T here are so many podcasts, blog articles, tweets and LinkedIn posts about customer loyalty out there that we could probably print them all out and create a series of books the length of the Encyclopedia Britannica. But what is customer loyalty, really? And why do people care so much about it?
A loyal customer is a brand advocate—they talk about your company and what you do to all of their friends and are willing to brag about you as needed. Not only that, but they will provide you with valuable constructive insights about your brand, not because they are angry about it but because they care genuinely about the future of where you are going. Your company can depend on a loyal customer like you would a good friend: they’re there when you need them, honest while still being kind, and they are open with both their praise and their criticism.
Here’s what a typical “loyal customer” might look like:
So, now that we know an overarching image of what a loyal customer should look like, let’s do a deeper dive into the psychology behind building loyalty, building and measuring customer loyalty, and how things like a customer loyalty program may impact your company and customers.
D espite the fact that, in an ideal world, loyalty would just come over time of using your product, there’s a lot of work and effort that goes into getting and maintaining a loyal customer base. While it is expensive and timely, it may surprise you to know that it still costs less money to generate loyalty and excitement around your brand than to try to gain new customers. Here are a few business metrics to give some insight into why loyalty (and maintaining loyalty), over trying to generate new users can be a better tactic both for your business and for your customers.
It is cheaper to retain your existing customers than acquire them. Every time you acquire a new customer, you have a variety of one-time costs associated with getting them onboarded.
All marketing costs including advertising and content is usually included in the cost of acquiring a customer, a standard business metric also referred to as CAC. When calculating CAC your finance team will also include any sales legwork involved in signing them up, the time spent by your customer success managers for training, and then whatever the cost of support is for them in the first few months of learning your product.
There are a lot of resources that go into getting a customer up and running, and certainly, some continue on as your company tries to retain the customer. But the number of resources you spend on retaining an existing customer is far less than what you spend getting one up and running.
On average, it costs 6 to 7 times more to acquire a new customer than keep an old one. Investing in customer loyalty benefits your company’s bottom line with much more leverage than investing in acquiring more customers.
When someone becomes loyal to your brand, they are much more inclined to deeply integrate their life with your product. Consider a loyal Apple fan. Their computer, watch and home technology is all powered by Apple, and it all works together in harmony. They can’t easily replace one of those products without losing a ton of value. Building this kind of loyalty with your customers means that everything that you offer to them is more “sticky”, or harder to get rid of. With that kind of stickiness, the lifetime value of your loyal customers is going to be much higher than that of your customers that are fresh to your product or have the potential to churn.
Similarly, if you are always acquiring new customers, and if a customer only purchases from you once, your return on ad spend (ROAS) doesn’t increase over time. Big Commerce provides a sample calculation on ROAS to demonstrate how this works:
“Consider a company that spends $2,000 on an online advertising campaign in a single month. In this month, the campaign results in revenue of $10,000. Therefore, the ROAS is a ratio of 5 to 1 (or 500%) as $10,000 divided by $2,000 equals $5.”
For every dollar that the company spends on its advertising campaign, it generates $5 worth of revenue. Combining this kind of insight with the lifetime value of a customer, especially one that is loyal and you do not have to re-advertise to, can be really insightful when determining where you need to go with your business.
|ROAS||5:1 or 500%|
Happy customers will talk about their amazing experiences with your product, support team, and your brand as a whole to all of their friends. In Net Promoter Score lingo, this is called a promoter. The three scales for customers in NPS (Net Promoter Score), ranked out of 10, based on a survey they are sent:
Forbes notes that Promoters outspend all other customers by 17% each month. Further, if you offer anything like a bonus for referrals, and it’s a good program (which we’ll talk about later) they will be even more inclined to share information about everything awesome that you’ve provided for them over their time as a customer. Allow some of that goodwill that you’ve generated with them to come back to you as new customers through referrals.
According to Accenture, 55% of loyal customers recommend your business to family and friends, and 12% will publicly defend your company on social media—that’s pretty powerful. The revenue that could deliver, especially if their friends that they are referring fit the same customer profile as your happy customer, is astounding.
MyFeelBack writes that a loyal customer not only spends, on average, 67% more than a first-time customer but is also 71% more likely to promote a company, recommending it to others. So, when a customer is a promoter of your brand, not only are they likely to spend significantly more on your product and the extraneous add-ons to your product than people who are neutral or detractors, but they also are much more likely to talk about you and tell other people about it.
The cumulative effect of customer loyalty on your company’s bottom line is enormous. Promoters spend more, are cheaper to retain, tell their friends and generate revenue and even make your product better in the long run through providing feedback and insight.
Negative churn is the ultimate dream for many SaaS companies. To get into a bit more explicit: it’s when additions/extensions/additional sales/tariff increase for your existing customers exceeds the revenue that you lose because of the churn. As a phenomenon, it can be seen in SaaS or any other business with constant purchases. So, if you have loyal customers who are constantly buying up your stuff and your product, you’re more likely to push into negative churn.
