Explaining the value of customer loyalty

The value of loyalty

Loyalty programmes played a crucial role in keeping consumers engaged during the pandemic. In fact, more than two-thirds (62%) of businesses reported that their loyalty programme helped retain customers during COVID-19, with the effect most pronounced for brands running tiered nurture programmes.

Every marketer, even in a world without a pandemic, is torn over how much budget to invest in attracting new customers and keeping hold of existing ones. Both groups are important but it’s the people who are loyal to your brand that have the highest customer lifetime value; they are hands down worth more.

So how can you explain the value of a loyal customer? And how can you maximise your return on investment (ROI) when you commit budget to customer retention? Let’s explore the true value of customer loyalty.

Three ways existing customers outspend new customers

According to Invesp CEO and best-selling author Khalid Saleh, existing customers are:

  • More likely to buy: The likelihood of selling to an existing customer is between 60-70% vs just 5-20% for a new customer.
  • More likely to try: Existing customers are 50% more likely than new customers to try new products.
  • More likely to splurge: Existing customers are 31% more likely to spend more than new customers.

How customer loyalty works (and when it doesn't)

So why do existing customers spend more?

Loyal customers buy from you using what Nobel prize-winning economic scientist Daniel Kahneman calls System 1 Thinking. This mode of thought is fast, automatic, frequent, emotional, stereotypic and unconscious. It’s easier on our brains than System 2 Thinking, which is slow, effortful, infrequent, logical, calculating and conscious.

So, the aim for marketers is to establish their brand in the virtuous circle of the customer’s System 1 mindset. Here, habit and autopilot drive frequency of purchase and can increase overall spend. The end result? A higher customer lifetime value.

But not everyone gets this right. Here are three common loyalty and retention pitfalls for you to avoid:

  • Accumulating without communicating - 28% of customers have abandoned a loyalty scheme without ever redeeming anything. People lead busy lives so you can’t assume your company is always at the front of their minds. If they’re eligible for a discount or reward, remind them, and give them the best chance of experiencing the full benefit of what you’re offering.
  • Misjudging customer expectations - 54% of customers think that loyalty points take too long to accumulate. Ask yourself whether the loyalty incentives and rewards you offer are proportionate to what you expect of customers in return. Would a different loyalty mechanism work better?
  • Failing to incentivise behaviour change – How often do you issue incentives and rewards for products a customer is going to buy anyway? Are you clear on how that aligns to your strategy for increasing that customer’s lifetime value? Have you considered how you can incentivise the purchase of additional or new products to increase spend?

Let's take a look at how you can maximise the value of customer loyalty and retention for your brand.

Customer loyalty and brand trust

Building and reinforcing trust is key to keeping customers coming back for more.

Here's how to build the trust you need to secure customer loyalty:

1. Be familiar to your target customers

Why it matters for customer lifetime value: People trust what they know more than what they don’t. So they choose what’s familiar without even realising. Each time a customer makes a choice, they strengthen their emotional ties and their automatic processes so it's even more likely they’ll choose the same thing again in the future.

How to do it: Use data to create targeted marketing campaigns that reach the right people to keep your brand front of mind and establish credibility. An easy-to-use redemption platform like Select guarantees a smooth end-to-end experience for customers looking to take advantage of offers.

2. Be personal

Why it matters for customer lifetime value: Each of us interacts with hundreds of brands every day. For your company to make its mark, you need to offer more than an average, faceless experience. You need to recognise customers for the individuals they are.

How to do it: Look at what your customer is buying and tailor personal incentives to them. Our Envy Experiences offer memorable experiences that customers will always associate with your brand and each of the vouchers can be personalised.

3. Be safe and secure

Why it matters for customer lifetime value: 63% of UK consumers between the ages of 45 and 60 worry about data privacy, and 48% of 18 to 29-year-olds share their concern.  Data breaches have affected many companies from Yahoo to Uber, creating a significant PR and marketing task to restore brand trust.

How to do it: Respect the value of customer loyalty and retention by building your programmes in a platform that meets the highest security standards. Look for an ISO 27001 Information Security accreditation to give you peace of mind.

Look who's talking: Brand advocacy matters

How someone feels about your brand or product is important because the value of a loyal customer goes beyond their direct contribution to your sales line. Your regular customers could be giving you something more than their money: they could be giving you brand advocacy.

Word of mouth is perhaps the most valuable form of brand currency in our hyper-connected world so investing in happy, loyal customers is essential to business success.

You can see evidence of this online. Social media feeds are packed with happy customers congratulating brands on developing their new favourite products or delivering noteworthy customer service.

A smooth, personalised and thoughtful customer experience can keep people coming back and recommending you to others. These recommendations represent the final layer of someone’s customer lifetime value to your brand.

Interested in strengthening your customer loyalty and retention programmes? Find out more about how we can help by getting in touch via the contact form or calling us on 0203 948 8143.

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