Customer loyalty: the cornerstone of business success

When customers are cutting back on spending, how can you keep them loyal to your brand? Here’s how to cultivate customer loyalty – and why you need to measure it.

Image courtesy of Shutterstock

We all have relationships to brands, whether we recognise it or not. There might be a particular brand of toilet paper that shares our values of sustainability or an alcohol company that we keep going back to because of the cheeky sensibility that comes through in their marketing.

A sense of customer loyalty is vital for successful brands – and, while it may take some investment to build it, it will pay off in the long-term. After all, it’s far more expensive to find new customers than it is to retain existing ones.

So, if you’re a marketer or business leader, how can you be sure you’re cultivating customer loyalty, especially when economic times are tough? Let’s look at some of the key drivers of customer loyalty and, crucially, why you need to start measuring it.

What drives customer loyalty and why is it important?

person using a phone
Image courtesy of Shutterstock

Ultimately, customer loyalty is built through ongoing, considered marketing decisions and positive customer service interactions. These each work towards building a sense of trust and goodwill.

Fostering loyalty with customers can have a massive impact on your bottom line. According to a study cited by Forbes, researchers at Harvard Business School found that increasing customer retention rates by just 5% increased profits by anywhere from 25% to 95%.

Other research has found it is six to seven more times expensive to acquire a new customer than is it to retain an existing one. So, investing in customer loyalty should be a no-brainer.

What are the main types of customer loyalty?

person moving blocks
Image courtesy of Shutterstock

There are a few distinct types of customer loyalty that are worth considering. Have a think about how many of these your brand can lay claim to – and how you may be able to improve on each kind.

Transactional loyalty

Perhaps the first and most basic kind of loyalty, transactional loyalty is established when a customer continues to purchase a product or service for practical reasons.

They may not have a particularly strong emotional relationship to your brand, but whether it’s out of convenience, price point or simply because they don’t look around for something else, they will keep coming back.

This kind of loyalty can be cultivated through rewards programs and points systems, to build an ongoing relationship that has practical benefits for the customer. However, as it is not underpinned by a deeper, more emotive connection, you may end up losing that customer if a better offer comes along.

Emotional loyalty

Emotional loyalty, however, is built when a customer develops a strong attachment to your brand, for reasons other than purely practical or price-based ones.

This can be cultivated through personalised messaging and powerful storytelling. For example, your company founders might have a really strong story to tell about why they do what they do or have a good sense of humour that can help bring people along for the journey and – the ultimate goal – feel part of the brand’s community.

Showing a sense of gratitude for your customers can also go a long way. It can pay to thank long-term supporters of the brand from time to time and make them feel special.

Engagement loyalty

To build that emotional connection, you need to focus on engagement.

Adding value in your interactions with the customer through things like distinctive social media messaging and helpful, personalised responses or quality content marketing can help them see the value in your brand and separate you from competitors who may invest less heavily in this area.

Consider how you can make your interactions more personal by offering a discount on someone’s birthday or sending surprise gifts with purchases. When customers feel their interactions with you are positive and valued, it will build an ongoing sense of goodwill.

Advocacy loyalty

Perhaps the holy grail of customer loyalty is the advocacy stage. This is when a customer is so committed to your brand that they can’t wait to tell other people about it. This might be through in-person word-of-mouth conversations or through posts on social media.

To get to this stage, you’ll likely need to invest heavily in methods that can foster a sense of community around your brand, whether that’s online through a strong social media presence, or through real-world events at your bricks and mortar location.

What’s the customer lifetime value formula?

graph of customer lifetime value
Image courtesy of Shutterstock

Having data to better understand what’s driving customer loyalty can make a huge difference to how you deploy your marketing strategies. Enter, the customer lifetime value (CLV) formula.

You may have come across this concept before. The CLV formula is a useful metric that can be used to predict how much a customer will spend on your brand over the course of their relationship with you.

But how does this actually work?

Essentially, to find the revenue you expect to earn from a customer, you need to multiply the average customer value (the money they spend with you) by your company’s average customer lifespan.

It’s slightly more technical than that – but easily found by leveraging your company’s sales data.

You can learn more about it from Professor Simon Bell, leading expert on customer satisfaction and loyalty, who will run you through key concepts including the customer lifetime value formula (CLV) in the University of Melbourne’s online, loyalty-focused micro-credential.

How can you learn more about customer loyalty?

Designed for busy professionals, Customer Loyalty: Create and Calculate its Value is self-paced and available on-demand. Once you enrol, you will have 12 months to complete the course and with an average time commitment of just 42 hours, you’ll have plenty of time to gain the insights needed to turn customers into loyal advocates for your brand.

Find out more about this course and the University Of Melbourne’s full range of micro-credentials,here.


Kim Thomson