Article

Customer loyalty: What it is, why it matters, and how to build it

Loyal customers are the backbone of good business. Find out how to build customer loyalty for lasting brand success.

By Tara Ramroop, Senior manager, content marketing

Published March 10, 2020
Last updated June 1, 2021

Some brands seem to have a complete hold on their customer base.

You’ll never see a Starbucks groupie in the Philz Coffee line if there’s a Starbucks within 10 miles. Lululemon purists are willing to spend three times as much on the brand’s signature leggings to be part of the “Lulu Lifestyle.” And most Apple users scoff when a text comes through in a green bubble instead of a blue one.

These brands have nailed the secret sauce to customer loyalty. Their cult following is willing to pay top dollar just to be part of the club. This level of customer loyalty is difficult to achieve but worth striving for. With a loyal base, your business is better prepared to weather the ups and downs of the market and thrive for years to come.

What is customer loyalty?

Customer loyalty is when customers reward a company with repeat business over time. Loyal buyers consistently choose to do business with a particular brand and often defend it against its competitors.

Loyalty entails developing a customer base so devoted to your brand that they’re willing to buy whatever you offer—no matter the price—even when there are cheaper alternatives out there. Loyal customers can also become brand champions, who promote your product or service to friends and family and stick by your brand even in tough times.

For customer loyalty to happen, a company must create an experience that inspires buyers to return again and again. The most loyal customers are often those who feel emotionally connected to a brand.

Why does customer loyalty matter?

Building customer loyalty is vital to the long-term survival of your business. Customers who form an emotional connection with your brand are more likely to stick by you, helping you increase customer lifetime value and grow your revenue.

Consumers who reward companies with their business—maybe generations of repeat business—send a message: They find consistent value in the products or services, and the overall experience they have with the brand is positive. As a company, there’s no greater compliment.

To earn and retain loyal fans, put customers’ needs and wants at the center of your business. This will help you build trust and establish good relationships with your customers—both of which are key to generating customer loyalty.

How do you measure customer loyalty?

Businesses always want to increase customer loyalty. But many struggle to evaluate the success of their strategy.

Some companies measure loyalty by the length of time they’ve had a relationship with a customer, while others might think of customers who’ve stayed with them through tough times, like service interruptions or growing pains. Other businesses use metrics, such as customer churn rate, to gauge loyalty.

To get a more holistic understanding of your customers’ commitment, your research should be both numbers-based and behavior-based.

For the former, use your CX software to quickly access customer retention metrics:

  • Customer churn rate represents the percentage of customers who stopped buying your product or using your service. Churn tells you which customers aren’t loyal, leaving you with those who are.
  • Recent account upgrades show you which customers are happy enough with your product or service to increase their financial commitment. If they’re willing to spend more money and rely more on what you’re selling, they’re displaying their loyalty.
  • Behavior is just as important to track as metrics when it comes to understanding customer loyalty, though behavioral data can be harder to wrangle.

  • Social media behavior: Routinely search by keywords related to your brand on social media (or use social listening software) to see what customers are saying about you. Find those customers who are consistently posting positive things about your business.
  • Buying patterns: Look for customers who regularly do business with your company—they’re loyal by default, especially if their spending grows over time. Take Amazon Prime, for example. Initially, a new customer may use Amazon to make just a few purchases. But as their loyalty increases, they’ll shell out for Prime. Once they’re Prime members, they’ll likely shop on Amazon more often, both to justify the cost of their membership and to reap the benefits of quicker shipping.

The most accurate customer insights are both quantitative and qualitative. Combining both research methods and tracking trends can give you a more comprehensive understanding of your customers’ faithfulness to your company.

How to increase customer loyalty

One thing’s for sure: Loyalty must be nurtured constantly. It’s not something you can work on once and automate later.

According to CX leaders, many qualities we value in our personal relationships also apply to our relationships with brands. Among them: consistency, being a good listener, acting upon what you learn, and being honest.

Taking a customer’s entire experience into account, the ideal formula for building loyalty is a mix of internal processes and emotional factors.

  • Reduce customer effort

    One way to drive customer loyalty is by reducing customer effort. This means designing experiences that are simple to understand and navigate. A streamlined experience makes customers more likely to return.

    You can make it easy for customers by adopting an omnichannel approach to support—be available wherever (and whenever) a buyer reaches out. This also makes it simple for a customer to self-serve when they have an issue, instead of having to wait to connect with a live agent.

    Provide these “low-effort” experiences and use customer effort score as a benchmark—it’s a better indicator of customer loyalty than a high customer satisfaction score (CSAT) or a Net Promoter Score (NPS). This was a key finding in a Corporate Executive Board (CEB) study on customer service and loyalty.

    Keeping customers isn’t about creating a flawless product or service that perfectly meets their needs. It’s about providing a great user experience, making their buying choice an easy one. Strive for an easy, convenient user experience to be well on your way to loyal customers.

