The Gist
- Improve profitability. Customer loyalty is critical to improving customer retention rates and reducing churn, which ultimately improves profitability and revenue.
- Sharpening the focus. To make customers more loyal, companies must focus on product quality, value for money, consistency, customer service, pricing and personalization.
- Reward and retain. Loyalty programs are an effective way to retain customers and reward them for repeated purchases or interactions and can significantly improve revenue and profitability.
One thing all businesses can bank on in the future is that things will be more uncertain and unpredictable than ever before. From global pandemics, to the resulting supply chain and employment issues, to challenging economic headwinds, extreme weather and huge changes in consumer behaviors, brands must focus on maximizing value from their most important customers with programs that improve customer loyalty and retention.
Loyal customers are some of the most valuable assets any brand can have. They can assist a brand in promoting the brand or its products, and will be a source for peer feedback and reviews on social media. Converting casual buyers into repeat and passionate customers is what will separate the successful brands in the future from ones that will struggle to compete.
Customer Loyalty Is Profitable
With the increases in the customer acquisition costs (CACs) over the past few years, customer retention and reducing churn has become a top priority for many brands. Acquiring new customers costs five times more than retaining returning ones.
First, customers have reported that they want to have a longer-term, more sustainable relationship with a brand. A Merkle report found 81% of consumers want to form relationships with brands. One of the main reasons brands like repeat customers is they are more likely to make a purchase. The chance of making a successful sale to an existing customer is 60% to 70%, while that percentage drops to 5% to 20% for a new customer. In addition, existing customers are 50% more willing to try new products or services, and will spend 31% more when they do.
And in the end, better customer retention leads to more profit, lots more. Studies have found that increasing a brand’s customer retention rate by 5% potentially leads to an increase in profits of more than 25%.
Related Article: 4 Ways Brands Are Boosting Customer Loyalty
Bad Customer Experiences Create Churn
One of the things causing high churn with customers is the terrible experiences they are getting from brands. Churn is so bad that companies in the U.S. lose $136.8 billion per year due to customers switching brands.
And sadly, bad experiences keep coming up as the main culprit. One bad experience with a product makes 50% of consumers switch to a competitor, and this number grows to 80% if more than one bad experience is encountered.
Brands can address this by understanding their customers better as fully rounded people and tailoring or personalizing the customer experience across all touchpoints using marketing technology. Many brands are deploying platforms like customer data platforms (CDPs) to make this a reality. This should be a priority for marketers as 33% of consumers abandon a brand if it lacks personalization.
How Do You Make Customers More Loyal?
Making customers more loyal will be critical to improving customer retention rates and reducing churn, thus improving profitability and revenue.
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It’s been known for a while that product quality has a large influence on brand loyalty, with 74% of consumers reporting they are the most influenced by product quality. The other most important factors for loyalty influence include value for money at 66%, product consistency at 65%, customer service at 56% and pricing at 54%. But it's not all about product and price like it used to be. Today, customers want to feel connected to the brands they deal with.
And let’s not forget that customer experience we mentioned before. For modern companies, moving the needle on the customer experience can have a profound impact on customer loyalty. In fact, 89% of companies view customer experience as a critical factor in driving customer loyalty. The numbers don’t lie, as companies with annual revenues of $1 billion rake in an additional $700 million in three years after investing in customer experience, helping companies navigate that uncertain future more financially secure.
Related Article: Perks, Promotions and Personalization: Brand Loyalty in the Age of Inflation
The Value of Customer Loyalty Programs
Brands deploy loyalty programs to help retain customers and reward them for repeated purchases or interactions. Loyalty programs have been around for some time helping brands nurture casual customers into repeat purchasers, but as companies move into a more unpredictable and economically challenging future, loyalty programs will continue to grow in importance and sophistication over the next few years. The global loyalty management market, which was valued at $4.02 billion in 2020, is expected to grow to $13.8 billion by 2026, with an annual CAGR of 22.7%.
And consumers like these programs and are happy to participate if they get value from them, like access to special sales or early access to new products. Over 75% of US adults currently participate in brand loyalty programs.
Looking Forward to Improved Customer Loyalty
Being able to improve customer loyalty in uncertain times first begins with a more complete understanding of your customers as fully rounded people than ever before. Deploying the right technology solutions to gather that data and use it to drive customer behavior is a critical step in the process. Many brands are deploying centralized customer data solutions to not just gather and integrate customer data points, but to deliver that data out to the right technology stack elements to tailor the customer experience to drive loyalty.
Loyalty programs are not just about making customers feel good. They work, and they generate revenue and improve profitability. Loyal customers will spend more with the brands they like, and will be advocates for a brand's products and values. And improving customer retention and reducing churn equals a potentially large double digit increase in profitability for brands that do it right.