Most businesses measure customer loyalty by the value of purchases, or the number of cross-sells, or the share of wallet. Many offer promotional discounts or other offers to encourage customers to take out new products, or offer exclusive services or deals to customers with existing, high value products or services.

Consumers, though, don’t agree – they overwhelmingly believe that the length of time they have been a customer is the real indicator of their loyalty, not the number or value of products they hold.

A recent piece of research asked consumers to rank three possible measures of loyalty (the length of time that someone has been a customer, number of products held, and the value of those products). 75% of consumers researched said that it was the length of time they had been a customer that was the most important measure to them.

So what is customer loyalty?

There are four types:

  • Captive – customers who continually buy the same product, service and brand because they aren’t aware there may be better ones for them and aren’t interested enough to actively look for them (this is known as apathy!). You will lose these customers if a competitor starts aggressively marketing a similar product or service at a better price.
  • Convenience seekers – customers who buy from you simply because it’s easy or convenient – you may be the nearest store or simply lucky that they see your marketing material at the time they need your product or service. You’re less likely to lose them than captive loyal customers, but they won’t tell other people about how great you are, so you won’t get referrals from them.
  • Contented customers – these enjoy doing business with you and like your brand but don’t really give you feedback or actively look to buy even more products or services from you.
  • Committed customers – these are people who regularly give you feedback, show a keen interest in your business, are always looking for your new product or services and regularly promote you to others (Apple is a good example of a business with a lot of this type of customer – they are also known as promoters).
And there are 3 key things to focus on to build loyalty:
  • Pay more attention to customer care – Customer care is key to building customer loyalty. This includes paying attention to customers through asking for, analysing and acting on customer feedback – Customers want to feel involved in shaping an organisation – the more they become involved, the more loyal they become.
  • Be honest with customers – honesty builds loyalty and trust. Look at the recent example of how VW were cheating on emission tests. They have virtually destroyed the level of trust that their customers had in them, and it will take decades of openness and honesty for them to recover it
  • Measure customer loyalty and take action if necessary – large companies typically use  Net Promoter Score to measure customer loyalty.

How Net Promoter Score works:

There is a complex science behind it, but basically a business will ask customers how likely they are to recommend the business to a friend on a scale of 1 to 10. Anyone scoring 1-6 is viewed as a detractor – someone who will tell others not to use that business. Anyone scoring 7 to 8 is viewed as passive, meaning they won’t proactively recommend or criticise you and anyone who scores you 9-10 is a promoter – someone who will proactively recommend your business to others.

The Net Promoter Score is calculated as the percentage of promoter customers minus the percentage of detractors (passive customers are ignored). For example, of 100 customers surveyed, 40 scored 1-6, 40 scored 7-8, and 20 scored 9-10. That gives a Net Promoter Score of -20 (20% promoters minus 40% detractors).

The real benefit is understanding how many customers are in each category, then making changes to start moving detractors to passives and passives to promoters. The aim should be to get as many customers as possible scoring you 9 or 10! For high achieving companies, this would be 50%+, but on average, most companies get 10%-20% loyal clients. Measuring loyalty in this way helps you see if customer loyalty is changing, so you can respond quickly.

Nigel Greenwood

I've spent 30 years improving the customer experience for large corporates and SMEs and set up Simply Customer in 2014. We map and redesign customer journeys to highlight where businesses can improve converting leads to sales, turning one off purchasers into loyal customers who refer others, and minimising queries and complaints.

We've improved lead to sale conversion by up to 200%, improved customer retention by up to 80%, reduced complaints by 50% and increased profits by up to 30%, all with small, simple changes that can be delivered immediately.

We also help businesses to grow rapidly through regular customer feedback, analysis and recommendations.

Latest posts by Nigel Greenwood (see all)

Leave a Reply

Your email address will not be published.