Customer Loyalty: How loyal are Customers?

May 26th at 1:22pm by Susan Levermann

It is not uncommon for terms such as Customer Satisfaction, Customer Retention and Customer Loyalty to be used interchangeably. There is no question that they all make a decisive contribution to a successful company. However, these terms are neither synonyms nor a marketing definition. They are different and yet still belong together. Customer Loyalty, for example, is only possible if there is a strong customer focus within the company and the customer is satisfied with the performance they receive. Only then does a modern-day customer decide to be loyal to the company. If significantly large numbers of customers do the same, then this is reflected in the company’s success. But why is this the case and how can Customer Loyalty and Customer Retention be made measurable?

Customer Loyalty as a Guarantor of Business Success: What is Customer Loyalty?

The size of the loyal group of reliable customers is a not to be underestimated indicator for every business. The following definitions help us first better understand the terms:

  • Loyalty Definition: The dictionary defines loyalty as sincerity and straightforwardness towards another person. Behavior and attitude are here essentially the same.
  • Customer Loyalty Definition: Customer Loyalty is derived from the customer's voluntary commitment to the business, products or brand. This is also referred to as preference binding. It is the opposite of the hard Customer Loyalty caused, for example, by binding contracts or economic and technical constraints.

Through their voluntary connection to a company, loyal customers are sincere and authentic brand ambassadors. This is reflected in the fact that they act as promoters. If loyal customers in a circle of friends, acquaintances and families rate a service, product or trademark as good, there is a very good chance that word of mouth will be positively received by the environment and create more loyal buyers. With a loyal consumer, there is always an emotional relationship with the company. As a rule, Customer Loyalty is a good prerequisite for not only selling current products or services, but also creating a buoyant sales market for new products in the future. Loyal consumers are therefore always the basis for continued business success and lively company growth.

The Important Distinction Between Customer Satisfaction and Customer Loyalty

The concepts of Customer Satisfaction and Customer Loyalty should be clearly separated.

Kundenloyalität und Kundenzufriedenheit müssen klar voneinander getrennt werden

Unlike new customers, loyal customers do not look for alternative offers from the competition. They usually remain faithful to their choice even when prices change and also usually have a very good payment ethic. In addition, loyal customers deal more easily with possible delays in delivery or other irregularities.

Trust, Image and Co.: How Customer Loyalty Is Created

There are four factors that influence Customer Loyalty. These include:

  • Customer Satisfaction
  • Trust
  • Image
  • Attachment

For example, a buyer is dissatisfied until they are satisfied. Sounds logical. If they are satisfied, the best case scenario is when they are enthusiastic. This means customers receive more from the product or service than they expect. If their expectations are only met, the customer is not immediately happy. Customer Satisfaction is therefore an important factor for loyalty.

In addition, consumers must have great confidence in the manufacturer or brand. This confidence can stem from being on the market for years - if the consumer has had contact to the brand since childhood, for example, influenced by their parents, then this is a good prerequisite for Customer Loyalty. If the buyer has confidence in the company, they are willing to buy more products in the future.

Consumers are guided by the image of the company and by its marketing. Image refers to the connections of attitude, feelings and experiences that the customer has to the brand or trademark. A company can have a lot of influence through its image. Confidence and sympathy can be generated, which eventually leads to a more intense relationship with the buying user. In addition, the visibility of a company is an important point. Nowadays, buyers also want to be able to identify visually with the brand or product. For this reason corporate identity also plays a major role in terms of Customer Loyalty.

The fourth factor is the high level of attachment with the company. This indicates that the customer identifies with the characteristics or product on offer. Consumers like the range and feel so strongly connected to it that they not only speak up for it, but also take sides, promote products, make them better known at the same time and provide detailed feedback on products, services and services.

Customer Loyalty and Gamification: Rewarding Loyalty?

Customer Loyalty and gamification are closely intertwined. Gamification can help to ensure loyal clientele for a company. The latter describes the playful learning of new and productive employee working methods which thereby bring products to the customer. The focus here is on the development of games which are on the one hand useful and on the other provide entertainment. Knowledge can be so effectively conveyed that learning is achieved through playing, and the gained experience can then be implemented. The result is not only employee satisfaction, but also satisfied end users. Such a measure enables companies and entrepreneurs to ensure that customer attachment increases, driving Customer Loyalty.

The Revenue Potential of Customer Loyalty: How a Loyal Customer Promotes Profit

Anyone wondering about the connection between loyalty and turnover should know there is a proven link and therefore great potential for companies. Customer Loyalty signals that buyers identify with both company and brand. This has a positive effect on every area of the business. Loyal customers are both more powerful and profitable. Not only do they buy more products and use more services, they do so repeatedly. For the company, this means a consistently high sales potential. In addition, devoted customers are a priceless form of good marketing. So-called recommendation marketing is neither artificial nor intrusive, but seems very authentic thanks to the positive attitude and voluntary loyalty to the company. As a result, the brand or group is also very well received by other target groups, which has further positive effects on all business segments.

Helpful Tips for Increasing Customer Loyalty

Securing Customer Loyalty is not always easy. The following list gives several tips to increase it.

Customer Service

Good customer service is taken for granted by many buyers, but companies rarely succeed in implementing it. Customers often think that small businesses provide a better service because they are closer to the customer and have a better understanding of their problems. This personal customer contact is nearly always viewed in a positive light. It is therefore recommended for both managing directors and management to be active and present for the customer. Customers appreciate this behavior as they like to have a face that they can connect with the company. In the best case scenario, this means letting customer service have an answer for every question. This not only satisfies the needs of the customer, but they will also feel competently taken care of. In addition, it makes sense for there to be carefully chosen experts for certain disciplines. The customer then knows immediately who to contact with their question.

