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What Is Customer Loyalty: 5 Benefits of Customer Loyalty for Your Brand

May 20, 2020

In this article you will learn:

Can you count on your customers to remain loyal to your brand—no matter what?

Many companies are discovering how strong their customer relationships really are, as 77% of consumers admit that they’ll shift their loyalty to another brand far faster than they would have in the past.

Consumer shopping habits have changed with digital commerce advancements, which accelerated as the world begins to come out of COVID-19. Consumers have become accustomed to endless options, and are in fact flooded with brand content so frequently that they’re numb to it- with 40% of people disregarding notifications from their loyalty programs. And consumers today are now conscious of whether or not a brand provides them with an engaging and fun experience.

With so many variables, and the stakes higher than before, your customer experience efforts should focus on increasing and enhancing customer loyalty. Brand loyalty offers a competitive edge in an environment where shoppers are rethinking how, where, and when they spend their money.

And there are things you can do now to enhance the customer loyalty bond and reap the benefits of customer loyalty.

What is Customer Loyalty?

Customer loyalty refers to customers who continue to buy from a particular brand, company, or business because they’ve created an emotional connection with that brand. Loyal customers may also promote the brand via word of mouth, be more receptive to other products and services from the same company, and are more likely to provide feedback and reviews.

They are not actively looking for the same product or service elsewhere and are less receptive to marketing from competitors. According to Accenture, 57% of consumers spend more with brands they are loyal to. And the best way to build customer loyalty and create a following around your brand is with a customer loyalty program.

Here are 5 customer loyalty benefits critical to your brand.

Why is Customer Loyalty Important?

A customer loyalty program is ideal for improving your brand image, increasing customer LTV, and retaining current customers, lowering the churn rate. According to Accenture's recent study, "members of loyalty programs generate between 12 to 18% [higher] incremental revenue growth per year than non-members." Meaning marketing is not just about customer acquisition but also about retaining your biggest fans, and your loyal customers should be one of your brand's top priorities.

Customer Loyalty is also a great way to learn about your product and customers! Your loyal customers will be more open to providing you feedback allowing you to create a product and program that better fits their needs and wishes. In turn, you'll create something that keeps them around and makes them feel valued. With the proper data points setup, loyalty programs allow you to gather first-party data, learning even more about your customers. You can use this data to increasingly strengthen that loyalty by providing customers with an experience that feels relevant and personalized to them. The more you can provide your customers with this, the more they will be willing to engage, purchase, and advocate for your brand.

The importance of customer loyalty is that it's the backbone of building incremental revenue and long-term success. And without loyal customers, you don't have a brand. Keep reading to learn how you customer loyalty can benefit your brand.

How a Customer Loyalty Program Benefits Your Company

#1 Revenue

Loyalty programs allow brands to engage with customers through transactional and non-transactional offers and rewards, which create an emotional connection with customers. Since emotions drive behavior, brands that can create that emotional relationship with customers will be better positioned to incentivize customers to take specific actions.

Some of these actions might be spending more, coming to a store more often, downloading the mobile app, or referring a friend. All of these actions increase a customer's lifetime value with a brand. Customer lifetime value (CLV) helps brands estimate the net profit they could potentially gain over a lifetime of interactions with a given customer.

Existing customers have a 70% likelihood of purchasing vs. 20% for new customers. They buy as much as 31% more on average, and their customer lifetime value (CLV) is estimated to be 10x that of their first purchase. For online retailers, more than 40% of their revenue is generated by just 8% of their customer base—the most loyal customers. So, loyal customers are better for your bottom line.

As brands move to a more customer-centric approach and focus on loyalty, what they are really doing is creating a revenue powerhouse for their brand. If you can increase CLV by engaging with customers and giving them more reasons to continue buying from their company, you can increase revenue.

Learn more about how to create modernized offers to increase revenue within your loyalty program -> Click Here

#2 Customer Acquisition and Retention

When focusing on building customer loyalty, it’s critical to retain those customers and acquire new customers to grow.

Customer acquisition has been a highly held metric for years. Research shows that 44% of companies prioritize acquisition, while only 18% focus on retention. However, with brands realizing how valuable and profitable a retained customer can be, customer retention should be a key focus when looking at the success of a loyalty program.

It’s also cheaper. In fact, according to the Harvard Business Review, it can be anywhere from 5x to 25x more expensive to acquire a new customer than to keep an existing one. That’s not to say acquisition isn’t essential. But as you retain customers and build loyalty, you will organically see growth or discover areas of improvement in customer acquisition.

With marketing and sales costs rising, trends in social media and search making it more difficult for brands to reach new audiences, and social media becoming a pay-for-play space where algorithms prioritize user content over business content- loyal customers can help you attract new customers through referrals and word-of-mouth. It's a much lower-cost way to acquire new customers than investing in lead-generation effort. And with 71% of people not trusting sponsored social media ads, while 65% do not trust ads in general- it’s a waste of money!