The three ways to move towards negative churn and capitalize on the loyalty that you have built with your customers are:
Now that we have a deeper understanding of why customer loyalty is important and how it can add value for your business, it’s time to layer on an additional understanding of how you can appeal to your customers to build loyalty. What does make a loyal customer, and how can you create it within your product?
Oftentimes a customer has multiple different options when it comes to what product they want to use. While things like price often have a play in it, the most important things to a customer are cultivating trust and providing consistency. Take this story from Len Markidan from Groove, for example. He went to the same corner barber shop near to his house with regularity. It was a pretty normal barbershop—nice chairs, free drinks, friendly staff—so he always knew what to expect. He always had the same barber with whom he conversed with easily. Then, one day, he overheard another client talking with their barber about a new product that had just come in.
“It’s great for the winter,” she gushed to him. “It’s got enough hold to keep your hair in place when you wear a hat, so you don’t have to choose between cold ears or hat hair.”
Thinking back to the messy mop of hair that revealed itself every time I took my own beanie off, I was sold.
“That sounds awesome,” I told my barber. “I think I’ll grab a tube of that.”
Without missing a beat, he leaned in: “Don’t.”
“I’ve tried it, and it’s not going to work for your hair. Plus, it’s a lot shinier than you like. Look for [different product] on Amazon instead. I’ve been trying to get them to carry it here, but I don’t know if we will.”
Len left the interaction with a high level of trust and continued to return back to that barber shop even when it was no longer convenient and there were other barber shops nearer to him that he could go to instead.
What’s the most valuable takeaway from this story? Honesty is incredibly important with your customers. Len knew that that barber could have earned a commission if he had sold him the fancy hair paste, but he chose not to and instead guided him in a direction that would work best for him. It wasn’t just that his barber did his hair consistently well, but that he had Len, the customer’s, best intentions in mind.
When customers reach out to you, start by being honest. If your product isn’t a great fit, or you don’t do exactly what they want, tell them that from the get-go. Either you’ll have a group of well-informed customers using your product that knows exactly what they’re getting into, or you’ll have people leave because it doesn’t fit their needs. Either way: you end up with customers that are a good fit for your model, and are already starting off on the right foot to becoming loyal, long-term lovers of your product.
Creating a brand persona has become increasingly important over the past few years. Your company’s Twitter, Facebook, Instagram, and other social media, as well as your blog, and tone you use in customer support is integral in how you draw your customers to you, and what types of customers they are. According to researchers Freeman, Spenner, and Bird:
“Of the consumers in our study who said they have a brand relationship, 64% cited shared values as the primary reason. That's far and away the largest driver. Meanwhile, only 13% cited frequent interactions with the brand as a reason for having a relationship.”
It’s not about how frequently you interact with customers, but how your present yourself for them to interact with. Help Scout, for example, found three awesome examples of companies with strong brand identities that many of their customers resonate with:
By including strong value propositions like this in their brand identity, these companies automatically attract customers that align and feeling strongly similar thus pushing them forward towards becoming loyal customers. People want to spend their money and their time with people who have similar values to them, so stand behind whatever you set for your company—there’s only one thing worse than having no values, and that’s switching your values regularly and not giving anyone the time to identify with them.
Reciprocity is the idea of give and take within human interaction—for example, if you are offered kindness, you are compelled to give it back—and it’s one of the single defining aspects of social interaction.
The first thing you need to know is that reciprocity comes in 3 different forms:
One-to-one reciprocity is most applicable to customer support and customer success—many ot the interactions between your customers and those teams are going to be impacted by winning their thanks on individual terms. So, providing excellent service, helping them with one-off needs, or coaching them through best-practices are great ways to promote loyalty via one-to-one reciprocity.
That being said, there’s more impact to be made by one-to-many reciprocity. A good example of this is Zappos. On their shipping page, Zappos writes that the customer’s order will be there in 2-3 business days. But, without telling them, Zappos upgrades every customer order to priority shipping (usually overnight) without letting them know. Talk about surprise and delight. This is a great example of one-to-many reciprocity done through automation with a high impact on customer loyalty.
People love to hear the sound of their own name, and they love to know that someone is thinking about them and values them. There was a study published in the Journal of Applied Social Psychology that followed servers at a restaurant and tried to uncover if there was any specific customer response to them offering mints after a meal. It turns out that if they offered a mint with the final check, they were rewarded with a 3% boost in a tip; if they brought mints in hand and asked if anyone would like a mint, tips were boosted by 14%. If they brought out mints with the check and then also came back out later with more mints, asking if maybe someone wanted another, the tips went up by 23%. Holy cow!
The main difference between the two groups was personalization. The customers of the servers in the last group felt that they were cared about because the servers came back around another time just to confirm that they had all of their needs met. The ones in the second group were offered the same amount of mints, but without the experience of having someone follow up with them to offer them.
For businesses that need to build loyalty with customers in the SaaS industry, personalization is also effective. After they’ve signed up for your product, reach out to them with personalized content or an experience outside of what you would normally offer (or what they’d normally expect). This could be a private webinar that normally you only offer for paid clients or a walkthrough of a system that they’ve expressed interest in with a salesperson or customer success team member. If you reach out after the first sign up asking if they need something, or offering something they might not know that they need, you’re building a customer for life.
