What is Customer Loyalty? And How Does It Work?

What is Customer Loyalty? And How Does It Work?

You’ve heard many things about Customer Loyalty.

You’ve heard about how it should be a big focus for any business and how it can increase your revenue.

But what’s all the fuzz about?

Today, we’ll define customer loyalty and explain how it can benefit your business.

What is Customer Loyalty?

Customer Loyalty is often confused with Customer Retention. However, both are quite different despite their similarities.

Customer Retention focuses on keeping your customers returning to your business to make further purchases. Customer Retention is fully transactional as it ends once your customer makes a purchase from a competitor.

Customer Loyalty goes beyond the transactional nature of Customer Retention and focuses on “super-fan” customers who will not only buy your products but also engage with your business, advocate for it and engage with communities based around your business.

Loyal Customers are also more likely to buy additional products from your business, giving them a larger Customer Lifetime Value than other retained customers.

Loyal Customers will champion your products and services while also generating higher revenue for your business. As a result, wowing your most loyal customers with exceptional customer experience becomes the most effective way of keeping said customers loyal.

How does Customer Loyalty impact your business?

Customer Loyalty can have a significant impact on your business revenue. After all, your most loyal customers will play the role of promoters of your brand and business.

From telling their friends and family, to posting on social media, to posting positive reviews and testimonials in public blogs and websites. All these actions boost your company’s brand image and effectively work as “free advertising”.

This results in increased reach for your brand plus additional revenue generated from dedicated loyal customers.

The more loyal customer your brand has, the more these benefits impact your business.

After all, we’ve all heard about Apple fanatics lining up outside of Apple Store locations before the release of new iPhone models. There are always several videos, articles, news segments and memes discussing this phenomenon every year.

How much does Apple pay for that exposure and advertising? Zero dollars.

How to know if a customer is loyal?

So, how do you start identifying loyal customers from regular recurring customers?

One of the easiest ways to do this is via Net Promoter Scores (NPS). We’ve actually talked about NPS before, but lets quickly break them down.

The Net Promoter Score seeks to categorize your customers as either Detractors, Passives or Promoters. Your most loyal customers will be Promoters and become advocates of your business.

A single customer’s net promoter score is determined with a single and simple question: “From 0-10, how likely are you to recommend our business to a friend or colleague?”

Customers that answer between 9-10 are considered Promoters and therefore highly loyal customers.

Closing Thoughts

The benefits of customer loyalty go beyond just sales.

When you look at companies such as Apple with their ecosystem of devices and Amazon with their Prime program, you can envision the possibilities of Customer Loyalty programs.

The impact of such strategies can have a significant impact on your business revenue and growth.