What is Customer Loyalty (and How to Gain It)
Customer loyalty is the holy grail for brands. Long-lasting relationships with NOW Customers keep businesses alive and enable them to develop and thrive.
When I set out to find a simple definition for customer loyalty I quickly realized that it means something different for every brand. And every brand has a different way of getting it. For some it was a lifetime customer, for others it was a brand advocate who could bring in new customers over and over again.
The more I dug into the subject, the more diverse the opinions. So what is customer loyalty and why do businesses try so hard to gain it?
A simple definition of loyal customers
The American Marketing Association defines customer loyalty as:
- The situation in which a consumer generally buys the same manufacturer-originated product or service repeatedly over time rather than buying from multiple suppliers within the category
- The degree to which a consumer consistently purchases the same brand within a product class
My definition: customer loyalty is when a person transacts with a brand or purchases a specific product from the same business on an ongoing basis. Easy. Every brand wants that. It generally boils down to this: when they need something you offer, loyal customers will give you the first chance to earn their business.
There’s an equally simple explanation for why this is so important: new customers cost way more than returning customers:
- Acquiring a new customer can cost five times more than retaining an existing customer
- Increasing customer retention by 5% can increase profits from 25-95%
- The success rate of selling to a customer you already have is 60-70%, while the success rate of selling to a new customer is 5-20%
In fact, customer loyalty actually generates more revenue for your business, which is a reason it’s one of the most important focuses for marketing and CX teams.
From here on, customer loyalty gets a bit more complicated
As I said, customer loyalty means something different to every brand. And as the expectations of the NOW Customer gets exceedingly higher, customer loyalty has shifted in practice to require building new types of relationships with customers. Here are a few examples of how brands need to think about loyalty in different ways to realize their plans.
Fast moving consumer goods live or die on brand loyalty
When we talk about loyal customers, we are probably thinking about fast moving consumer goods. These are things like cans of soup, brands of eyeshadow, toothpaste, soft drinks, socks, beer, chips, or gasoline.
They are physical things we buy over and over again, sometimes on a daily basis. They can be staples or luxuries. There is a lot of competition and we can easily swap brands back and forth without a penalty. Customer service plays a miniscule role in their popularity (have you ever called the 1-800 number on a bottle of ketchup?).
Instead you get brand loyalty by differentiating yourself in the market by the quality of the actual product. Things like ingredients, price, availability, safety, and performance are big factors in our brand choice.
These brands see customer loyalty as repeat purchase. They maintain these repeat customers through heavy advertising spends, reputation, and carving out a niche for themselves so they can convince customers there is a noticeable product difference.
Service industries use customer service to generate loyalty
On the other end of the spectrum are organizations where you make repeat purchases but they offer no physical product for you to take home in a bag and put on a shelf. Traditional brands in this sector are retailers, airlines, insurance companies, banks, credit cards, cell phone providers, cable companies, restaurants, and hotels.
They also include intermediaries like Uber, AirBnB, Postmates, Amazon, and eBay. I’m also going to include entertainment in this list: cinemas, theatres, sports teams, and even your favorite hair metal band (if you have one).
These organizations rely almost entirely on customer service and ubiquity to maintain brand loyalty and keep you coming back to their store, hotel, or mobile app. You may notice that every single one of the examples I gave offer incentives and a customer loyalty program to keep customers coming back (yes, even hair metal bands have fan clubs offering exclusives). This is artificial loyalty. It would seem that customer service alone isn’t enough to keep you coming back. To gain customer loyalty in this sector you have to spend big on your loyalty program and make it as hard as possible for customers to brand switch. And lawyers. You need a lot of lawyers to write those iron-clad customer contracts.
How loyal are you to your car or electronics brand?
This is the question that keeps brand managers awake at night. You only buy products like cars, computers, phones, washing machines, bicycles, sofas, and gaming consoles once every few years, if that. Yet these brands must keep you engaged in the gaps between purchases.
They maintain their customer loyalty by creating quality products that don’t break and reliably keep on doing what you bought them to do for the lifetime of the product. These brands also spend billions on R&D to ensure the lifetime of that product is as short as possible. This sounds contradictory, but it’s this balance that keeps you engaged in the brand and converts you to a customer for life.