Too often people let policies become a barrier to offering an excellent customer experience. A great example of this is refunds or store hours such as at the Apple Store or Nordstrom’s. When a customer shows up frantic, whether it be to an in-person establishment, or online in your chat, email, or phone queue, it’s because they need your help. They are not trying to be a nuisance, and they are not trying to break a policy or rule—they are coming to your company because they need help with something that you built.
The next time a customer comes to you with a need that goes outside of your company policies, evaluate the cost of what they are asking for versus the cost of losing their loyalty, or their business entirely. For example, say a customer reaches out and says that they need to cancel their account because their business is closing, and they no longer have enough money to pay. You go and look into your payment processing system and see that because you have a recurring billing system, they’ve been charged for months, but haven’t been using your product at all. So, instead of just canceling their account, you also refund them for the past three months of billing that you’ve issued and asked if there’s anything else you can do to help—even though they didn’t ask for a refund.
That customer, even if they are currently out of business, is certain to tell everyone about the amazing thing that your company did for them in their moment of need, and will most definitely come back to you when they are at a more stable company or have reopened their business.
No one knows your product better than you. While that is really awesome, it’s also important to remember when you are trying to guide a new or unfamiliar user through it. While you may know where things are or how things work like the back of your hand, your customers don’t, and sometimes they need a hint. This could be in an onboarding flow, during sign-up, or even when a customer is first asking to contact you.
For example, when you first contact Amazon, they prompt you towards the most rapid form of contact that is currently available to you.
Another great example of leaving customer “clues” while they are getting started, is Slack’s onboarding flow. Slack walks the user as they’ve first signed up through all of the things they will need to know to use Slack successfully, such as setting up a username, team name, understanding how certain prompts work, and finally showing the difference between a direct message and a channel. With all of this training, the user is never just dumped in without any context and is better able to get started with using (and loving) the product.
When you train your customers and offer them a better experience through small nudges like this, you use your superior product knowledge to give them an easier journey. Rather than just assuming that your customers will know what to do, come at their experience as though they are fresh, with brand new eyes, and have no idea what they are looking at—because that’s most likely to be the case.
As we talked about above, much of human interaction and relationship building is about reciprocity. One aspect of that in business is the one-on-one interactions that come through to your customer service and support teams. Because of the personal, attentive nature of customer service conversations, they are one of the best ways to build loyalty with your customers.
For every customer that complains to you in your support inbox, 26 remain silent. How sobering and scary is that? Imagine the number of conversations that you have in your support organization, and then multiply that by 26. That’s the number of people that have had trouble with your product.
Consumer Reports surveys, also responsible for the above metric, have shown that nearly 91% of customers will not do business with you a second time if you cause them pain during their first experience. It was even uncovered that two-thirds of customers have walked out of a store when they felt the service was subpar. So, that number that you calculated above? That’s how many opportunities you have to succeed...or to mess up.
That’s a lot of potential money on the line. Even more so if you consider the lifetime value of a customer and not just the immediate loss of a second or recurring purchase. Providing excellent customer support and creating loyalty is one of the best ways to boost your bottom line, especially as your company’s business grows and you aren’t able to give every single customer a personalized walkthrough during the buying process.
The first step into generating customer loyalty through customer service is by figuring out the perfect customer service strategy for your customers. There are so many different channels through with to offer support, it can be tempting to just offer all of them and see what works best. Instead of doing that, do some analysis of the average demographic of your customers. For example, are they kids? Perhaps teenagers, or millennials? Maybe your target audience for your product are people within the age range of 40-55? Each of those different groups is going to have different preferences for communication, and different expectations about what good support looks like. You should select the channel(s) that work best for the people that use your product, not the ones that are easiest for you.
For example, if your product is a mobile app, or something primarily used on mobile devices, it might make sense to offer social media support and chat support.
For a product that is physical or bought in a retail store, it makes sense to offer in-person, or over-the-phone support. SaaS companies that are offering software and no tangible product usually consider offering something like email support and perhaps chat, as needed. For each of these companies, the method of support meets the audience where they are most active, meaning that the audience has to do the least amount of work, rather than the most.
Sometimes picking the fastest method of support is not always the best. People using an in-person product, for example, may not want or feel comfortable using chat support. Even though chat support is usually the quickest way to get support, it is not always the most thorough or easiest way, especially there are nuances to the customer’s issues that lend themselves to deeper troubleshooting. Give your customer the opportunity to talk to you and ask questions where they are most comfortable doing so to cultivate a culture of loyalty. It doesn’t have to cost much to offer an excellent experience.
Sometimes for an excellent customer experience, one that ultimately leads to customer loyalty and stickiness, you don’t need to do anything outlandish or spend a ton of money. An article written for Help Scout introduces the idea of “the frugal wow” or a small gesture that leaves a large impact on your customer when they experience them. The author describes going to a flower shop that he’s loyal to. It’s not that the flowers are particularly high-quality, or any different from the flowers somewhere else, but instead that the shop offers small, but meaningful experiences when he visits:
It’s a few small gestures that keep me coming back. On the surface, they seem unimportant:
- Someone from the store always helps me walk a large purchase to my car.
