What is customer loyalty?
Customer loyalty defined
Customer loyalty describes an ongoing emotional relationship between you and your customer, manifesting itself by how willing a customer is to engage with and repeatedly purchase from you versus your competitors. Loyalty is the byproduct of a customer’s positive experience with you and works to create trust.
Loyal customers
- Purchase repeatedly
- Use what they purchase
- Interact with you through a variety of different channels
- Are your biggest proponents, sending others to you and providing proactive (and reactive) positive feedback
Oracle CrowdTwist Loyalty and Engagement
Find out more about Oracle's customer loyalty and retention solution.
Are there different types of loyal customers?
People are loyal for various reasons, but it’s relatively easy to group them into six distinct loyalty categories.
Happy Customer
These customers like your products or services, have never complained, and probably have purchased from you numerous times. But your competitors can easily steal them: all it takes is a better deal, a discount, or the formation of a new relationship.
Price-loyal
These customers are with you only because of low prices. If they can save money elsewhere, they’ll leave. If you offer the best price again, they’ll return. It’s pretty easy to keep this type of customer, but at a tremendous cost.
Loyalty program-loyal
These customers are not loyal to your company or what you sell. They are loyal only to your loyalty program, and in many cases, only because your loyalty reward offers the best deal.
Convenience-loyal
This person is loyal only because your brand is easy to communicate with, easy to find, and easy to purchase from. A convenience-loyal customer isn’t swayed by price: Convenience is what keeps them with you.
Loyal to freebies
These customers are not drawn to your brand because of what you sell but because of other things you offer. Free Wi-Fi or infant changing tables or free inspections are some examples. Customers who are loyal to your freebies may buy from you only sporadically and don’t contribute heavily to your revenue stream.
Truly loyal
These are your customer advocates. They repeatedly purchase from you, talk about their great experiences with your company, and send their friends and family to you.
What is customer retention?
Customer loyalty and customer retention work together. Loyalty is a mindset that predisposes a customer to engage with and purchase from your company. Retention is a metric used to track customer engagement and the resulting sales.
It’s all about keeping the customers you worked so hard to acquire, providing great experiences, and continuing to offer value. Customer retention strategies are developed to provide—and extract—more value from your existing customer base.
How customer service can help customer retention
Customers spend, engage, and interact with brands based on the experience a brand provides, including interactions with customer service, whether via phone, email, chat, or in person. If customers feel that your customer service team is appropriately prioritizing and addressing their inquiry, feedback, or issue, they are more likely to remain loyal. Similarly, if they have a unsatisfactory experience with your customer service team, they’ll be less likely to continue to spend and engage with your brand.
How a CRM improves customer loyalty and increases customer retention
Forward-thinking brands compete on customer experience (CX) because it’s a driver of higher customer retention levels. A CRM system is key to providing a scalable, consistent, differentiated customer experience. CX depends on knowing your customers, and knowing your customers depends on data. A CRM system collects all possible customer data points and houses them in a central location so you can develop more-personalized customer experiences.
Customer loyalty and retention strategies for B2B and B2C companies
Best-in-class customer loyalty and customer retention strategies for B2C and B2B brands include everything from customer onboarding and customer feedback loops to gamification and partner offerings.
Customer onboarding.
Customer onboarding comprises all activities and interactions involved in introducing a customer to your product or service. It’s different from awareness marketing, which is the introduction to your brand. Customer onboarding occurs after the sale and is handled by the sales team or a customer service/customer success team.
Customer FAQs
A frequently asked question (FAQ) is one of the most routinely used ways to engage with customers and prospective customers. It is a static list of commonly asked questions and answers located (usually) on your website.
Customer feedback loops
A customer feedback loop is another easy way to improve customer loyalty. A customer feedback loop is not a tool. It’s the act of responding to customers in a meaningful way whenever they leave good or bad feedback. Many customer relationships have been saved or strengthened by simply acknowledging a customer’s complaint and working to fix the issue.
Customer account management teams
Customer management teams are about communication and relationships. They are widely used as part of a B2B customer loyalty strategy, working as a point of contact between customers or clients and your sales, customer service, and customer success teams.
Tier incentives
Tiered loyalty incentives are focused on building long-term customer relationships by grouping customers into certain levels (or tiers), usually based on metrics you establish (commonly, this metric is amount purchased or number of referrals made).
Gamification
Gamification has broad applications for customer loyalty, and many companies use some type of game playing as part of their overall customer loyalty strategy. Through gaming, companies try to drive short-term behavioral changes so players feel they’ve achieved something and, hopefully, change their behaviors over the long-term.
Unexpected rewards
According the data from a recent LoyaltyOne study, 94 percent of customers who received an unexpected reward or special recognition felt more optimistic about the company, and 34 percent of them said the experience led them to give the company more business.
Partner offerings
Allow channel partners (distributors, wholesalers, retail partners) to award loyalty program points for ecommerce transactions and purchases.
With Oracle’s loyalty consulting service, we’ll help you build a data-driven, best-in-class loyalty strategy to create lifelong customers and profitable outcomes. Get in touch with us to learn more.
