What is Customer Loyalty? Definition and How to Improve it

What is Customer Loyalty? Meaning, Importance and Tips on How to Improve it

Customer loyalty has been frequently discussed in the media and on the Internet and is now indispensable in marketing strategy. However, knowing only an overview is not enough to make effective use of it. 

So in this article, I will introduce useful information from basic knowledge such as the meaning and benefits of customer loyalty to concrete measures to improve it.

Table of Contents:

• Meaning of customer loyalty
• The importance of thinking about customer loyalty
• NPS, an indicator of customer loyalty
• Tips for improving customer loyalty
• Summary

See also: What is Customer Engagement?

Meaning of customer loyalty

Customer loyalty represents a customer’s attachment, friendliness, and trust in a company or brand. 

Also, it can be divided into psychological royalties, which express feelings such as customer affection, trust, and confidence; and behavioral royalties, which represent actions that repeatedly use or recommend services and products to people.

Although satisfying customers is the basis of business, just achieving a high level of satisfaction does not necessarily mean that customers will continue to purchase your products, as they may choose other companies’ products the next time. On the other hand, customer loyalty indicates trust and attachment to a product or brand, so it is expected that customers will choose your product over many competing products and continue to purchase it.

To increase customer loyalty, it is necessary to continuously maintain high overall satisfaction, such as customer satisfaction, responses at the time of purchase, process, and brand image.

The importance of thinking about customer loyalty

Customer loyalty is an essential factor in increasing and sustaining sales for a company because high customer loyalty makes you more competitive with competing products and brands. So you can reduce the risk of customers leaving or switching.

Many customers purchase a lot of money or have been buying for a long time but have low customer loyalty. In such cases, they keep buying because it’s the same wherever I buy it, so it’s just something or it’s too much trouble to switch. 

Since they have no specific attachment to the product or brand, there is a high risk of being switched to a competitor and leaving because of cheaper product launches and campaigns.

Improved customer loyalty brings the following benefits that are essential for corporate growth. These benefits will ensure stable and continuous usage.

Increased repeat business

As competitors enter the market one after another for any product or service, and as the market matures, differentiation becomes more and more difficult. Prices and services will become similar, and customers will find it difficult to choose anything else. In this situation, there is always a risk that customers will flow to the competitors at the slightest opportunity.

It is necessary to maintain a high level of loyalty to ensure customers repeat business in these situations. If the contents of all products and services are similar, customers will be psychologically inclined to continue using the products they are attached to and the brands they love. 

If you continue to provide products, services, and responses that meet customer expectations, you can maintain customer loyalty and secure repeat business.

Subscription services have been on the rise lately, but high customer loyalty is also necessary for continuing this subscription.

Increase in customer spending

As the repeat rate increases, you can expect to see an increase in the price per customer. New customers are unlikely to purchase expensive products out of the blue, but repeat customers are more likely to purchase higher-ranked and more expensive ones next time.

Also, if customers are satisfied with the products and trust in the brand or company itself is secured, you can expect them to purchase related products. 

By improving customer loyalty, we can expect to repeat purchases, upsell to higher-end products and services, and cross-sell to other products of the same brand.

Word-of-mouth generation

The strength of customer loyalty is that customers are not only satisfied with the product themselves but are also likely to recommend the product to others out of attachment.

Now that social networking is popular, positive word-of-mouth communication by highly loyal customers who send positive messages about your products may spread.

Word-of-mouth may lead to the acquisition of new customers, which is difficult in marketing.

By increasing customer loyalty, the effectiveness of word-of-mouth on the Internet can also increase dramatically. On the other hand, the impact of lower royalties is also significant, so be careful.

NPS, an indicator of customer loyalty

Customer loyalty is difficult to accurately measure because it is an internal factor such as customer attachment and trust. Measurement through surveys is commonly used to quantify it. 

From the results of the survey, various indicators such as “customer satisfaction,” “need,” “customer experience (CX) metrics,” and “intention to repeat” can be derived.

NPS (Net Promoter Score) is one of the most widely used by major companies because of its high correlation with business performance and its versatility. 

