Customer Loyalty Demystified

Let’s dive into the nuts and bolts of customer loyalty! Join us as we take a look at what customer loyalty is, as well as how it affects businesses.

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I’m a huge fan of a particular beer that is locally brewed here in Central Texas. I always buy this beer and all of its variations, keep its bottle caps and always drink it out of my branded glass that cost me $12. I even have a baseball hat with an excessively large logo. When I’m out with friends, I fight for this brand to the death, considering anyone who doesn’t like my favorite beer unenlightened and tasteless. Anyone who doesn’t love the flavor is simply a mere mortal posing as a beer aficionado.

Of course we all want our business to have avid customers that will buy more and sing our praises. But what is a loyal customer anyway, and what the heck is customer loyalty? The two concepts are closely related, but there are some important differences to think about when building your overall customer loyalty strategy. So let’s discuss.

First, let’s break down the overall idea into its two root parts, “customer” and “loyal.” According to businessdictionary.com, a customer is an “entity that receives or consumes products (goods or services) and has the ability to choose between different products and suppliers.” In other words, a customer is someone who chooses to buy from you.

Now take a look at the other piece of this puzzle. Merriam Webster describes loyal as meaning, “faithful to a cause, ideal, custom, institution, or product.” So putting it together, a loyal customer is someone who faithfully chooses to buy from you.

Naturally, we crave as many of these diamonds as possible, which is where the idea of customer loyalty steps in. There are several definitions out there, but they all involve a strategy to improve and retain positive feelings for a current customer base that will encourage repeat purchases and increase positive word of mouth. That mouthful ultimately means: customer loyalty is how you make customers faithfully buy from you and then tell others about their positive experience.

Going back to the best beer ever, the company deliberately uses customer loyalty tactics to make me such an advocate. Some of these include: having a good product, assuring easy access to the product, providing free tours of the brewery and sending special offers in their newsletter. I also like the brand because they’re a small, local brewery and they use this to their advantage in their marketing materials.

So now that we know what customer loyalty is, it’s important to ask why the concept is so important to your business – frankly, because it’s easy money and free marketing. Consider the following ideas:

  1. For many businesses, roughly 80% of your revenue comes from 20% of your customers. This is known as the 80/20 rule (MarketingProfs).
  2. It’s much more expensive to acquire a new customer than to keep a current one – five times more to be exact (Intelligraphics).
  3. An increase in loyalty of just 2% is can be equivalent to a 10% cost reduction for some industries (Omega Management Group).
  4. And of course, a loyal customer is much more likely to refer your business to friends or tell nice stories about you, which can bring you new customers for free.

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If your business hasn’t thought about its customer loyalty strategy, it’s time to get started. Your homework for tonight is to think about two things: 1) how does your business specifically define a customer and 2) to what degree does your business define loyalty from those customers?

So let’s raise a (branded) glass to your business as we continue the loyalty chat throughout the rest of this week!

-Matt Winn, Marketing Associate

What questions do you have about customer loyalty? Are you particularly loyal to a certain brand? What do you think about the above ideas? Do you have any experiences with loyal customers? Share your thoughts below!

About 

Matt Winn is Volusion’s Senior Brand Manager, where he helps oversee the organization’s branding and communications efforts. Matt has created hundreds of articles, videos and seminars on all things ecommerce, ranging from online marketing to web design and customer experience. Beyond being a certified nerd, Matt is an avid college football fan, enthusiastic home cook and a self-admitted reality TV junkie.

3 Responses to “Customer Loyalty Demystified”

  1. Customer Management

    Wow! Thanks so much on this article you wrote. I didn’t realize how much more it costs to acquire a new customer than to satisfy a current one. That’s incredible. I will be sure to remember that in my future business.

    Reply
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