unique experience. Look at coupons as an example; they can be designed and tailored to a particular customer, but they are hard to use during a phone call. Not the case with emails which provide writing over talking, and can, therefore, include incentives next to the support message.

Divide your loyalty program into levels.

Multi-level structures in loyalty programs help to keep customers interested. A very effective method of increasing engagement is by adding a Premium group to the top of the loyalty layers. This helps you to distinguish the most valuable customers and primarily, gives a clear goal to all people who participate.

And here there is a question; how can you encourage them to participate at all? Besides sharing the same values and outstanding customer support, you need to have an idea for your loyalty program. A simple rule: “earn points for each product you buy and exchange points for rewards” may work if your customer shops in your store frequently. Otherwise, your clients would probably find this scenario a little bit boring. You need to fit program rules to habitual buying patterns. Something we can recommend with solid study backup is a gamified experience. If you'd like to know how to use it in the right way, we wrote about it in our recent post.

Motivate with endowed progress.

The most challenging part of every loyalty program is to get the regular customer involved. Like most things in life, the hardest part is getting started. Some brands facilitate that moment for their customers with the "endowed progress effect". The idea is to give something for free, so a customer doesn't have to start from scratch. For example, free points or stamps for free products or rewards. You can also load some positive balance on customers’ gift cards in case of cumulative credits. All these efforts create a feeling that a customer doesn’t have to start but only continue the challenge.

People provided with artificial advancement toward a goal exhibit greater persistence toward reaching the goal.

Research has proven that giving something in advance, considered by customers as a real value, is not a costly act of kindness but rather a beneficial tactic for driving regular sales.

Talking about proven things, let’s explore how to measure and prove the loyalty of your customers.

Measure customer loyalty

Efficient measuring of your efforts is crucial to find out if your strategy aligns with the needs of customers well enough to build long-term relationships and increase loyalty. In this post, we present basic tools to track and measure customer loyalty.

Net Promoter Score

NPS is an index ranging from -100 to 100 which measures how willing your customers are to recommend your products/services to others. It can show you customer's overall satisfaction with a delivered experience and also their loyalty to the brand.

1. Send your customers an email asking them “How likely is it that you would recommend our company/product/service to a friend or colleague?”


2. Divide your audience according to their responses:


  • Promoters (score 9-10) are your loyal customers and advocates of your brand.

  • Passives (score 7-8) are satisfied with the purchase but the experience was not good enough to instill loyalty. 

  • Detractors (score 0-6) are unsatisfied clients who can harm your brand by spreading negative word-of-mouth.


3. Calculate your NPS: 


4. Learn your lesson. To be sure your customers are satisfied with a delivered experience, your NPS should be above 60.


Repeat Purchase Rate (RPR)

One of the best metrics for reflecting the loyalty of your customers. Repeat Purchase Rate shows you how often your buyers come back to repeat purchase. Because RPR relates directly to a retention rate, it is a reliable mirror of relationships with your customers.

RPR is very easy to estimate; its value ranges from 0% to 100% (higher is better).

For example, RPR equal to 25% means that from 100 orders, 25 will be repeat purchases.

Customer Lifetime Value (CLV)

CLV estimates customer profitability. The aim is to predict how beneficial the relationship with a customer will be. These metrics require defining an approximate duration of relationship with a customer (lifetime) which may cause some difficulty at the beginning of measuring CLV. Many algorithms are available for determining the CLV, but we recommend starting with one of these easy methods:

Alternatively, you can use an even more straightforward algorithm:

You don't have to implement all of these metrics at once, start from one of the listed ones and slowly extend your tracking. For example, send your customers emails to measure NPS and supply each message with a personalized coupon code. Thanks to incentives like coupons, your customers will be more willing to deliver credible feedback.

Summary

Instilling loyalty in your customers starts from the very first interaction with the brand. The outcome reflects the delivered experience. Keeping the modern customer happy and satisfied comes down to showing your care and creativity. None of them require an enormous budget. Moreover, loyalty can be easily measured as a credible reflection of your marketing efforts. Because there is no silver bullet rule that grants endless loyalty, keeping an eye on decent stats is the only way to avoid letting it slip away.

Tagged:
referral program
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best practices
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marketing
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