Here’s why you shouldn’t underestimate the importance of customer loyalty

Most discussions about the importance of customer loyalty today usually revolve around the cost of customer acquisition and how much money businesses can save if they keep their current customers.

However, there are many other ways businesses can benefit from customer loyalty. Some aren’t as popular or as discussed but they are still very much needed. To unearth these we have to dig deeper and discover the extra perks of having loyal customers.

So, let’s find more about these hidden, but yet equally important benefits that businesses need to be aware of:

Obvious benefits of Customer Loyalty

1. Satisfied customers are willing to pay more

In today’s marketplace, customers can choose to purchase from a variety of similar businesses. While cost and quality are obvious ways of distinguishing between competing companies, numerous studies show that customer experience is becoming a key factor in consumer choices. Customers want their voices heard and their loyalty rewarded, and a great customer experience makes them feel like they have achieved this.

According to a report published in 2017, 8 in 10 consumers (81%) indicated that they are willing to spend more with an organization for a better customer experience, and 1 in 10 (9%) consumers would increase that spend by more than a half! Also, another 2017 survey found that a customer is four times more likely to buy from the competition if the problem is service related, rather than price or product related.

Bad customer experience can cost you a lot, even if you sell high quality products or have the best prices in the market.

A well-known example of losing customers due to bad customer experience is that of Ryanair, which happened a few years back. Despite the fact that the company sells one of the cheapest flight tickets, they failed in meeting their customers’ expectations in terms of service. Ryanair admitted the airline’s failure to make customer service a priority in public, but still suffered a significant loss in revenue.

Also, by looking at the Ryanair customer reviews on TripAdvisor, we can easily spot that more than 20% of their customer rated traveling with Ryanair as “poor” and “terrible”, while around 10% of them rated it as “average”. Additionally, if we type “customer service” in the search box below the reviews section, we can clearly see how many of the Ryanair customers rated it as a “poor” and “terrible”.

Bad customer experience not only results in losing loyal customers, but also gives your brand ‘a bad name’ which can do irreparable damage to your business. What are customers saying about the company you work for on review sites and social media? Does your company offer lots of different options and make it easy for customers to get in touch and have their voice heard?

2. Loyal customers are providing the business with a steady flow of cash

Repeat customers do spend more with your business. This again is quite obvious as the repeat customer is, by definition, the one that already made at least two purchases from you. But what is less obvious is that, as the amount of their purchases increases, it is more likely they will buy from you again (and again).

Besides the fact that 32% percent of your first-time customers will buy from you again, one research showed that second time customers are 53% more likely to place a third order, and by the time they’ve ordered something for a tenth time, they’re 83% more likely to buy again! How does the business you work for compare to this?

One of the little known benefits of taking good care of your customers is that, at a certain point, you can set your prices higher without any losses. If customers love your products and how you treat them, they will stay loyal and buy again. A very good example for this occurrence is technology giant Apple that manages to stay at the top of the game even though their products are getting more and more expensive compared to their competition. By providing quality products and matching services, Apple keeps its customers and sells more which is the ultimate goal of every business out there.

Less obvious benefits of Customer Loyalty

1. Brand Differentiation

Another great benefit of attracting customers by loyalty incentives is that it can significantly help distinguish your business from your competitors. Customers are often faced with an overwhelming number of choices for a product or service, but a unique rewards program can help them choose your business over one that doesn’t offer any incentives.

A basic loyalty program won’t get your customers excited enough to participate in it or recommend it to their friends. So, take time to understand the purpose behind your loyalty program, think of the benefits you could get out of it and follow these advices:

• Align it to your brand – if your brand is built around ‘low prices’, employ a money driven program which guarantees some of their money back, or if you, for example, sell luxury items, offer end rewards that match your products such as a long weekend trip or a luxury spa treatment.
• Keep the rewards fresh – – customers will appreciate a bit of creativity so don’t keep it the same for too long. For example, if you’re running an e-commerce business, one time you can reward your loyalty program members with a 5% off coupon, and the next time with free shipping for their next purchase. Or if you are in the restaurant business, you can change that ‘buy one, get one’ Friday meal reward with ‘free cake’ coupons they can use on Sundays.

2. Word of mouth

The benefit of retaining loyal customers by providing them with a great experience (timely service, exclusive offers, loyalty rewards, opening communications channels and more), is that it results in customers sharing those experiences both online and offline.

According to research done by Bain & Company, the number of people a customer refers to your site increases with the number of purchases they have made. Every time a customer buys something from you they are becoming more comfortable with your brand, and therefore are more willing to make a positive referral about your business. Direct referrals are extremely valuable to businesses for two reasons. First, despite all your marketing efforts, new buyers are more likely to purchase after their best friend’s recommendation, and second, this costs you nothing!

Also, customers that come to you through a referral are more likely to turn into a loyal customer themselves which, over time, allows you to reduce your marketing spending.

Another perk of having loyal customers is that they can serve as your best brand ambassadors.

