The term customer loyalty is defined comprehensively as all of a company's activities that contribute to turning a one-time customer into a returning regular customer and thus a regular customer in the long term. The aim is to establish, maintain and expand a long-term and satisfied business relationship with the customer through a positive interplay of marketing and customer loyalty measures - for example, the targeted use of various customer loyalty tools or the introduction of a customer relationship management system.
In highly competitive markets, more and more providers are facing the following challenge: How can I effectively and accurately acquire new customers and retain them in the long term?
Customer acquisition is often cost-intensive without it being possible to predict whether this investment will pay off in the long term. However, regular customers who make repeat purchases already have and, with appropriate customer care, will continue to generate sales.
Investing in customer loyalty measures is particularly relevant for small and medium-sized companies. They should be an essential part of the marketing strategy, as satisfaction, trust and loyalty serve as components of customer care to build long-term customer loyalty and a large customer base. An overarching goal rounds off the strategy in practice.
Through well-coordinated customer retention measures, sustainable relationships can be built with customers. In this way, you can turn new customers or occasional buyers into fans of your brand. This investment is worthwhile, as loyal regular customers are particularly valuable because they ...
are less price-sensitive,
actively recommend your company and your products to others,
shorten the sales cycle for new customers through their recommendations,
are more tolerant and forgive mistakes.
For a customer to be successfully retained, he or she must successfully go through a process as part of customer relationship management. Experts refer to this as the customer retention chain. This is where the various phases are combined so that effective customer loyalty is ultimately achieved.
Above all, this also leads to an increase in turnover. First, the customer must be acquired. In the best case scenario, the customer is then satisfied with the service and the product. Only if this is the case will the customer continue to spend money with the same company in the future.
In detail, there are the following phases:
The illustration clearly shows which phases must be successfully completed. Everything starts with the initial contact, which is usually the purchase of a product. However, customer loyalty is not just about closing the sale once. The sales experience should therefore take place in such a way that the customer feels completely comfortable, well advised and satisfied.
By making a purchase in the first phase, the customer then has the opportunity to evaluate the product and the purchase process. An important focus of the customer journey is on customer communication and customer service. If a customer feels individually addressed and treated, stronger customer loyalty is possible. They can now be easily led into the next phase of customer loyalty.
Acceptance and trust play a decisive role in loyalty. In this phase, the customer is already less willing to switch and is more likely to make a repeat purchase. This phase can be positively reinforced with a digital bonus card.
Phase four, customer loyalty, shows that the previous measures have worked. Ideally, the regular customer will now not only shop with you more frequently and more often, but will even become a brand ambassador and diligently recommend your company to others - at no additional cost - this is known as cross-buying behavior.
This concludes the chain of effects with phase five, economic success.
Important: The customer loyalty phases cannot be interchanged or skipped. Each one is fundamental to initiating the next phase. If, on the one hand, product quality leads to customer satisfaction, it is in the hands of the provider how the customer will remember him or her emotionally in the future. The effects of customer loyalty are therefore very complex and generate one thing above all in the long term: turnover!
How can you strengthen the customer relationship and what are the key elements of customer loyalty?
Customer satisfaction is not only crucial for sustainable company growth, but also an important building block on the road to customer loyalty.
A key element of customer loyalty is recognizing dissatisfied customers at an early stage. If you react quickly and, above all, correctly, you can take countermeasures in good time.
Clear warning signs of dissatisfied customers are, for example the following:
Complaints and negative feedback
- In most cases, customers contact the company directly with negative feedback. It is important to take complaints seriously and to have an effective complaints management system.
Negative word-of-mouth advertising
- Social networks and various review portals are very often used to spread negative feedback quickly and easily. A quick response is required. Show understanding and analyze exactly what triggered the dissatisfied mood.
- A "silent" customer is also a sign of dissatisfaction. Here it is important to keep at it. Ongoing and direct communication is important in order to strengthen the customer relationship.
- The most obvious sign of dissatisfaction is, understandably, migration to a competitor.
Demonstrate reliability and respond promptly to inquiries, complaints etc.
Be conscientious, attentive and courteous
When regular customers suddenly stop buying, every company is at risk.
It is clear that satisfied buyers are essential for the long-term success of a company. The advantages are obvious:
- Satisfied customers are highly likely to buy other products or services. This increases sales without the need for time-consuming and cost-intensive new customer acquisition.