- Someone from the store always approaches me when I enter and helps me find what I need.
These things seem small and second nature, right? Someone helping him to carry a heavy purchase, or someone asking to see if he needs help when he enters? For some, it may be, but for most adding small gestures like this into your customer service team’s toolkit can make a huge impact on customer loyalty. In fact, if you think about most of the stories in this book, they all use the frugal wow: most tactics cost little or nothing to employ and are super effective when done right.
So, how do you figure out where your opportunities are? Think about the things that are you or your support team’s nightmare, and then flip them. For example, in the Help Scout article, the author describes how much he dislikes lackluster “Thank you for your purchase” pages and mentions that this would be the first thing he would focus on if looking for frugal wows on an e-commerce site. Maybe for you, or your company, the first thing you would change could be your documentation organization or perhaps a specific marketing page—either way, find what these “must fix” sections are for your company and flip them to your advantage.
Like the example with the mints above, if you proactively ask your customers if they are doing okay prior to them needing to reach out, you’ll win fans for life. This process of offering help before customers need it is proactive support and it can involve anything from reaching out to customers via customer success, offering amazing self-service documentation, or pre-emptively fixing problems when you notice them starting to occur.
For example, imagine that your customer wants to talk to you about a specific problem they have with the product that you sold to them, and locates your contact form on your website. When they type “Problem With” into the subject line of the contact form, a number of suggestions from your documentation populate underneath the box where they are typing. As they type and their question becomes slightly more specific, the suggestions get more relevant. When they read one of the suggestions, their issue is resolved.
Imagine that, using the data from the searches, you create a pre-generated email series to go out when people first sign up. You can show potential customers relevant information from the most looked-for pieces of information during the typical first four weeks of use.
In the first case, the customer doesn’t have to reach out to you or wait for a response from your customer service team. Instead, their issue is resolved immediately and they can continue getting to know your product without pause. That’s awesome. In the second case, building off the first, the customers don’t even know that they are going to have a problem. In fact, they never get to have a problem because you reach out to them before they get there. This also prevents any gap in usage or need to reach out to your team.
It’s preventative instead of reactive, allows your customers an unbroken experience of your product, and helps them to become super users—all core tenets of creating loyalty.
Have you ever had an outage or something break? As a business, it is your worst nightmare: something has failed and you may or may not know what it is. If you know what it is, you’re scrambling to fix it. If you don’t know what it is, you’re scrambling to find out. You are basically trying to navigate with your hands tied behind your back. As a customer, though, it’s even worse: if you have your hands tied, your customer is blindfolded. They aren’t able to see anything or make any kind of impact. All they can do is reach out to you and hope that you’ll help them as best you can.
If you do help them quickly or at least with a lot of care, you have the opportunity to recoup a great deal of trust that you lost with the original outage itself—more so than you would have built without the outage, in fact. If you don’t, well, you might lose a previously loyal customer.
The phenomenon of being able to build more trust than you would have been able to without an outage is called the service recovery paradox.
Effectively, if a customer comes to you in a time of need and you are able to provide them with stellar service, you’ve won them over for the long haul. If it’s unclear when your outage is going to end, it may be that this means having one of your team members specifically offer first responses to customers, and another update your status page every 15 minutes. That kind of minute-to-minute feedback about the product makes customers feel like they are cared about and that the company understands that this is important to them.
If you just continued to have your regular email protocol in place, you may miss out on the opportunity to really wow a customer, and end up just disappointing them instead. Because of this, it’s really important that you set up an outage protocol or work towards setting up a process that empowers your users with knowledge. With a clear-cut outage protocol, you can provide a stellar experience and use the service recovery paradox to make a good thing out of what could have been a bad one.
If you’re building or developing a support team with the goal of creating loyalty amongst your customers, there are a few qualities that you can look to hire for or cultivate on your existing team.
When you go into the Apple Store, the employees engage with you like you’re their friend. Rather than hopping right into a sales pitch, they take the time to get to know you and what you are looking for. The same thing should be said of a customer support person. Rather than hopping right into a solution, encourage your support team members to greet the person and thank them for writing in, just as they would a good friend.
For example, instead of saying:
You can resolve this issue by hitting the button on the Account page, and then selecting ‘Update credit card.
You might coach your team to say:
thanks so much for emailing about this—I’m sorry to hear that you are having trouble. In order to fix the problem that you’re having with billing errors, you can head over to your “Account” page by clicking on the button in the top right corner. Once there, select “Update credit card” and you should be good to go.
I hope that helps, but please let me know if you have any other questions!
Sometimes just dealing with someone who has a positive demeanor can help to de-escalate a situation, and get the support inquiry resolved more quickly. It’s better for both the customer and the support team who have other people to help.
