With the advent of e-commerce and with the complexification of competition that it triggered; most businesses are concerned about their customers’ loyalty. This concept could even seem outdated. The customers concern shift towards easiness and seamlessness in the purchasing journey and thus without consideration for any brand. Then, is it still relevant to speak about customer loyalty?
What is customer loyalty?
Customer loyalty is measured by the likeliness of a customer to do repeat business with a company or a brand. This is a result of actions from the brand to improve customer satisfaction and provide positive experience with a good value of goods or services received.
The way of measuring loyalty will of course depend on each industry. In retail for example, a basic way is to look at the number of purchases over a customer’s lifetime. Many studies have already shown that the most valuable customers are repeat buyers, as over time, the revenue they are generating will be higher than the big one-time buyers.
Loyalty is a long process to build, resulting from multiple positive interactions over time that lead to a feeling of trust. However, it is essential for brands to master this concept. Here are the main reasons why:
Conversion rates are higher with loyal customers, with an average of 65% compared to lower than 15% for new clients.
This category of customer boosts profits, with a 50% rise when customer retention rates are increased by 5% only. They also become ambassadors of the company, being an extension of the sales team.
Retaining an existing customer is five times cheaper than getting a first-time one.
Customer loyalty makes growth prediction easier and more effective.
Customer loyalty can be considered only after multiple positive interactions. Some ways of improving it have emerged and tend to be quite effective throughout industries.
Having a good customer service is key. Customers may be convinced by a product or service, but by being unconsidered or unvalued on the after-sale side, their positive emotional connection to the brand is likely to drop. A good support is an investment that will be remembered in the future with regards to satisfaction.
A deep understanding of the customer journey from marketing and advertising to post purchase support enables to assess the client satisfaction at every single step and to improve it if needed, making the whole journey pleasant and improving loyalty.
Customer loyalty is a long-term strategy. Most businesses mainly focus on getting new clients with various types of discounts and loyalty perks and take longtime customers for granted assuming their attachment to the brand is strong enough. With a long-term customer retention strategy, it is possible to proactively improve the experience for every segment within the customer base, and make them all feel suitably valued.
From customer loyalty to customer experience
New consumers trends are pushing behaviors to evolve. The digital channels are taking more importance in the whole selling process and data has become the new normal to analyze client moves. It has never been so easy to reach consumers. This also comes with a lot more noise around potential clients, that brands try to reduce to develop a more tailored relationship.
With less barriers to reach out to consumers, loyalty has become more difficult to maintain with the old traditional programs since clients are contacted by always more brands.
New generation loyalty programs are tailored to clients using predictive analytics. It makes their design much more reliable and enable to understand clients’ desires. The analysis is much more precise, with for example the type of consumer, their budget, their behaviors…
By doing so, it becomes possible to identify features and benefits that consumers value but cost less to the company. These new programs are more effective, and as a result, industries that were not using loyalty programs are now reconsidering their choice, such as healthcare or B2B programs.
In 2000, Cutler and Sterne introduced the 5 steps model customer life cycle:
Loyalty in The Customer Life Cycle according to Jim Sterne and Matt Cutler in 2000
From this model, the concept of loyalty is extended to become the end of a more global process: the customer life cycle, or customer experience.
Thanks to the usage of digital and data, the interaction between the customer and the brand is not limited to a contact with a sales team in a shop for instance, but instead the experience includes the entire set of actions on all the available channels to impact the customer perception. In 2012, a study indicated that for 93% of companies, customer experience had become a strategic priority, and 28% of them even ranked it #1 priority. Customers value their experience, 81% are even willing to pay more for a superior client experience.
How e-commerce impacts customer loyalty
According to a study lead by Accenture, 64% of consumers switch brands without hesitation if the initial brand wasn’t satisfying enough. Actually, consumers tend to care less about loyalty now that this concept has been jeopardized by the prominence of e-commerce.
That being said, all brands are not equal when dealing with loyalty. We can differentiate the niche brands from the other brands. The more your product is specific or requires a certain savoir-faire then the effects of volatility are thin or non-existent. The more substitutable your products are the more impacted the brand is.
Let’s take the example of the luxury goods industry or designers’ brands. The customers are firstly attracted by a personality or a brand storytelling, so much so that some customers are consider as fans. When a brand succeeds into creating this addiction, the brand loyalty is hardly threatened by other brands even when they offer the same products. As a matter of fact, we can consider that the loyalty is beyond a brand because it has a meaning for them, they developed an affect for a brand that resonates in them.