We all know how easy it is to pay a celebrity or a social media influencer to endorse your business, but having a loyal customer jump into that role can be even more effective. Somebody that already buys your products and loves your brand is a much better brand advocate than that influencer who may not even use your products or services, or doing the same thing for several different companies at the time.

So, brand advocacy on social media can do wonders for your business. But how to maximise this? Experienced marketers suggest several strategies:

• Keep communications channels open and act as a real person. Act on the feedback and respond politely.
• Offer rewardsthrough loyalty programs but also discounts, coupons or contests and raffles on social media
• Make an extra effort and include small surprise gifts with their purchase, a personal note, or send a special event greeting card matched with a coupon

For example, online retailer Firebox has a habit of sending a small gift along with its orders. Even though it’s just a small bag of Haribo, their customers love it.

3. Loyal customers are more tolerant to errors and mistakes made by the business

Loyal customers are also much more forgiving in case of mistakes. One study showed that 42% of satisfied customers will “likely” keep shopping with a company and give it another chance if something goes wrong. Also, 50% of consumers said they were willing to give a retailer a second and third chance, with 50% abandoning brand loyalty only after the same mistake was made more than twice.

Even the best-managed companies can make mistakes. But if we act quickly to fix our mistakes, we can make them pay off. Remember that the customer is always right and never ignore the complaints you receive. Convincing a customer that you did everything right is always counterproductive, so accept the complaint, say you’re sorry and try to fix it as soon as possible.

The best advice is to proactively seek feedback from your customers. This will show that you are genuinely interested to know more on how they perceive your business and help you build better relationships with the customers.

Another thing worth mentioning is that the complaint and feedback process needs to be as simple as possible. Make complaining as easy as leaving a comment on social media. If you’re not able to resolve the issue online, have somebody call your customers right away, ideally in the first five minutes. Waiting for the call or email for 24 hours or more is very frustrating and you will, most probably, lose that customer permanently.

The Zappos does the great job with complaint management, as we can see in this example. Zappos made leaving a complaint is a simple, straightforward process. Then once received, the company responded, within the hour, apologizing for the inconvenience and offered a $50 coupon. They then went the extra mile to make sure the customer was satisfied. All of this was done publicly, in front of a large audience of customers.

Most important when you make a mistake make sure you don’t repeat it twice, learn from it and make all the necessary changes to avoid the same thing happening again.

4. More upsell & cross-sell opportunities

Upsells and cross-sells are staples of marketing that benefit both businesses and customers. They allow customers to get as much value as possible from a company’s products or services, and for businesses, of course, they present an ideal opportunity to make more sales.

Loyal customers who already like your brand are also those who will more likely make these purchases. If a customer trusts you, he will take that slightly pricier offer. Upselling is a great opportunity for your customers to see the absolute best of what you have to offer, while cross-selling is the proof that you took serious effort to make sure they get the best possible buying experience out there.

Best examples of upselling & cross-selling can be found in the travel industry. The airlines, travel fare aggregators and online accommodation services such are using these marketing tactics very successfully and their customers love it.

These businesses also use the simple power of words to sell more. A good example of upselling is the one provided by hotel booking provider Travel Tripper. Instead of displaying the whole price of their upselling offers, they came up with a better idea – showing only the difference in that amount!

By helping customers enjoy a well-rounded experience, these companies build their brand loyalty and create meaningful opportunities to increase revenue on each individual purchase.

5. Get honest feedback from customers

Another advantage of customer loyalty is that they give an honest opinion about your business, products or services. Numbers show that 70% of companies that deliver excellent customer experience regularly use customer feedback to improve the ways they do business with them.

Customer feedback is truly an invaluable tool for improving your products and services, measuring your customer experience and overall satisfaction with your brand. Also, it helps you save money and time, design better marketing campaigns and make better business decisions.

If customers can see how seriously you’re taking their opinions, it’s much easier to retain them.

Even if the feedback you receive is negative, don’t hesitate to answer on their public posts. Along with being polite and saying you’re sorry, leave your contact info such as email address or phone number and ask the customer to reach you directly so you can later resolve the issue in a one-to-one communication.

Turning negative feedback into positive customer experience starts with you responding timely and offering to resolve the issue they may have with your business, services or products they purchased, such as in this example from Honda of Thousand Oaks.

Wrap Up

To get the real picture of importance of customer loyalty, we have to look beyond the usual discussions revolving around the fact that customer retention costs less than acquiring new customers. We need to pay close attention to so called “secondary perks” of customer loyalty and reap those benefits not only to keep the loyal customers, but also to generate new leads and to sell more! And here is how can we do this:

• Design unique loyalty programs to differentiate your brand from similar businesses out there
• Make sure you provide a great customer experience. If you do this right, your loyal customers are even willing to look over the mistakes that may occur in their buying process
• Use every communications channel you may have to get the feedback from your loyal customers and improve the ways you do business
• Loyal customer have trust in your brand which creates a great opportunity to set higher prices and do some upselling and cross-selling