Customer Loyalty and Retention: Do They Go Hand-in-Hand?

Customer loyalty equals customer retention; that’s not a particularly difficult concept to get your head around. The conundrum comes when you’re unsure whether it’s the right option for your business. Let’s look at it from the customer’s point of view for a moment.

If we asked a random group of customers to put their hands up if they had a loyalty card from a company where they regularly purchased a product or service, we can be confident that at least half of the group will stick their hand in the air. If we then asked them to put their hands up if they’d used their loyalty card in the last 30 days, again, we believe that at least half the group will respond with a hand in the air.

The point is that 60% of customers are more likely to buy from a brand they are loyal to than a brand they don’t know. The past two COVID-19 pandemic years saw retailers battling it out with their competitors in the e-commerce/online world. This highlighted the need for companies to offer their customers a ‘perk’ to retain their loyalty and marketing budgets shifted considerably to focus on customer retention.

For business owners and marketers, it’s natural to believe that you can have 100% retention rates and great satisfaction scores. However, that’s not the reality, as we can see from the facts above.

But that doesn’t necessarily translate into a bleak landscape for customer loyalty. In fact, companies simply need to calculate which customers to invest in when it comes to loyalty and retention. To find out more on how exactly to calculate this and find out your most valuable customers, take a look at our blog on customer lifetime value.

What do we mean by customer loyalty and retention?

Research reveals that more than one-third of customers believe they are loyal to a brand after five purchases or more. It’s that one-third of customers, and more, that businesses are targeting with customer loyalty programs.

Companies are starting to realize that building customer loyalty is more beneficial and cost effective than focusing on acquiring new customers. By keeping customers engaged and happy to return to make further purchases, often spending more each time they visit, this delivers a more consistent revenue base, boosts brand awareness and builds reputation.

Let’s look at Pareto’s 80/20 Principle to explain customer retention – 80% of revenue is generated by 20% of your customers.  Put another way, boosting customer retention by just 5% can increase your revenue by as much as 25%, or more.

Why Customer Retention Matters

A great range of products or services that customers want is one way to grow a business, but a rookie mistake that many companies make is focusing too much of their attention, and their budget, on generating revenue from new customers.

By re-focusing a customer success team on customer retention, the benefits speak for themselves:

Cost Effectiveness

It costs less to retain existing customers than get new customers. Acquiring new customers can cost a company from 5 to 25 times more than promoting to existing customers.

Customer Loyalty

Existing customers are more likely to spend more, and buy more often, than new customers. A study conducted by Bain & Co. found that, on average, a repeat customer spent 67% more in months 31-36 than in months 0-6 of their relationship with a company.

Increased ROI

Because retained customers often spend more, it leads to increased revenue. Not to mention your acquisition costs are chopped when retention increases.

Brand Ambassadors

The greater the customer experience and customer satisfaction, the more likely customers are to promote your company to family and friends. Nothing like some old-fashioned word of mouth.

Customer loyalty programs for customer retention

Customer loyalty programs are nothing new; the challenge is working out a program that is going to achieve your aim. For example, are you looking to increase revenue, enter new markets, build loyalty or encourage brand ambassadors?

Today, most global companies have developed their own loyalty programs, but if you’re a small business, or even a one-man-band, is it really worth it? To answer that question, you’ve got to ask yourself:

• Do I have a business that is able to offer customers a reward, such as free products or discounts?

• Do I want repeat revenue?

• Do I want a loyal customer base?

If you’ve answered ‘yes’ to one or more of the above, you’ve come to the right place to set up your own customer loyalty program that’s personalized to you and your business. By having all the necessary tools and loyalty features in one platform that can also integrate with your existing system, your business can benefit from a customer loyalty and retention program that works.

There are a variety of ways a company can build customer loyalty and retain customers:

• Offer discounts/special offers – target existing customers that make regular purchases with loyalty discounts and special offers. It not only recognises your customer’s loyalty but helps to retain them as well. Use discounts and special offers in your quieter periods of time; for example, a pizza takeaway can offer a 2-for-1 deal on pizzas on a Tuesday or a café promotes a 5% discount for students.

• Reward your customers – whether it’s buy 10 coffees and get the next one free or spend a certain amount and get free shipping, all rewards encourage your customers to keep buying from you. However, always include the expiration date and don’t forget to promote your customer rewards program.

• Customer referrals – if you have happy customers, encourage those customers to promote your brand for you through a referral program. Offer existing customers the opportunity to receive a reward - €10 off the next order for the existing customer and referred customer or a gift card, for example. In fact, customer referral and customer loyalty programs allow businesses to get really creative!

• Earn points or coupons – encouraging customers to repeatedly purchase in order to earn points towards a discount, free gift or reward is a great way to build customer loyalty. Why not partner with another company and offer a variety of options for your top customers and offer them coupons they can spend in different stores? A study found that customers with coupons spend 46% more at the checkout than people not using coupons.

Flexible customer loyalty software offers businesses of all sizes the opportunity to build their own customer loyalty programs. Within this, you can send personalized messages, gather valuable data on customer behavior and preferences, even send campaigns with unique rewards. No matter what you do, make it yours and create an engaging experience for your customers with personalization, gamification, and variety in your rewards.

However, as with any customer loyalty and retention initiative, it needs to be monitored and managed on an ongoing basis. A well-planned, successful customer retention program will ultimately boost customer loyalty and maximize your customer lifetime value. As retaining customers is more cost effective, and existing customers are more likely to shop more frequently as well as spend more money, businesses are able to enjoy consistent profitability.