Other loyalty strategies include
- Redeemable rewards
- Engagement activities
- Subscription offerings
- Personalized communications and offerings
- Connected customer experiences
- Exclusive access
- User-generated content
- Discounts
- Advocacy, education and training events and communications
- Customer experience workflows
How does customer retention improve profits?
Loyalty is critical because, in most industries, customer acquisition costs can be prohibitively high. Most businesses need to retain new customers for at least 12 to 18 months to break even on the marketing investments made to acquire them. Only in the case of extremely large (highly complex, highly customized) products can companies break even on customer acquisition costs after just one purchase.
…after just one purchase from an online apparel retailer, an average shopper was likely to refer three other people…a customer that made ten purchases from an online apparel retailer was likely to refer seven different people.— Bain & Company
You need those newly acquired customers to stick around and become repeat customers. Loyal repeat customers boost profits in two main ways: They tend to buy more as the relationship grows, and they refer others at a higher rate than their new counterparts do.
What is loyalty marketing?
Loyalty marketing is a strategic marketing approach in which you focus on growing and retaining your existing customer base.
Customer loyalty strengthens marketing initiatives and campaigns. In general, loyal customers think highly of your brand, products, or services, which increases the chance that they will repeatedly buy from you. Loyalty marketing:
- Grows customer lifetime value (CLV) via increased customer spend, visit frequency, and customer retention
- Simplifies customer experience personalization
- Attracts new customers and retain existing ones
- Rewards customers for referrals and brand advocacy
- Drives desired purchase behaviors across channels
- Encourages customer engagement
- Assists with customer data collection
What is a loyalty program?
A loyalty program encourages customers to purchase products from, engage with, or use the services of a specific brand. Customers are recognized and rewarded across every channel based on monies spent or other some other interaction with your brand.
Whether it involves collecting points, taking a specific action, or spending a certain amount of money, a loyalty program is an up-front deal you make with your customers: If you engage with us, we’ll give you something of value in return. Incentives could include vouchers and discount codes, exclusive products, and exclusive access to better pricing, free delivery, or even free merchandise.
A customer loyalty program is a subset of a customer retention strategy, and it’s a well-established way to retain customers and build loyalty.
Loyalty programs have two purposes. They help acquire customers, retain customers, and grow customer advocacy. They are also designed to collect first-party customer data (name, address, email) while deepening relationships between you and your customers.
What types of loyalty programs are popular?
Customers are moving away from loyalty programs that only provide incentives and rewards for past purchases. They still want that, but they are increasingly looking for actual relationships with their favorite brands, particularly brands that can meet (and keep up with) their needs and desires. They expect recognition and reciprocity at every interaction point, not just during a transaction. They expect two-way communication; acknowledgment; appreciation; the opportunity to provide feedback; and proof that you know who they are, what they like, and what will provide value to them.
In short, they want you to know them, and they want you to show them that you know them.
If you can deliver those types of customer experiences, you will build a large and loyal customer base. But all of this requires data. A fully integrated CRM customer loyalty software solution makes it easy for you as a marketer to gather and leverage data to understand customers individually and drive desired actions.
What are the must-haves in every loyalty program?
When building a customer loyalty program, work to ensure that it has the following characteristics:
- It’s simple to understand
- It’s easy to join
- It allows members to earn points quickly
- It provides relevant rewards
- It encourages engagement
- It surprises and delights members
What is an engagement-based loyalty program?
Customer loyalty marketing is moving beyond transactional "spend-to-get" programs to loyalty programs with an engagement focus. Customers want to do more than just buy. They want to engage with you, express their opinions, and share their experiences.
Consumers with high emotional engagement buy the brand 82% of the time whereas consumers with low emotional engagement buy it only 38% of the time.— Capgemini
To these customers, interacting with you is much more important than any one purchase. Therefore, engagement-based loyalty programs work to build those emotional bonds and nurture relationships of trust. These loyalty programs focus on long-term goals—build a team of advocates, boost the number of monthly referrals, or send more customers to various digital assets (mobile app, social media posts, landing pages, and so forth).
What is the financial impact of a strong customer loyalty program?
Brands are turning to omnichannel loyalty and engagement strategies to increase market share, entice customers away from competitors, and retain their most valuable customers.
More specifically, brands are increasingly investing in loyalty programs because
- Loyal customers spend more
- Loyalty programs provide a competitive advantage
- Loyal customers engage more
- Loyalty programs offer a currency exchange with your customers
- Loyalty programs create brand advocates
- Loyalty programs can help brands become more omnichannel
- Loyalty programs can help brands improve the in-store experience
Learn more about Oracle CrowdTwist Loyalty and Engagement
Other customer loyalty resources
- Video: Explore Oracle’s Personalized Marketing solution suite (2:03)
- Video: Discover Oracle Marketing in this B2B interactive demo (2:30)
- Retail Loyalty in the Midst of a Pandemic: Radical Shifts in Shopping Patterns (PDF)
- Retail Loyalty in the Midst of a Pandemic: Creating Authentic Connections (PDF)
- Retail Loyalty in the Midst of a Pandemic: Frictionless and Flexible Approach to Loyalty (PDF)