There’s a lot more that goes into customer retention, and we’ve gathered 7 strategies that will work for your brand -> Click Here

#3 First Party Data & Valuable Data

Customer loyalty programs are a great way to collect customer data for personalized experiences. According to a webinar with Forrester, 80% of American adults are comfortable with sharing some kind of personal information about themselves in order to have a personalized shopping experience.

The data customers intentionally and proactively share with a brand is called zero-party data. Companies can collect zero-party data in a number of ways, including questions included as part of the registration process, a preference center within the consumer’s account area, or even by posing questions or polls in Instagram Stories. The common denominator is that consumers are volunteering this information.

First-party data is also very personal to consumers but is not directly shared by the customer. It is gleaned from user behaviors, analytics, and other tools that provide insight into customer journeys and actions.

Ultimately it’s a layer of data that can bolster those true emotional connections that drive loyalty. It allows you to create and tailor personalized offers, rewards, and experiences for your brand which improve customer retention, acquisition, and revenue.

But without a strategy to leverage that data, brands will never improve the engagement of their loyalty offers. BCG Research reports only about 30% of companies are creating a single customer view across channels, and just 1% to 2% are using data to deliver a full cross-channel experience for their customers- meaning there is a huge opportunity.

Learn how to leverage your data here. Before you miss you! -> Download the Guide

#4 Honest and Quality Feedback

Loyal customers can provide quality feedback in online reviews, customer service surveys, and customer comments. They understand your brand and its offerings, and they’re one of the best ways to gather honest responses to improve and learn how you’re doing. Their responses are a wonderful way to uncover roadblocks on the customer journey, improve program designs, or discover pain points customers are looking for help to fill.

Additionally, you can use this feedback to:

  • Measure the success of your customer experience
  • Launch new products
  • Forecast better business decisions
  • Reduce customer churn

#5 Create Brand Advocates

By focusing on loyalty, you’ll turn your customers into brand advocates. Brand advocates are valuable to your company. They spread positive word-of-mouth messaging to their entire social network, which can drive 4 times better results than paid media.

This is critical because 92% of consumers trust online recommendations from friends and family more than other branded content (remember, too, 71% of people do not trust sponsored social media ads). You’ll also improve your brand image, have access to user-generated content, and reach a wider audience.

Through customer loyalty programs, building communities, and brand ambassador programs, brands can increase their brand advocates and discover the benefits of customer loyalty.

Keep Customers Loyal with Formation

A customer loyalty program is ideal for increasing revenue and customer lifetime value, retraining and acquiring new customers at low cost, and collecting valuable customer data.

However, as you try to recognize and create all of these benefits within your customer loyalty program, it's also important to realize they all come from deepening your relationship with your customers by providing relevant, engaging, and personalized loyalty experiences. This can only be accomplished through dynamic offers from platforms like Formation.

A platform like Formation can analyze, automate, and optimize customer behavior at the individual customer level. Dynamic offers are typically built using machine learning and automation. It is constructed using a dynamic offer template and machine-learning-calculated actions and rewards for each individual.

Types of dynamic offers range from a simple, single-step spend X and get Y construct to more robust constructs that ask consumers to complete multiple steps to reap an enormous reward. Dynamic offer platforms automate the generation of these offers and manage these offers' fulfillment, measurement, and optimization. Because of this, they solve the scale and continuous optimization challenges we've historically seen with personalized-offer approaches

This allows your brand to provide a seamless customer experience, deliver personalized offers, and learn in real-time how to engage each customer in a way that boosts customer lifetime value, and prevents potential churn.

Customer Loyalty Programs Examples

Amazon Prime

Joining Amazon Prime is entering the exclusive club of super fast, two-day shipping to millions of diverse products without a minimum purchase. Amazon has truly changed the way we shop and revolutionized eCommerce.

As a Prime member, customers get discounts to Whole Foods, gain access to free movies and TV shows, and enjoy some of the best online return policies. Also, they offer some of the best personalization to their loyal customers which can be seen in features like their product recommendations.

Uber Rewards

Uber Rewards allows customers to earn points from rides and Uber Eats, and it’s a simple program to join from the Uber app. This tiered system offers members priority support, flexible cancellations and upgrades. The rewards are easy to use, automatic and the program encourages brand loyalty.

Starbucks Rewards

Starbucks Rewards has become the gold standard of increasing customer loyalty by offering highly personalized experiences and offers at scale. By leveraging AI and ML algorithms, Starbucks analyzes customer data and sends out multi-step offers that are individualized for each rewards member. These 1:1 personalized offers provide value and relevance to millions of individual customers, based on each customer’s unique preferences and desires and lead to fiercely loyal customers.

Learn more about how Starbucks became the leader in customer loyalty -> Click Here

Conclusion: Benefits of Customer Loyalty

When customers trust a brand, they’re more likely to stick with it, in good times and bad. Customer loyalty is a measure of how strong your customer relationships truly are and a loyalty program can lead as much as 54% of your customer base to do more business with you.

To learn more about how to engage and connect with the modern customer to create loyalty customers, download our Guide to Modern Loyalty and see how to make personalized offers scalable and smarter with Dynamic Offer Optimization.