The NPS is highly supported because it is easy to measure, the results are highly reliable, and it is easy to compare with other companies. Many companies have implemented it. 

Customers are asked whether they would recommend the product or service (company/brand) they used to their acquaintances and are asked to answer on an 11-point scale from 0 to 10.

As a result, customers with 6 points or less are classified as “critics,” customers with 7.8 points are classified as “neutrals,” and customers with 9.10 points are classified as “recommenders.” And the NPS is the percentage of recommenders minus the percentage of critics.

For example, if the number of critics of a product or service is 10%, the number of neutrals is 30%, and the number of recommenders is 60%, the NPS is 60-10, which is 50. Even if the number of recommenders is 70% and the number of critics is 20%, it will also be 50, so you need to examine the content thoroughly.

Tips for improving customer loyalty

What initiatives do you need to take to increase customer loyalty to effectively and continuously increase sales? Here are some tips for specific measures:

Utilizing NPS

If you want to maintain efficient and effective customer loyalty improvement, it is necessary to quantify customer psychology and quantitatively grasp and analyze it as data. By doing so, you can understand why and where customers feel attached to and trusted and clarify the measures to be taken.

To understand the actual situation more accurately, collect various indicators, including NPS from many angles through questionnaires, and create a customer list based on them. By analyzing these indicators, you can clarify what each customer is looking for and tailor your response to them equally, no matter who is looking at your customer list.

It is necessary to take measures such as segmenting customers based on NPS, increasing the number of recommenders, and reducing the number of critics to improve overall corporate loyalty and impressions through individual responses. Comprehensively analyze what the recommenders like and what the critics are dissatisfied with, and decide which targets to prioritize.

Improve the customer experience

Checking customer experience indicators is also an important point related to improving customer loyalty. It is called customer experience value, and it represents the series of experiences that a customer gets when using a product or service.

NPS improvement is made by analyzing data that quantifies customer loyalty. In contrast, improving the customer experience is done by correcting direct customer service and responses based on the needs and impressions. Customer loyalty depends on the emotions and psychology of the customer. So it is necessary to respond directly. Also, check for support, pre-purchase processes, and other areas that can be improved even if they are not directly visible to the customer.

Devising approaches

While eliminating customer dissatisfaction through improved operations, it is also necessary to implement measures to increase customer satisfaction. To ensure that customers who have become fans do not leave your company, you should continue to take a personalized approach to each customer. For example, you can build a membership system to keep your best customers around and provide them with exclusive benefits such as members-only campaigns and points.

Customer Relationship Management (CRM) is a management method that aims to maximize profits by focusing on the customer. Nowadays, it refers to IT tools that strategically manage customers.

With this tool, you will be able to monitor the purchasing status of your customers. For example, you can send a coupon to a customer who has not used your service for a while. And you also can send an email asking for a repeat order.

Use of SNS

As a company or brand, registering an account on SNS such as Facebook or Twitter and sending out information is also an effective method in improving customer loyalty. You can not only send out information, but you can also connect with your customers and receive feedback from them. So you can understand their needs and latent opinions that you cannot get from a survey with predetermined items.

Social networking services can be easily implemented at no cost and have a high word-of-mouth effect with many people using them, so it is a good idea to use them. However, since negative images can spread quickly, carefully examine the content that you send out.

The data management and CRM utilization discussed in this article are inefficient when you’re working on them all apart, and you can achieve results efficiently by centrally managing them. For reliable data management, it is convenient to leverage business management solutions, which allow you to manage the entire business in an integrated way.

Summary

Improving customer loyalty is an essential element of marketing strategy. Even if the information is vague and subjective, it can be quantified and understood concretely using various indicators. Based on this data, let’s improve our response to each customer in detail and create an effective strategy to increase customer loyalty for the company as a whole.

There are several ways to continuously increase customer loyalty, including using metrics such as NPS and customer experience, using social networking sites, and an enterprise-wide approach by implementing integrated solutions such as accounting software. Use the most appropriate method for your business situation to increase customer loyalty and build a solid sales foundation that will keep you ahead of your competitors.