What is Customer Loyalty?

We’re not talking about a traditional loyalty program that brings a customer back because they get the seventh sandwich free or they get frequent flyer points for future travel.

We are talking about the kind of loyalty derived from an overwhelming feeling of immense satisfaction with a product or service – a feeling that elicits an emotional reaction and drives a decision to recommend a particular service or product to a friend or colleague.

  • Why does a fan of America’s Team, the Dallas Cowboys, paint their truck silver and blue with a star on the door?
  • Why does an individual proudly wear a shirt emblazoned with the Coca Cola logo?

For the same reasons your loyal customer will recommend your product or service – it goes beyond mere customer satisfaction.

What we are referring to is sustained customer relationships based on utter enchantment with you and your product/service, which lead to not only repeat business but also to referrals for new business.

Wikipedia calls it the loyalty business model, but however you want to refer to it the simple idea is that building and maintaining a customer base who loves your product and will recommend it to people they know is the best way to achieve long-term growth and profitability.

The concept of customer loyalty is long-standing, though the term itself only dates back a few decades. In The Loyalty Effect (1996), field expert Fred Reichheld lays out the basic economics behind developing a loyal following of customers. The principles in the book not only have remained applicable over the years, they are magnified by the impact of the Internet on today’s business practices.

Still think a customer only tells 10 friends about a bad experience? Think again!

  • Two thirds of the world’s Internet population now visit a social network or blog site weekly
  • The average American has over 634 social connections on the Internet
  • 52% of people forward information through social networks, email, and online forums

Ready or not, your company’s profitability is linked directly to the word of mouth advertising that is drawn from the experiences of customers who have been exposed to your products and services. Their ratings, reviews, and testimonials are communicated like a viral marketing campaign to everyone they know and thousands of individuals surfing the Internet – good or bad! Creating loyal customers who will share positive experiences is vital to your organization.

Harnessing the power of loyal customers allows you to grow almost effortlessly while increasing your overall margins.

But developing real customer loyalty is a process – it requires buy-in from all levels of your organization and is geared toward keeping customers truly enchanted so they not only remain loyal but also will share their excitement with others resulting in new business for you.

Providing top-notch customer service is a primary element in gaining customer loyalty, but do not mistake it is the only consideration.  Today’s customers already expect excellent service as a basic principle – meaning to be treated in a friendly, polite and professional manner along with responding timely to their needs is a given.

Customer loyalty we can say is derived from three main components:

1) The customer’s perceived value of the product/service

2) How well that product/service meets their needs

3) Exceptional customer service you provide

These three components cannot be weighted equally from one customer to the next. They are variable in importance depending on the customer – because no two customers are exactly alike!  For this reason, you must seek to understand your customer and what drives their decision process in order to find the ultimate key to unlocking the door to greater customer loyalty.

If your customer has a problem, you should do whatever it takes to make things right and just as importantly to resolve the concern in a timely manner. Hint! Customers know you are not perfect – but letting them witness how earnestly you strive for perfection can be a powerful customer service weapon! Social media interconnectivity and blogging present opportunities not only for unsolicited accolades but also for you to address issues in a forum where potential customers can gauge your responses even in the least tenable situations.

In our previous blog, we discussed The Ultimate Question and how it relates to customer loyalty. The first step for any organization in developing a program to establish and improve customer loyalty is to understand where you are now. Only then can you define ways to improve and focus on efforts to maximize results. The responses you receive when you ask your customers the Ultimate Question can give you an idea of where you are succeeding as well as areas where you can improve.

ASK for feedback. LISTEN to what your customers say. ACT accordingly.

Consider this. A mere 5% improvement in customer retention rates will yield between a 25% to 100% increase in profits across a wide range of industries. To sum it up – Happy customers spend more money more often! 

Simple satisfaction does not equal customer loyalty. Customers need to find value in your product, receive remarkable customer service every time, and feel like any complaints are dealt with professionally, fairly and promptly. To build customer loyalty you must focus on clearly defined goals derived from analyzing feedback from your customers to improve their overall experience.

The fast-track to increasing customer loyalty – retention and referrals – is to determine and put into effect changes in your organization that will elevate your customer experience to the level where they will shout your name from a mountaintop!

Walt Disney once said, “Do what you do so well that they will want to see it again and bring their friends.” These words have become a well-known maxim for pursuing excellence in customer service, but they are also the foundation of understanding what customer loyalty is all about. When we’re excited about something we can’t wait to tell someone… or even everyone!

When you are ready to develop and implement a program to help you gauge and improve your customer loyalty, Ellis, Partners in Management Solutions is proud to share our exciting product, the Customer Intelligence Application, with you. Contact us for more information.

† Pew Research, 2011

The Loyalty Effect, F. Reichheld