When customers come to support, they can sometimes be frantic. They wanted and expected something to work a certain way and now it isn’t and the whole thing is out of their control. It’s totally understandable that they might want a quick answer, or speak a little bit aggressively to the person that responds to their inquiry.
Let’s return back to the example of the Apple Store. Oftentimes, especially in big city stores, customers come into the store last minute before either leaving the city or going to a big meeting to try to get something fixed or replaced. The Genius Bar almost never has walk-in appointments anymore, and it’s hard to buy a brand new computer in under 10 minutes. Usually, this means people get angry.
Now, dealing with an angry customer in person is totally different from dealing with an angry customer over email, but some of the same de-escalation tactics apply. At Apple, these are the three “As”: acknowledge, align, and assure.
For example, imagine that you get a customer email like this:
“I can’t believe that you billed me without letting me know ahead of time! I was not expecting a charge at all, let alone one that was SO EXPENSIVE. How can you guys get away with this!?!?”
To respond, you would first acknowledge the customer’s problem:
Thanks so much for emailing about this—I’m sorry to hear that you were caught off guard by our billing.
Then, align with their frustration:
I can totally get how it can be frustrating to receive a charge that you weren’t expecting, especially when you’ve just started to use our tool.
Then, assure them that you’re going to get it fixed:
Could you share a bit more information with me so that we can get to the bottom of this? For example, would you mind sending me the username associated with your account along with the date that you received the charge? Using that, I can take a look in our system and see how we can get this fixed for you.
Having this simple toolkit enables the Apple Geniuses to resolve super-heated issues and create loyal brand advocates, and can do the same thing for your support team by de-escalating slowly and with patience.
“Positive language” might sound strange, but it can be one of the best things to have in your support team’s too lkit. Positive language is taking a sentence that could be negative, using words like “don’t” or “can’t” and instead phrasing it from a positive perspective. Take, for example, if a customer reaches out about a product that you are currently sold out of, but are building more of in the near future. While this is a best-case scenario when it comes to physical products and SaaS feature requests (it’s coming in the future!), it can still be hard information to convey to a customer. They don’t care that it’s coming, they want it now. And if we think back on that metric on how often customers churn after their first negative experience with a company, it feels even more important to make sure that they feel heard.
If your support team was moving quickly, it might be easy to just pass this off with a canned reply and little personalization. But, depending on the type of language used, it could make or break the relationship with this customer:
I can’t get you that product until next month; it is back-ordered and unavailable at this time.
That product will be available next month. I can place the order for you right now and make sure that it is sent to you as soon as it reaches our warehouse.
It’s obvious to see the difference between the two and imagine how much more appealing and friendly one would seem to a potential paying customer than the other. When writing responses, take out negative things like “can’t,” “don’t,” or “won’t” and anything you send out will have a positive impact on your customers’ perception.
Empathy is one of the key traits of a good support person, and it’s likely that you wouldn’t hire a person without it. Empathy allows support and service people to understand where the customer is coming from and try to provide them with better service rather than just shutting down the conversation and letting the person fend for themselves. Every day, support people that are excellent at their job take on the emotions of their customers in order to better serve them. This empathy, the ability to relate and understand, creates loyalty through one-to-one reciprocity, and is integral to good support.
That being said, to look for it in potential hires or gauge it within your current customer support people can be tricky. A good question to ask is “Tell me about the last time you had an interaction with a customer that made you feel like a boss?”
Then, listen to how they respond. Do they talk about convincing a customer to purchase an upsell? They might be more revenue driven than customer driven. Do they talk about building a relationship with the customer? Perhaps they go into a story about how now the customer reaches out to them even if they don’t have a problem anymore, just to talk and see how they are doing. If that’s the case, they are excellently empathetic, customer-focused, and will generate a ton of loyalty in your customers for your company.
First contact resolution is a huge boost when it comes to customer satisfaction and, subsequently, loyalty. If your customer service and support teams can resolve a customer’s inquiry on the first try with no back and forth, this creates an effortless and wonderful experience for your customer. They’ll feel happy and at ease with your product, and go right back to loving you and your product in no time.
But first contact resolution is so prized for a reason: it can be very difficult. Not only does your customer support or service person need to know your product exceptionally well, but they also need to have excellent troubleshooting and problem-solving skills to think about any potential issues that might pop up from the issue the customer is currently experiencing. So, when a customer emails in, in order to achieve first contact resolution, your support team member needs to:
Finding and providing all of this information requires immense curiosity and problem-solving skills. Every customer is like a puzzle, and if your service and support team members can crack the code, you’ll wow customers every time.
If you’ve shopped anywhere within the last few years, you’ve likely come across or signed up for a customer loyalty program (CLP). Starbucks has their app that automatically gives you points, most grocery stores offer cards to give you better discounts on their products, and even small retail stores offer punch cards that incentivize coming in and buying a certain amount of products in order to receive one free.
CLPs are great ways to generate loyalty with your customers, generate recurring revenue or even get new incoming users through referrals. They’re fairly straightforward to implement and can offer huge returns for your business, so let’s dig a little bit deeper into why and how they work, and how you can make them work for you.
