Gaining Customer Loyalty: the what, why, and how
Customer Loyalty is a great way of gauging the success of your CPG (customer packaged good) business as it encompasses the trust, satisfaction, and the emotional connection customers have with your brand. By understanding how to drive customer loyalty for your business you can ensure continued and sustainable growth for your business.
What Is Customer Loyalty?
Customer loyalty is the commitment customers have to a brand’s product, that causes a customer’s repeated purchase of said product. The term refers to more than just a customer’s purchasing behavior, but also their emotional attachment to the brand. This results from associating positive experiences with the brand such as great customer service, connecting with a brand’s value, or enjoying a high quality product. However these experiences need to be built up over time to create a deeper connection with the brand.
Why is it important?
Improved Customer Retention
By driving customer loyalty, you create a customer base that will continue to come back to the brand over and over again, meaning less time and resources is spent on customer acquisition. Think about products that you don’t need advertising to repeatedly buy; whether it’s a box of tissues that you don’t buy from any other brand or a roll of toilet paper that fits your liking, advertising isn’t driving your purchase, but rather your loyalty to that brand.
Positive Word of Mouth Referrals
Satisfied and loyal customers become brand advocates in their everyday lives. Customer referrals are more highly regarded than advertising when it comes to a customer’s purchasing decisions. In fact, according to the paper “Referral Programs and Customer Value” (authored by P. Schmitt, B Skiera, & C. Van del Bulte) customers who are referred have a higher “contribution margin” and have higher retention rates that don’t drop off over time. Referrals are a far more meaningful form of customer acquisition than other methods and can lead to long term success for companies.
How do I drive customer loyalty?
Gaining customer loyalty requires an intentional effort to think about what you want a customer to feel every time they experience your brand in their everyday life. This does not mean that every experience needs to be positive—people make mistakes—but these negative experiences should not be what the customer associates with your brand. This can be done in a few ways:
Quality Products
Delivering a high quality product that exceeds a customer’s expectations is required to ensure that customer loyalty grows. Without a good product, people won’t be willing to talk about your product or develop an attachment to your brand.
Customer Service
The process of buying should be something that the customer associates with being positive. The customer should have a seamless or even enjoyable time shopping for your product. Customer service is also the avenue through which the inevitable mistakes that you make—rather than become a negative stain on a customer’s impression of your brand—become a positive aspect of your brand. Consider Trader Joe’s customer service: Trader Joe’s employees are known to be friendly, but their customer service is also exceptional. Their satisfaction guarantee is known for not requiring receipts and allows any customer to return products—including perishables—at any point to get their money back. This guarantee ensures that if the company makes a mistake or sells a product with a misleading best by date, that the customer’s experience will end up positive regardless ensuring that the customer leaves happy.
Act on Customer Feedback
This goes hand-in-hand with customer service but is equally important to consider. Improving based on customer feedback and changing based on market preferences is required to maintain relevancy in whatever market you participate in. If you accrue customer loyalty but aren’t willing to change based on the loyal consumers’ tastes, these customers will quickly move on to a different brand that fits their preferences better.
Costco: a case study
Costco is a business with statistics to prove that their customer loyalty efforts work. Looking at their 10k, over 2023, both membership renewal rates and membership upgrades increased. Costco boasts a 90.5% membership renewal rate, showing that year on year more customers continue to pay membership fees to shop from Costco’s curated wholesale warehouses. Costco does this by creating high quality, cheap products through their Kirkland brand. These products maintain prices lower than their name brand alternatives yet are of high quality and keep customers coming back to Costco to buy these products. Furthermore, Costco ensures a good customer experience through their relatively inexpensive food courts, an abundance of free samples throughout the store, and maintaining a generous return policy that requires no receipt and allows people to return their products years later. Since Costco also ensure that almost every product in their store maintains a standard of quality, customer’s experience in the store and with the products regardless of their satisfaction with the products are high enough to keep the high membership renewal and grow it.
Challenges Maintaining Customer Loyalty
Changing market conditions and increasing competition can make it tough to maintain customer loyalty since—due to improvements from competitors—it can be hard to maintain the level of customers’ rising expectations. Additionally, inconsistency in the services you provide, from your products to customer service, can lose customer loyalty since it doesn’t maintain their expectations and other companies will be able to.
Conlusion
Customer loyalty is an integral part of maintaining a sustainable, low cost business in an ever-changing competitive market. By keeping in mind what your customer’s expect, providing stellar customer service, and creating high quality products.
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