This “fan effect” as we can call it, is not reserved for luxury brands. New brands that have developed in the last two decades and who target mostly Y generation customers are making their way up. Their weapon: a well-tailored digital strategy.
The best in case we can refer to is the American beauty brand Glossier with a success story to take example from. With 2,7 million followers on Instagram, Glossier build an engaged community where the client is truly and genuinely the starting point of everything. Brands with the same aspirations are emerging all over social media.
The brands that didn’t manage to create an appealing storyline are undergoing a constant fight against competitors, and e-commerce make it harder. In Europe, e-commerce generated 621 B€ of turnover in 2019, a figure that is expected to grow with big winners such as Amazon and AliExpress or Bol and Vandenborre in Belgium.
The common points of these e-commerce leaders are their capacity to:
Offer a large range of products. Amazon for instance offers 200 million references only on its French website.
Offer a fast shipment method. Amazon but also Fnac, Darty or Vandenborre are all able to offer their customers a delivery within less that 24h for some products.
The purchasing journey becomes easier, within a few clicks your desired product is being delivered by the following day.
Easiness, that’s the main criteria that leads customers to these brands. A criterion that becomes more and more valued and touches a larger variety of products. We used to think that some products would be spared for they would require a proper in-store experience (because the customer would need to experiment it or because the price is high) such as perfumes, luxury products, smartphones or even cars. But it is actually not the case. E-commerce offers the opportunity to compare all the offers and go for the most attractive one whatever the consequences for the other brands.
What levers to capitalize on in order to encourage loyalty
We recognize 4 levers as helpful in order to entice your customers to come back again. The first two levers are purely operational and pragmatical:
Monetize your customer relationship
When you succeed in offering a monetized service to your clients, they are more likely to come back and capitalize on the service they paid for. The most popular example is Amazon with its offer Amazon Prime which grants the customers free shipping and even gives them access to a streaming platform. This service, when purchased, encourages the client to opt for your products as they know they had invested in it.
Other brands are offering more engaging offers such as “VIP” or “Pro” clubs which can be effective when dealing with complex products such as smartphones for example.
Invest on your operational efficiency
Transparency, fast delivery, easy returns are the top three criteria. A bad experience in these three areas can make a customer think twice before purchasing a brand again. Nowadays a large majority of brands are engaged in fulfilling these services. They are thus vital and represent the bare minimum you can grand your customers.
The two remaining levers are more about the brand history and the emotions it triggers among customers:
Create and animate a community (digital or not)
This specific lever is obviously eased by the use of social media nevertheless it is also possible to think of non-digital initiatives to build a community.
All that matters here is to focalize on building a solid core of loyal customers and interact with them consistently.
A few ways to do so are:
1. Create exclusive and adapted content
The possibilities are huge, you might want to start by defining your editorial slant.
Your content must always be adapted to your clients (whether you communicate on LinkedIn or Instagram the content must be oriented depending on your client profile)
2. Be consistent and regular
Make sure to interact with your customers on a regular basis and at the right time. Over time you can measure the most relevant moments to interact depending on the feedbacks you collect. Existing tools can help brands through this process especially when interacting online (Instagram offers reports and several KPIs to follow your social media performances. Google Analytics is your best ally concerning your website performances).
3. Open the dialog and be responsive
Social media apps offer opportunities to interact with your clients. Use it.
4. Organize giveaways and/or contests
You can choose to reward your customers through contests or giveaways for instance.
Capitalize on your expertise or savoir-faire
When your products or services requires a specific expertise, it’s possibly the best way to differentiate from competitors and thus attract and retain your clients. The key word here is communication. Your customers and prospects must know about your competitive advantage.
Once represented by a plastic card that offered customers rewards, customer loyalty has evolved. Retaining a client becomes more and more difficult with the exposure that digital gave to giants such as Amazon or even new brands that are making their way through innovative digital strategies. As a matter of fact, customers loyalty will always fluctuate and the criteria that has to be met today will certainly be outdated tomorrow. One element didn’t change is the storytelling you tell your client. The objective is to create a relationship that won’t fluctuate depending on prices. Although we cannot say that customer loyalty is dead, we can affirm that it is hard to get. In this pursuit, your storyline and your knowledge of your customers will be you best allies.
Anais Taleb and Jean-Baptiste Brunet