Customer loyalty programs leverage the idea of endowed progress. Endowed progress works off of the following four principles:
You, yourself are probably a member of several customer loyalty programs, whether you recognize it or not: Sephora, Starbucks, Amazon, Southwest, and many other large brands all offer some variety of a customer loyalty program which works best for their customer demographic.
But the real question isn’t “what is a customer loyalty program” but instead, “is a customer loyalty program right for you”? There’s probably a form of CLP that works for your particular model and product, but you’ll need to analyze what you are trying to accomplish prior to selecting one. To make this easy, we’ve created a list of the different types of customer loyalty programs below.
According to Groove, there are three main types of loyalty programs based on how they are structured. Each have their own ways of being compelling to the specific type of person it’s created for.
You’ve likely seen something like this at a local sandwich or bagel shop. The idea is this: the customer gets a “point” for each purchase they make. Once they make a certain number of purchases, they get a reward on the next purchase; usually a free product or discount.
Sound familiar? You go to the same bagel shop every day because you have to work on your points, not necessarily because they are good.
In one study at USC, researchers handed out loyalty cards to customers at a local car wash. The cards offered a stamp for every wash purchased.
But there was a twist: half of the cards had spots for eight stamps, with a free car wash offered for collecting all eight. The other half had spots for ten stamps, but two of the spots came pre-stamped. What they found was amazing: the pre-stamped cards resulted in 178% more repeat business than the unstamped ones. Because customers felt that there was already some progress being made on their cards, they were more invested in finishing it.
This structure isn’t just for retail or eCommerce; it can be used in SaaS, too. If your business has a subscription model and pricing and transactions are fixed, then you can use something like this to reward customers for their continued long-term business or referrals, ie. refer 5 friends to your company and get a free month.
Another option for retail and eCommerce businesses is the ability to reward customers for spending a total amount of money, whether it’s in a single purchase or over time. The main advantage of this type of program is that it incentivizes purchase size and purchase frequency, versus a reward-per-transaction model which only encourages individual transactions.
A great example of this would be the airline points system: based on the money that you spend with a specific airline, or by using a specific airline’s credit card, you are able to then recoup your money back, in a way, by booking travel through points.
The third rewards model offers customers instant gratification and rewards, but at a cost. Customers “buy-in” to a loyalty program expecting that they will get their money back in the form of loyalty bonuses.
A classic example of this type of rewards program is Amazon Prime. The customer pays $99 and then gets unlimited two-day shipping and other benefits like free streaming movies for a year.
The power of a paid-upfront rewards program lies in the psychology of maximization: customers spend money on the program, so they want to make sure that they get the maximum value possible from it, which keeps them coming back. In fact, it’s been reported that Amazon Prime members spend twice as much as non-members.
That being said, be careful: this isn’t true loyalty. The customers that pay for paid upfront rewards programs are not loyal to the product because they love it, but instead because they paid for it. So, if something came along that was just as good and less expensive, they would likely take that.
So, after determining which customer loyalty program works best for your particular business model, incentivizing what you want to offer and how you’re going to make it most compelling for your customers is the next step. Help Scout speculates that there are three ways to do this:
This is quite important. When it comes to CLPs, nothing is driving customer engagement except for the end goal and the reward the customer receives by getting there—this is evidenced by things such as Starbucks adding additional specialty “star earning” days on days where they are less busy, or certain products are less popular. For example, maybe they offer double stars for gingerbread at the end of the holiday season—they get rid of product, the customers get double incentivization to spend.
So, when considering what to use, try to pick something that is going to drive your customers and actually make a perceived impact for them, even if the result is actually small for you. Remember that loyalty rewards can vary depending on industry; for example, some SaaS companies offer customers price discounts or an upgraded account (such as additional storage or more features) as the end goal, whereas in-person retail establishments might offer a free small product upon completion. No matter what you do, know that using your own product is going to be the best path here.
While it can be tempting to just pick an action that a lot of people take in your application, and use that as the behavior to drive forward their progress in your CLP, you should be careful what kind of behavior your reward. For example, at a bagel shop, you’d want to reward people with every bagel they purchased, rather than every cup of coffee—even if people bought cups of coffee more frequently.
Don’t try to force product use as part of the incentive—if you were a photo hosting company, for example, you wouldn’t want to use photo uploading as the behavior you rewarded. Instead, you could use something like a new user referral, like Dropbox.
Customers won’t want to work for something that they don’t understand as a benefit. No matter what you choose to do for advancement, make sure the reason for the bonus is well-defined and that you explain why it’s so awesome to the people you’re hoping to get buy-in from. If you give them bonus points to start off with, like the car wash in our earlier example that granted two bonus points on their punch card, also give them a reason as to why they are getting the bonus points. For example, you could say that you are giving them an extra few points to get them started because you’re grateful for their new signup.
Once you’ve created the bones of your Customer Loyalty Program, it’s time to start marketing it. This usually means creating the physical materials needed for it or marketing landing pages on your website. You should place your marketing materials, whether digital or physical, where your customers will see them before taking the action your CLP is trying to incentivize. For example, if your loyalty program is built around purchases or the amount of money a customer spends, you should put marketing information about it near your physical cash register or near your checkout page on your website.