Higher customer lifetime value (CLV)
- Customer lifetime value is an important key figure in business management. It describes the profit contribution of a customer over the entire duration of the business relationship. The calculation of CLV takes into account both past data and possible forecasts for the future.
- Recommendations of your own products or services by satisfied customers can make a very effective contribution to acquiring new customers and thus significantly shorten the sales cycle
Lower price sensitivity
- If a customer is satisfied, he or she is less likely to switch to the competition in the event of a price increase. This gives the provider more leeway in its pricing policy.
Forbearance in the event of mistakes
- Has the company made a mistake? Regular customers are less critical and more forgiving.
Basically, it is possible to categorize attachment into habitual, voluntary and involuntary attachment. These three types of loyalty can also be subdivided into further aspects:
Situational loyalty (loyalty of customers through physical proximity to the company)
Contractual loyalty (loyalty of customers for a certain period of time)
Economic loyalty (customer loyalty through price discounts and benefits)
Technical-functional loyalty (customer loyalty through a specific technical system)
Emotional loyalty (customer loyalty on a psychological level)
Source: Cf. Homburg / Bruhn (1999): Customer Loyalty Management: Basics - Concepts - Experiences, p. 10
There is no one magic number that tells you how well a customer loyalty program is working. Three decisive levers form the basis for success and the resulting measurement of success:
Additional sales from increased purchase frequency (Loyal customers buy more often)
- How regularly do customers buy from my company and how often do they do so within a predetermined time interval compared to a non-customer?
Additional sales from increased shopping cart - loyal customers buy more
- How many products do customers buy and what is the value of their total purchase compared to a non-customer?
Additional sales from increased customer loyalty - retaining existing customers costs less than acquiring new customers
- How much does it cost my company to retain a customer compared to acquiring a new customer?
The profit of your own company should always be tracked and kept in mind, i.e. customer loyalty should be measured.
The most important key figures at a glance:
Customer retention rate
Customer lifetime value (CLTV for short)
Redemption rate (vouchers)
Net promoter score- -
So the fact is that no company can survive without regular customers. It is important to retain them in the long term and reward their loyalty. In addition to the pricing strategy, brand awareness and the high quality of the products offered, a close relationship with the customer ensures long-term success.
While the acquisition of new customers is often associated with high costs, existing relationships with consumers can be cultivated using simple means such as a digital customer loyalty program.
In recent years in particular, a wide range of different activities, known as customer loyalty tools, have developed. The most frequently used measures can be roughly divided into the following categories:
Classic measures or instruments for retaining customers
Magazines, white papers, newsletters
Gifts as a thank you
Communicative measures and instruments for customer retention
A fixed contact person for each customer
Complaint management (customer success)
Modern online presence and a user-friendly website
Focus on honesty, including admitting mistakes
The potential of such customer loyalty measures has already been recognized by many companies and is now an integral part of every marketing strategy. For smaller companies in particular, there is also a great opportunity here.
The smartphone is the key channel for implementing a digital customer loyalty program. With an individualized app, companies can get in touch with their regular customers at any time. Not only can they address them personally, but they can also support them and collect valuable data and insights to optimize products, services and business processes.
Such apps have a strong recognition value. Customers feel more loyal to the company and enjoy coming back to the store time and time again. For example, digital loyalty cards can be used in an uncomplicated way and linked to a loyalty point system. You can find success stories of customers from different sectors and how they use their individualized apps in everyday life and the benefits they bring here.
Customer loyalty is the foundation on which a company's orientation should be based. The emotions of the customer, including satisfaction and the resulting behavior, play a major role in this. The efforts of marketing, sales and management should therefore actively strive in this direction.
If the company builds lasting customer loyalty, this can result in a high level of loyalty to the product and the brand. As loyal customers have a higher price tolerance, companies can tend to charge higher prices, with trust playing a major role here. This means that customers often opt for the more expensive version of a product from their favorite brand rather than taking the risk of buying from a cheaper competitor and possibly being disappointed.
Another very positive economic effect of effective customer loyalty is, above all, the advantage of word-of-mouth advertising by satisfied customers. This continuously brings new customers into the business without having to incur additional costs.
Targeted customer loyalty measures should definitely be an important part of your marketing strategy. The growing importance of the topic of customer loyalty will therefore not lose its relevance in modern marketing in the future. And one thing is clear: digital customer loyalty in particular is becoming increasingly important.