Pleasant Atmosphere

In order for customers to visit sales rooms again and again, it is important that the atmosphere and climate trigger a cozy and homely feeling. In short, a customer should be spoiled on site, giving them the feeling that everything possible is being done for them. If the customer feels comfortable, they are also more likely to spend money.

Personal Welcome

It leaves a very good impression when companies look after their customers individually, know their respective names and their individual needs. This inspires confidence and closeness to the customer. In this way, companies create an affective bond, which should be nurtured and maintained.

Details Are Important

The customer needs the business to remember not only past purchases, but also personal details. Since not everyone knows everything, the store should acquire software that collects and collects this data.

Listening Is the Be-all and End-all

Customers have concerns and problems that entrepreneurs should take to heart. In addition, a business also receives a lot of feedback about the products and/or services during conversation with buyers. In this way you can find out, for example, whether the assortment should be changed or maintained.

Exchange

Another tip for more Customer Loyalty is to tell the consumer what is currently going on in the company, whether new products or other changes on the horizon. In this context, it also makes sense to contact the buyer if, for example, orders have arrived earlier or are somewhat delayed. Transparent communication is very important for Customer Loyalty.

Always give 100%

Promises must always be kept. In the best case, entrepreneurs even under-promise and over-deliver them with a specific action such as a discount or a small gift. Customer dissatisfaction inevitably makes them think about an alternative.

Complaints

If there are complaints or similar, then companies should react professionally and competently to customer requests. Often the decisive factor is not the fact that something had to be complained about, but having to deal with the complaint procedure. At best, companies should provide the buyer with emotional reparations to relieve the stress caused.

Understanding, Communication & Effort: This Is How Customer Relationships Work in the 21st Century

In order to improve customer relationships, there are various steps which help better communication with interested parties. For example, taking real efforts to have genuine customer dialogue. Such dialogue includes feedback on the service, services and products. Companies should involve customers in the development of new ideas and promote open and honest communication.

The exchange of information from the company to the customer must be comprehensible and must not be in incomprehensible technical jargon. This also includes avoiding foreign words, buzzwords and company-internal terms. Customers view such uses as showing off. To stand out today, old-fashioned letters are back in fashion, as they come to the fore more than any email and suggest to the customer that the company has taken the trouble to send a letter. In the end, customers are just people who appreciate attention. A good customer relationship never works without trust, courtesy and attention.

Rewarding Customer Loyalty: Maintaining existing Customers to develop and strengthen Customer Relationships

To ensure that customers who are loyal to the company receive something for it, rewards are a great way to express gratitude. This can be a present or other gesture such as a discount, voucher or similar. Other customers should also not be ignored; they should also receive at least one present on special occasions. The care of existing customers is therefore just as important as the reward of Customer Loyalty. Rewards just shouldn't be related to anything else. It should be something separate that the customer is happy about and that this is appreciatively linked to the company. This positive behavior creates emotional moments and positively develops the customer relationship.

What's Worth Doing: Customer Attachment and Loyalty vs. New Customer Acquisition

In the long term, Customer Retention is much cheaper than attracting new ones. However, expenses and capital are higher when an existing customer leaves the company. Customer Loyalty aims to ensure that existing customers regularly spend with and recommend the business through word-of-mouth propaganda. A large number of existing customers can be stimulated to buy more through cross- or upselling. In the marketing mix, existing customers generate less costs. The company's performance, quality and service have already won the customer over, which is why they are often willing to pay higher prices. Of course, discounts and contractual commitments are just as effective as generating Customer Loyalty. Special offers, timely refunds, or the formation of a community are further good approaches.

By contrast, the acquisition of new customers is more expensive and involves a great deal of effort. There are numerous marketing options to attract new customers. One advantage of Customer Loyalty over new customer acquisition is product development. Loyal customers are satisfied with the current product range. These must, of course, be renewed and modernised from time to time. However, new customers want state-of-the-art products and end up buying from the competition with even the smallest of “differences” to your range of products. Another factor is that existing customers shop regularly whereas new customers may only try an item once and then never purchase a product from the company again.

How to Measure Customer Loyalty: The Net Promoter Score®

To make Customer Loyalty measurable, businesses use the NPS or Net Promoter Score. This key figure measures the company's success with the customer. This is made possible by revealing the numerical difference between a companies promoters and detractors. In order to distinguish the two groups, the company’s customers are asked a question.

"How likely is it that you would recommend this brand/company to your friends or colleagues?".

In order to produce a measurable result, all the answers are provided on a scale from 0 to 10. 0 is unlikely, 10 highly likely. All detractors are in the range 0 to 6. Customers with 7 to 8 are the indifferents and the promoters are the customers in the range 9 and 10. The formula then reads:

Promoters (%) - Detractors (%) = NPS.

The higher the value, the more positive the result for the company and the more customers are classified as loyal, as they would provide recommendations.

In Summary

What is certain is that Customer Loyalty is a very important metric for companies. If you want to remain competitive and stay in the market permanently, you need Customer Loyalty. However, loyal customers cannot be purchased. Loyalty requires trust in the products and/or the company. It is only possible to build a good, long-term relationship if there is a sense of customer needs. This again strengthens loyalty and prevents the customer from looking for an alternative on the market after one or two purchases. The difference to a new customer is the high willingness to buy, the price insensitivity as well as the high recommendation rate. Loyal customers help a company to better prepare its own potential for the end user.


Susan Levermann

Content Marketing Manager