Imagine this: a customer is going to check out on your website and then sees a notification that they can receive free shipping on any order over $100. According to ClickFox, more than half of customers would consider increasing the amount of business they do with a company for a loyalty reward, and 46% already have. So, more than half of the people seeing that notification are going to try to boost their order so that it costs $100. That’s a lot of additional revenue from some pretty simple marketing.
The same can be done if you are looking to get new customer referrals as part of your customer loyalty program. In that case, on the account page, you might include a mention of your program, or even create an in-line form that allows them to refer people right then and there. This both does the job of marketing the program and allows them to sign up and use it easily with minimal effort.
Find the place where your customer is already thinking about the thing that they will need to do to earn points in your customer loyalty program, and then place information about it or the option to interact with it there.
If you do choose to make a CLP for your business, there are a few best practices that you should follow to make sure that it does what you want it to and becomes part of your customers’ habits, and makes them more loyal to your company. While financially- or reward-driven loyalty can be a bit tricky to manage, it can make things a little easier if you you create a loyalty program with real, perceived value to your customers. That way, it won’t seem so much like trickery as much as the reward that you intend it as.
The first key best practice for a customer loyalty program is to make sure that progress is easy to track and easy to find. In physical stores, this often presents itself as a stamp card or something that someone can carry with them to swipe. These are also valuable because they serve as a reminder of your business every time the person opens their wallet. Virtually, this can be a page like Trello’s ‘Recommend’ page, which gives you a form to recommend people, and also shows how many people you have recommended up to their reward cap of 12. It could also live on the Account page, or wherever the user is expected to manage team members and collaborators, if new referrals are the aim of your CLP.
Similar to the above point, maintain transparency in your CLP. Let the customer know what they’ll receive for their loyalty to your brand, rather than keeping it a secret and sending them a fruit basket when really they want a free month of subscription. While it’s important to show them how far along they are until their new reward, there’s also a deep value in knowing what’s coming rather than having it be a surprise. Plus, it can incentivize them to even more deeply invest themselves in working for the reward if they know what it is and are interested in it.
The second best practice is making sure that your rewards are relevant and practical. Luckily for you, you have a bounty of things that the customer is already interested in that you can give away for little cost: your product, or discounts on your product. While it can be tempting to giveaway shirts, or gift cards, an MIT study on customer loyalty uncovered that basically the least useful or perceived valuable rewards for customer loyalty are free gifts. They are nice to receive but, because of their short-term benefit and lack of attachment to the brand, they can actually serve to devalue what you are trying to do. So, rather than sending out that box of cookies, offer a discount or free product from your store, and you’ll likely have much more uptake in your CLP as well as recurring usage of your product.
Finally, make sure that the value of what you are offering as a reward is financially maintainable, especially in relation to what you are asking your customer to contribute. For example, if you are asking for someone to recommend your product to 10 of their friends, you should calculate what the value of that is and then ensure that whatever you are offering is not worth more than that. This is especially true if someone is particularly successful with your reward program—you don’t want them gaming your system.
W hile you can do everything in your power to create an excellent product that people love, there’s only so far you can go without asking your customers what they want. While your team uses your product every day, they use it as intended. They don’t see the issues that customers who are using it in new and unusual ways are. That being said, you essentially have a free group of user testers that are champing at the bit to give you insights on how they think your product could be better. And, once you put someone’s ideas into your product, following the rules of reciprocity, they’ll be loyal to you for life. The tricky part is separating the good thoughts from the less insightful (and perhaps noisy) thoughts. Here are some of our best practices to using customer feedback and insights and transmuting it into business gold: customer loyalty.
There are several different ways that you can go about asking questions of your customers, but we’ll cover three main ones here: NPS, Customer Satisfaction (CSAT), and, more informally, within your ongoing customer support conversations. NPS will yield more overarching brand and marketing-related insights, whereas CSAT and talking to customers within your support center will give you more specific feedback on how to make your customer service better and the product easier to use.
If you specifically send out a feedback survey beyond one of these, ask specific, clear questions that are “Yes” or “No” for a majority of the questions and then, just like with NPS or CSAT, give the opportunity for customers to offer more specific, qualitative feedback at the end of the survey. A SurveyMonkey study showed that these closed-ended questions make for great starter questions because they are typically easier to quickly evaluate and complete.
Because these also offer the customer the option to send in additional thoughts on why they scored your company the way they did, or leave the conversation open-ended for the customer to run with, it can be important to direct these insights and feedback in a constructive way. It also means that your customer is effectively an open book, and is signaling a willingness to talk by reaching out in the first place. There are a few great questions to ask that can help get the conversation going and pointed in a constructive direction for both people involved:
Notice that all of these questions are extremely customer-focused and pay attention to what the customer needs, wants and thinks, rather than what you, the company, needs, wants or thinks. Maintain that level of customer-focus throughout the conversation, or you may lose the trust of the customer.
