The importance and meaning of a customer’s loyalty – a LoyaltyLion guide

This article was updated by the editor on 25/09/2020.

The current online retail marketplace is a competitive one. And fiercely so. One-click shopping, speedy delivery and free returns from the likes of ASOS and Amazon can make it feel as if it’s impossible to keep up. So, it’s vital to look at the innovative ways that’ll help you keep hold of your customers. You can’t afford to overlook the importance of customer loyalty – but creating your own loyalty program could be a great way to recognize and reward it.

Why is customer loyalty important? Well, each customer is key to your business. These are the people who are spending money with you, after all. But they’re also the people who encourage friends and family to do so too. This is why you need to keep them on your side and keep them spending. Digital customer loyalty programs can often be a great way to do this. 

Loyalty programs don’t just benefit customers either. They can increase your customer lifetime value (CLTV) and average order value (AOV) too. What’s not to love?

You should value the shoppers you already have – rather than striving to attract new and hard-to-reach audiences. It can cost your business up to 25 times more to attract one new customer than keep an existing customer. That doesn’t even factor in your marketing time. That’s time and money you could invest in an already-engaged customer base instead.

Our guide aims to help you better understand the importance of customer loyalty – and how it could boost your business. Here’s what we’ll be looking at:


What is customer loyalty?

First, it’s useful to know the meaning of customer loyalty. Otherwise, how do you know how best to generate it? So, what is customer loyalty?

Loyalty is when a customer comes back to buy from your brand on a consistent basis – and over a long time. The combination of marketing and customer loyalty is more than 200 years old.

Loyal customers choose to buy products or services from you above all others. They’re unwilling to switch to a competitor brand too – regardless of the competition out there.

It runs hand-in-hand with emotion. Loyalty is created when your brand provides that consistent, positive experience that customers enjoy. In turn, it has a high level of value. By knowing how to build customer loyalty in retail and other sectors, you make your customers feel valued. And that can be crucial to the growth of your business over time.


Why is customer loyalty important?

There are so many different challenges facing retailers today. This is causing merchants to fully appreciate the importance of customer loyalty like never before.

Accessible and easy-to-use ecommerce sites mean barriers to entering the marketplace are at an all-time low. Before the coronavirus outbreak, it was predicted the global retail ecommerce market would grow 18.4% in 2020. In the UK, ecommerce as a total share of all retail sales is now forecast to reach close to a third by 2024.

Larger players like Amazon are outperforming smaller retailers in being able to offer customers more competitive prices. And then there’s fast delivery times. Discount culture also means that more people are searching for a great deal. It used to be that shoppers had to wait until Boxing Day for the sales. Now, discounts are starting earlier than ever before.

If customers expect deals and are willing to seek them out, reduced prices might draw them in. But will it keep them coming back to you once sale season is over? That’s when the importance of customer loyalty comes to the fore. And creating your own loyalty program could be the best way to help you take advantage. Why not learn more about LoyaltyLion and what we can do for you?

KPIs – how to track the importance of customer loyalty

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We know that attracting a new customer can often be much more expensive than keeping hold of an existing one. But did you know that increasing customer retention by just 2% could have the same impact as reducing costs by 10%? That’s according to Emmet Murphy and Mark Murphy writing in Leading on the Edge of Chaos. By making sure your existing shoppers are happy, you don’t need to put a huge amount into tracking down new ones. There’s also a 27% likelihood that someone will return to make another purchase after making that first purchase.

Repeat Purchase Rate

Repeat purchase rate is a key metric that shows how loyal customers are to your brand. It could also give retailers a chance to understand more about how to retain customer loyalty. If you have a high number of repeat purchases from the same customer, this suggests they’re happy – and it means you can create a long-term relationship with them.

Customer Lifetime Value

From the very first sale right up to the most recent purchase, this metric does much to explain the value of customer loyalty and retention. CLTV should be greater than the cost of acquiring that customer – not least because you want to create a long-term relationship. So, this means increasing the value of your existing customers is an important way of driving growth.

Diving deep into the customer experience and measuring feedback can help you start to learn what the key drivers of your CLTV are. In turn, you can decide where you should be investing your marketing budget for the best results.

Average Order Value

AOV is an important metric as it lets you track and understand the purchasing behaviors of a customer. As a key performance indicator, you can use it to learn who your most valuable customers are. You can also set goals and strategies – and measure their performance over time.

Customer Acquisition

Customer acquisition is the first step to creating new loyal customers. But it can be expensive and time-consuming because you need to persuade that customer to buy your products. For a lot of retailers, the cost of customer acquisition is an important metric because it can indicate how much value a customer might bring to the business.
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How to secure customer loyalty

Digital innovation is empowering shoppers like never before. And it underlines the importance of customer loyalty too. After all, it’s now easier than ever before to leave reviews and recommend products. People will also share stories of how great (or terrible) their shopping experience was.

A great customer experience can drive loyalty and profit, and driving customer loyalty is vital to your bottom line. Nearly everyone thinks that customer service is important in their choice of loyalty to a brand, according to Microsoft. It’s part of the reason why marketers put such a focus on brand health, reputation and awareness.

To dive deep into loyalty, you must first know what customers feel and think about your brand – and how you can use it to improve how you communicate with other customers. With the data and insights available with our platform, you get that understanding with LoyaltyLion’s help.

