Customer Loyalty 101

Now more than ever, small businesses, particularly those in brick-and-mortar retail and services are in dire need of a cost-effective way to drive sales and growth in the presence of rising acquisition costs, high churn rates, and fierce competition. The solution to this small business dilemma is quite simply customer loyalty management and the answer lies in your ability to retain your customers and build a loyal customer base.

"A 5% increase in customer retention has the potential to increase profitability by 25% to 95%" - Bain & Company

A comprehensive customer loyalty strategy is about optimising revenue for every engagement within the customer lifecycle. The key activities surrounding customer loyalty are:

• Customer Acquisition 
• Increasing Customer Lifetime Value
• Preventing Customer Churn

What You Need For A Successful Customer Loyalty Strategy

1. Customer Relationship Management

Customer Data Capture & Management: The CRM is the most critical component of a customer loyalty strategy, it is the system enables the gathering, interpretation and management of customer data to understand customer behaviour and establish customer segmentation.

2. Customer Loyalty Program

Drive Spend & Boost Retention: A customer loyalty program is an easy way to boost customer retention. When a customer is given additional value — by way of a points system or a VIP rewards program, for example — for buying from you, it becomes much more difficult to choose a competitor for their next purchase. What's more, loyalty programs allow you to reward more than just loyalty. You can reward customers for fulfilling other profitable actions like writing reviews, sending referrals to friends, and social sharing.

3. Personalised Benefits & Rewards

Engage Customers & Trigger Repeat Purchases: Personalization allows you to increase customer retention through more relevant and tailored experiences with the brand. Personalization requires you to collect data about your customers that you can later use to make recommendations and tailor promotions to each customers individual needs. And if these personlisationsl offers a reward or benefit for your customer, so much the better.

4. Customer Feedback

Gather Feedback and Understand Customer Sentiment: Customer feedback is more than just a way to survey your customers. It’s an opportunity to start a conversation with people who have a strong opinion of your business. And, this can help you prevent churn with customers who’ve recently had a negative experience with your company.

5. Referral Program

Acquire New Customers & Drive Brand Advocacy: A referral program is a deliberate, systematic way of getting people to make referrals to your business - it rewards existing customers for sending new customers to shop with your brand.

6. Gamification

Optimize Customer Experience & Maximize Customer Delight: The application of game mechanics is not just for mobile apps and video games anymore. You can get the power of gamification working for your customer experience and purchase process. With gamification, you can encourage users and customers to complete actions by making it more enjoyable and adding a sense of competition. Sites that incorporate gamification often have leaderboards, statuses, and badges so shoppers can showcase where they stand relative to others. This customer retention tool is also effective because it can be incorporated into other things — like promotions and even loyalty programs.

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‍The Benefits of Customer Loyalty

The likelihood of returning customers making repeat purchases grows significantly with every visit. Loyal customers not only have a higher purchase frequency and lifetime value, but they also help you acquire new customers at practically no cost via social media, online reviews and word of mouth referrals.

• 80% of business profits are generated by 20% of its loyal customers.
• It is at least 5X cheaper to retain an existing customer than it is to acquire a new one.
• Customers are 80% more likely to make a repeat purchase when they participate in loyalty programs.
• 50% of consumers change their behaviour to reach a higher tier within a loyalty program.

Why Repeat Customers Are More Important

"Investing in repeat business costs you less and makes you more" - Investopedia

1. A repeat customer is more likely to shop with you again and again

A repeat customer is, by definition, is a customer that has made at least two purchases. A customer becomes increasingly more likely to buy from you again as their amount of purchases increases. After one purchase, a customer has a 27% chance of returning to your store. While that’s not a horrible return rate, if you can get that customer to come back and make a second and third purchase they have a 54% chance of making another purchase.‍

2. A repeat customer is cheaper and easier to sell to

When marketing to a prospective customer, you have only a 13% chance of persuading them to make a purchase; with repeat customers, however, there's a 60%-to-70% chance that they will buy.

3. Repeat customers spend more on each purchase

Your loyal top 10% spend 3 times more per order than the lower 90%, and your top 1% of customers spend 5 times more than the lower 99%. Not only do repeat customers convert more often, they have a higher average order value than first time buyers. This means that your repeat customers are buying more from your store and more often! The number of previous purchases and how long they’ve been a customer directly impacts how much a repeat customer spends.

4. Repeat customers spend more at key times

Most small businesses in service and retail make the bulk of their revenue during one particularly busy season. If you sell bathing suits, you’ll see a spike in March or April. If you sell costumes, you will see a spike in October. That being said, the busy time for most merchants is between the holiday or sales seasons. The surge in sales comes from both increased demand leading to more potential shoppers, and from people purchasing more due to the season. While the average shopper spends 17% more per transaction during the seasonal rush, repeat customers actually spend 25% more per transaction during the busy season.

5. Repeat customers become brand advocates

Not only are repeat customers more valuable when shopping, they also provide you with some massive marketing potential. A repeat customer gives your store increased word-of-mouth advertising, which is almost always regarded as the best kind. Customers refer more people to a brand when they have made more purchases with that store. The amount of people a customer refers to your site increases with the amount of purchases they have made, according to Bain & Company. Each time a customer makes a purchase they are becoming more comfortable with you and are more willing to make a positive referral. Bain found that after 10 purchases, shoppers refer 50% more people to a store than a one time purchaser. This study demonstrates that repeat customers can actually increase their profitability by attracting more shoppers. This referral process can be further amplified by encouraging referrals with points as part of a loyalty program (one of the strongest retention tools).

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SOURCES & REFERENCES:

Retaining customers is the real challenge | Bain & Company

The Value of Keeping the Right Customers | Harvard Business Review, Amy Gallo

The Value Of Investing In Loyal Customers | forbes.com, Patricia Rioux

50 Stats That Show The Importance Of Good Loyalty Programs, Even During A Crisis | forbes.com, Blake Morgan

Repeat Sales | Investopedia, Carla Tardi

Marketing Metrics | Paul Farris

What is a Repeat Customer and Why are they Profitable? | smile.io, Alex McEachern

Maximizing the Impact of Your Brand Advocates | smile.io, Kirsten Burkard

6 Customer Retention Systems (& Why CRM Should Be One of Them) | hubSpot.com, Sophia Bernazzani