Despite the fact that customer feedback can be useful, interesting and gives you a great deal of insight into what you could be doing better, that doesn’t mean that it needs to be followed or is going to make or break your company. In order to promote customer loyalty throughout the process of gaining and processing feedback, there are a few things that you can do.
First, incentivize the conversation. If you are having an in-depth conversation with a customer of yours about what does and doesn’t work for them, make sure to compensate them for their time. While you could just have the conversation for free, and likely your customer would agree to it, incentives can increase survey response rates by 5 to 20 percent. It also makes the customer feel as though you value their time and aren’t just taking them for granted.
Second, make sure that you set clear expectations with the customer if something is or isn’t going to happen in the near future. You do not need to give them a cut-and-dry timeline unless you have a transparent roadmap on your website, but you should try to be honest about what you can and cannot do. While it may be disappointing to them to hear that something that they want isn’t really in the cards, it’s better than letting them wait for months only to discover that it’s probably never coming. Resist the urge to give exact release dates, because things will inevitably change, and a missed promise is a surefire way to lose trust. Advocate for your customers, even if that means that they leave or don’t give you as much money, and you’ll increase their loyalty and have the potential to gain additional customers through the people they talk to about you.
Remember this sage wisdom from Intercom, even if a customer pays you a ton of money every month: “You wouldn’t propose to someone just because they said they’d date you. So don’t build features just because people said they’d use them.” While you should certainly take it into consideration if a large customer says they are going to churn without a feature, never do anything that doesn’t align with your product vision. Assuaging the concern of one big customer will not make up for the pain felt by many smaller ones.
N ow you know what customer loyalty is, how to build your own customer loyalty program, what kind of questions you can ask to promote loyalty and even some of the math and psychology behind loyalty in customers. So, how do you measure it? There are a few key metrics to measure customer loyalty that you can use as you move forward on your journey. Some we’ve already talked about, but a few are new introductions to add to your customer loyalty toolkit.
According to Medallia, Net Promoter Score (NPS), is an index ranging from −100 to 100 that measures the willingness of customers to recommend a company’s products or services to others. It is used as a proxy for gauging the customer’s overall satisfaction with a company’s product or service and the customer’s loyalty to the brand.
Customers are sent one single question, with the option to add qualitative feedback at the end as needed. They are asked to rate on an 11-point scale the likelihood of them recommending the brand to a friend or colleague. The question usually looks something like: “On a scale of 0 to 10, how likely are you to recommend [product] to a friend or a colleague?”
As a reminder from the beginning of this guide:
To promote loyalty, it can be important to reach out to people who leave qualitative feedback, or those who qualify as detractors (whether they leave feedback or not). After all, as your NPS score is one way to measure your customers’ loyalty, you’ll want to follow up, and track it in order to increase it over time.
Customer loyalty has a huge impact on customer churn and retention—a person who is loyal to your company is much more likely to stick around than someone who isn’t. If you aren’t sure how to calculate customer churn, the most basic definition of monthly customer churn rate is the number of customers who churned in the month divided by the total number of customers in the month. As loyalty increases, more customers stick around and your churn percentage decreases.
With retention, it’s the converse. According to Evergage, there are three pieces of information you need to calculate retention:
Because you are interested in the number of customers remaining at the end of the period without counting the
number of new customers acquired, subtract
E. Then, to calculate the percentage, we divide that number by
the total number of customers at the start and multiply by
100. That is the number of customers that you’ve
retained! Put more simply:
Customer Retention Rate =
(E − N) / S × 100
Average lifetime value, and knowing what it is for your customers, helps you to have a deeper understanding of what you are gaining or losing by promoting customer loyalty. You can compare your spending on things like customer loyalty programs, and survey conversations for feedback, to the amount of money that you are recouping through your efforts in lifetime value. Because of that, it can be one of the most important metrics for customer loyalty and measuring success.
customer lifetime value, which predicts the
total revenuea business can reasonably expect from a single customer account, you need to calculate
average purchase value, and then subtract
average purchase frequency ratefrom that number to determine customer value. Then, once you calculate average customer lifespan, you can multiply that by
customer valueto determine customer lifetime value.”
So, to put it more clearly:
Customer Value =
average purchase value −
average purchase frequency rate
Customer Lifetime Value =
customer value −
average customer life span
According to a study done by the Journal of Marketing, referral programs have a lower cost than regular customer acquisition programs, and the difference in customer lifetime value was nearly 25%. Tracking referrals and the volume coming through from them are a great indicator of how loyal your customers are, and where the potential from your incoming revenue from new referrals stands. Similarly, if you have put a Customer Loyalty Program in place, keeping track of referral volume both on a bulk and individual level can be an in-depth way to know what’s working, what’s not working, and who might be trying to game the system.
C ustomer loyalty isn’t easy, but we hope that this user guide has given you some things to go off of when embarking on your own journey. Primarily, treat your customers with respect and care, and they will likely do the same with you. Ask questions, make changes intentionally, and try to think with your customers’ best wishes in mind, and you’ll have a hugely loyal customer base in no time.