Loyalty and the customer experience

A completely satisfied person will contribute 14 times more revenue than a dissatisfied one. So, strive to go above and beyond their expectations. You can do this by offering a high quality and dependable service each and every time. It’s key to satisfaction and attracting repeat custom.

With more choice than ever before, competing on pricing and logistics is no longer enough. To stand apart from other retailers, your brand must offer more. And it’s all in the experience.

By improving that experience, 84% of brands saw an uplift in revenue and 92% saw customer loyalty increase too. Not only that, but consumers are willing to pay more for a great experience. So, it’s not hard to do – and the impact can be huge. Improving the experience for your customers not only improves their loyalty, but makes them more likely to recommend you too.

Customer Experience Graph

Loyalty across the customer lifecycle

The chance to provide an outstanding experience doesn’t end after a customer’s first purchase. It’s an ongoing – and essential – part of customer loyalty.

You can continue to re-engage with the customer throughout their relationship with your brand. Ways to do this can include sending them personalized product ideas, asking for reviews of past purchases or sending them your latest news and deals.

Constellation Research found that companies who improve engagement can boost the revenue they get from cross-selling by 22%. Other benefits can include growth in upsell revenue (from 13% to 51%) and an increase in order size (from 5% to 85%). 

As a customer continues on their journey with you, their CLTV goes up too. From initial contact to regular buyer and eventually onto becoming a loyal customer and vocal brand advocate; the importance of customer loyalty can be seen in the amount of money they spend in that time.

Loyalty Lifecycle

How to re-engage with customers

No matter where the customer is on their journey with your brand, here some ways you can re-engage them using your loyalty program:

From one-time shopper into repeat customer

Your customer made their first purchase – hooray!

Of course, the work doesn’t stop here. Now you need to get them to come back and buy again.

Why not offer personalized points and rewards in your post-purchase pages? Or emails to incentivize that person to spend more with you? Those who sign up to a loyalty program and redeem a reward are 68% more likely to buy a second time than those who don’t join. 

Here you can see the importance of customer loyalty programs – and why it’s crucial to get the customer to sign up before they spend. People who redeem loyalty rewards spend twice as much as those that don’t. After all, they’re keen to start turning points into real-world benefits.

From repeat customer into loyal customer

Rewards programs can help to transform those return customers into loyal customers. You do need to strike a balance, however. The rewards need to be attainable. But, if it’s done right, there’s a lot to gain. When more than two-thirds of shoppers admit that the chance to earn loyalty or reward points will influence their choice of retailer, it shows you why customer loyalty is important.

Giving people good reasons to come back and shop with you on a regular basis with your loyalty program is crucial. You can show how much you value them by adding them to a members-only VIP tier, for example. This gives them exclusive access to discounts, collections and new release previews. You could even offer birthday gifts or free resources like tutorials and webinars. 

Why would they not come back with all of that on the table?

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At-risk customers

Life is busy and the ecommerce landscape is noisy.

If you have “at-risk customers” who aren’t making a purchase as often as they were, give them the reason to pay attention to you. Remind them you’re there with a friendly email that offers points, a gift or a discount they’re not expecting. These emails to at-risk customers perform 14 times better than the average marketing email.

 

Abott Lyon Welcome Email

 

How customer loyalty benefits relationship management

Part of creating an outstanding customer experience is personalizing the service you deliver to your customers. It’s also a helpful approach if you’re not sure how to build customer loyalty in retail. Your shoppers want to see content that’s relevant to what they’re interested in.

Research already shows that more than half (52%) of customers would share personal data in order to get a more personalized experience. But more than three quarters (78%) of shoppers are unhappy with the personal touch they currently receive. Your customers are clearly asking you to personalize the service by using their data – oblige them! Given the importance of customer loyalty, can you afford not to in the long run? Here are some of the ways you can personalise an ecommerce loyalty program.


How loyalty programs work

A loyalty program is a long-term marketing tool used by ecommerce merchants. The goal is to encourage people to buy from you again. The method? By offering rewards to those who show loyal purchasing behaviors. When we say rewards, these can include discounts, special offers, deals and freebies. And we can help you with how a program can work for your business.

It’s not all about rewarding shoppers, however. It’s also about increasing the lifetime value of that customer to your business. It can also drive up their average order value and how often a purchase is made. This, ultimately, is what the importance of customer loyalty comes down to. It’s a two-way relationship. And it can provide a huge amount of value to both sides of it.

You can reward loyalty for small actions such as social media likes or completing a profile page. Or scale it up with rewards for how much a shopper spends, the number of qualifying sales and even how much they’re prepared to spread the word. In time, they get real-world rewards. You, meanwhile, get an engaged consumer.

Use your loyalty program to recognize the importance of customer loyalty and make it work for your brand. LoyaltyLion offers the platform that lets you offer a fully-tailored loyalty experience. For more information, get in touch to book a demo with one of our experts. Or start your free trial today and watch that repeat custom roll in. 

Get A Free Trial Of Loyaltylion

About the author

Mollie Woolnough-Rai

Mollie is a Senior Content Marketing Executive at LoyaltyLion. After graduating from UCL in 2016, she has worked both in-house and at marketing agencies providing expertise in content for both B2B and B2C clients. At LoyaltyLion, Mollie manages our content, making sure our readers get the best quality resources about customer loyalty and retention.

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