Customer service is also insanely important to these brands, They gain customer loyalty long after the sale by how they behave when their product needs servicing, upgrading, or maintaining.
No, we’re not forgetting luxury brands
These can be products or services, expensive or relatively cheap. They are aspirational brands that you may never actually buy in your lifetime. However, they still need your loyalty whether you’re a customer or not. Why?
Because their whole existence is based on exclusivity. Exclusivity needs demand whether it’s realized or not. Affluent customers buy these brands because they are unobtainable to most others. The “others” need to be aware of these brands to make them attractive to those who can afford them. I’m not making this up.
And finally, there are brands that no one ever directly purchases
We consume their products every day, but we never pay a cent for them. How do they work? These brands often exist in a crowded market with plenty of competition. They spend enormously to retain users and they live and die on the whims of our loyalty.
I’m talking about Google, Facebook, Twitter, YouTube, and every social platform and software application that we cannot live without. They rely on our data to make ends meet (how do they manage?). To get this data they need our loyalty so we can keep giving them more information on what we like, where we shop, where we go, what we watch, and even what we believe in.
If you are a giant tech holding company you keep your “customers” through constant innovation and role out bigger and better features all the time. You need to encourage your users to also constantly innovate and create content that keeps other users coming back. The real customers here are advertisers and any brand, company or organization that needs to know about, and reach, you. These real customers (the ones who actually pay) also need to be kept loyal with the promise of new and better ways to find and target customers for their products or services. Even the giants need customer loyalty, but don’t worry, they know exactly how to get it.
Some valuable examples of how to gain customer loyalty
The cola wars
I’ll start with a classic. Pepsi v Coke. We all know this one, but it has real applications for today’s marketers regardless of your category. This is all about differentiation. Pepsi had the genius strategy to create a wedge between customers and highlight that more people preferred the taste of Pepsi in blind tastings.
It worked. If you were in a mall in the 80s you probably participated. Even if you didn’t, chances are you are a Pepsi or Coca-Cola customer today, even if you don’t know why.
Lesson learned: If you can create a differentiator that happy customers can identify with, they will stay loyal because they need to defend their original choice.
Porsche cars had a waiting list stretching years, yet they still maintained their advertising budgets. Why would they spend money on ads when they had customers lined up for the near future?
Because they needed to think about their long term future if they were going to survive in a business that relied on constant development to stay ahead. They needed loyal customers who would come back again and again without a second thought. They needed customers who would never even think about switching to another brand.
Lesson learned: Customer loyalty is in itself a brand attribute. When people see how loyal your customers are, they will consider becoming one themselves.
Amazon is not only a world leading retailer, it is also a huge employer. It needs loyalty to attract talent and realize its dreams.It’s also setting customer standards for the NOW Customer across all other ecommerce brands.
When Amazon was looking for a place to build its second headquarters it needed the customer loyalty and goodwill of regular people to support it coming to their city. The move required regular citizens to believe that it was a good employer and would be a positive addition to their area.
Lesson learned: Customer loyalty does not only mean more sales. It can also mean customers advocating for you.
Believe it or not, Oracle was a major sponsor of the movie Ironman 2. No, they didn’t think Tony Stark was going to convince 14-16 year old boys they needed to rush out and buy an enterprise software suite. They’re way smarter than that.
In fact, they wanted to make Oracle seem cool to the target audience of the movie because they wanted some of this audience to decide that engineering was something they should get into. They were trying to engender loyalty to eventually recruit the next class of employees. Genius.
Lesson learned: If you think about it differently, customer loyalty can be used power the future of your company.
Start fostering customer loyalty today
The NOW Customer expects speed and efficiency in every interaction they have with a brand. However, this does not mean that they are flighty or blasé about loyalty. When a NOW Customer experiences an emotional connection with your brand (especially Gen Z customers, who have a knack for detecting BS), the benefits are limitless. They will not onnly becomme a customer for life, they’ll recommend you to their friends, family, and extended social networks. The financial benefits of prioritzig loyalty are exponetial.