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  • Provide great service

    Companies known for inspiring customer loyalty with great customer service say that being proactive is key. That means anticipating your customer’s next question and helping them head off problems before they start. Excellent customer service positions your brand as a strategic partner, not a one-off problem-solver.

    Unsurprisingly, going above and beyond for customers is linked to strong CSAT scores and customer loyalty. A well-trained support team can fix immediate problems, but agents who can also provide a positive service experience help build lasting partnerships. So when hiring new support agents, you should put just as much emphasis on soft skills as technical understanding. Those skills include developing empathy, establishing rapport, and being able to connect emotionally with customers when under pressure.

    Refocusing on connection rather than resolution may also mean updating your support Key Performance Indicators (KPIs). At home decor brand Magnolia, for example, “number of tickets solved” or “time to resolution” aren’t the best KPIs. Magnolia’s definition of success includes much more than helping customers with billing or shipping issues; it strives to make personal connections and create community. Customers are just as likely to call for “transactional” support as they are for “experiential” support—sharing their experiences with agents who are trained to lend a kind ear.

  • Create an emotional connection

    There are many ways to form a connection with your customers, but you have to start by getting them emotionally invested in your brand. A top-notch rewards program or social media influencer promotion won’t be effective without first earning emotional buy-in.

    Tap into the power of emotional data to help identify high-impact customers—those who present the most opportunity for a lasting relationship. A Deloitte study found that using emotional data smartly can increase customer lifetime value and turn customers into brand ambassadors. In many ways, a brand ambassador program is the ultimate customer loyalty program.

    As in all relationships, you can’t force an emotional connection with consumers. The best way to connect with customers emotionally is to acknowledge and respect their needs at all levels of the business. Newer channels like messaging give you more options to personally connect with customers. Customers overwhelmingly want to interact with businesses on the same messaging channels they use to talk to friends and family, so offering service on channels like WhatsApp and Facebook Messenger gives your customers a more personal, one-on-one experience for building emotional capital.

    It’s also important to use customer data ethically to personalize experiences—don’t sell it for a quick buck—and to keep your customers at the center of your business. The most customer-centric brands organize their entire business model around customers’ needs (like only making products customers ask for), helping to build trust with buyers.

    Once an emotional connection is there, loyalty programs can be a great way to keep your buyers coming back. Take Starbucks, for example. The company’s app lets customers order ahead of time, pay using their phones, and earn stars toward free drinks and gifts. Loyal customers are rewarded just for continuing their buying habits, further deepening their ties to the business and giving them added value they can’t find at competitors.

  • Update how you define customer loyalty

    Understanding what inspires customer loyalty isn’t a destination—it’s an ongoing journey that’s influenced by various factors.

    Earning a strong base of loyal customers depends on a company’s ability to identify and respond nimbly to such changes. Part of that process includes throwing outdated definitions of customer loyalty out the window.

    A traditional definition of customer loyalty might be a buyer’s unwavering dedication to a single company—be it an airline, brand of shoes, or car manufacturer—for many years. But a more modern definition acknowledges that customers who pledge brand loyalty to several (even competing companies) are more common.

    Forward-thinking businesses accept that this behavior is completely okay. Joel Percy, former chief strategic consultant at ciValue, and Julie Currie, former SVP of retail product leadership at The Nielsen Company, outlined customer disloyalty—as well as what retailers can do about it—at the 2019 National Retail Federation Big Show.

    “In the age of disloyalty, it is the selfless retailer who will win over customers,” Currie said. “The selfless retailer will do everything they can to meet the needs of the individual consumer, regardless of the fact that they are or aren’t a current customer.”

    Also consider that loyalty is a two-way street between businesses and customers. Companies want loyal customers who will stay with them through the ups and downs, yet they don’t always return the favor to customers. You must remember that buyers have plenty of options. To make sure you stay on their short list, show loyalty to your customers. Responsibly use data to make customer-centric decisions, personalize customers’ marketing experiences, meet them on their support channel of choice, and respect their time.

For increased loyalty, become your customers’ best student

Clearly, having a loyal customer base is vital for long-term business stability and success. A key step in earning that loyalty is doing your homework. The companies with the most dedicated customers make it their business to understand their buyers and form a connection with them. As with any relationship, this takes time, but there are steps you can take to begin establishing trust and earning loyalty.

Stay up-to-date on the latest customer behavior statistics and actively ask your customers for feedback so you can better understand how they think and feel. From there, you can reevaluate your customer experience to see where you may be able to make improvements. Investing in customer service software is also key, as it can provide even more insights into your customers and their buying habits. Get started today, and you’ll soon see the benefits of studying your customers for yourself.

Customer experience guide

Find out how to create great customer experiences that will lead to loyal customers, improved word-of-mouth promotion, and increased revenue.