Top 5 types of customer loyalty
Customer loyalty is a key factor in the success of any company. By building relationships with customers, companies can create long-term customer loyalty and thus increase sales and profits.
There are many different ways and measures to build customer loyalty in a targeted manner: From offering rewards programs to excellent customer service, virtually everything is possible.
However, digitalization in particular offers a wide range of new opportunities in customer relationship management.
Overview
Situational loyalty
Legal loyalty or contractual loyalty
Economic commitment
Technical-functional bond
Emotional loyalty
Understanding how these strategies for effective customer retention work and what impact they have on the customer relationship will help you develop effective measures to attract and retain loyal customers - which should be the goal of every business anyway.
In this article, we will discuss the different types of customer loyalty that companies can use to attract new customers and keep existing customers coming back. We will specifically address the top five types of customer loyalty that are particularly important to consider.
Why should customer loyalty measures be important at all?
Customer loyalty measures are of crucial importance for several reasons. But first, the definition of the term "customer loyalty": This refers to "(...) all measures taken by a company that are aimed at triggering repeated purchasing behavior on the part of the customer and winning regular customers from walk-in customers through customer orientation and customer satisfaction."
(Source: Wikipedia/Customer loyalty)
Three reasons that speak in favor of customer loyalty measures
Regardless of the industry and any peculiarities of the respective company, the following applies...
...First: it is generally known that retaining existing customers is more cost-effective than attracting new ones. Loyalty can lead to customers buying additional products and services and thus increasing sales.
...Second: Satisfied customers are often the best brand ambassadors and can attract new customers to your company through word-of-mouth (i.e. sharing positive experiences with brands or companies) - this is another way to grow your customer base.
...Third: customer loyalty can help build a lasting and sustainable relationship between the company and its customers, which ultimately leads to stronger brand positioning.
1) Situational loyalty
In a situation of situational customer loyalty, buyers cannot decide freely, as they are "forced" to choose the only available offer in the vicinity. The offering business or company has a monopoly here, both in terms of space and time, and can set prices that are non-negotiable for buyers.
This phenomenon is particularly common in rural areas, where there is sometimes only one supplier - for example at petrol stations or supermarkets. Large shopping centers also sometimes tend to set their prices based on location, making them more expensive for consumers. In both cases, supplying companies have power over consumers and can exploit their position to make higher profits.
2) Legal or contractual loyalty
There is a contract between the company and the customer that ensures that the buyer can make purchases under fixed conditions. The contract offers consumers protection against unwanted price increases or other unfair practices by the company offering the goods.
It also enables the supplier to build a trusting relationship with its customers and thus increase sales. In return, buyers are expected to purchase the offered goods or services at the agreed conditions and make payments within the agreed time frame. This enables the offering company to secure revenue and minimize risks when purchasing. A classic example of this is a gym contract or a subscription to an internet-based streaming service such as Netflix.
3) Economic loyalty
Economic customer loyalty is based on (not necessarily financial) switching costs that customers would have to pay to the company offering the service if they wanted to switch to the competition. In addition to monetary values, this can also involve personal expenses, e.g. labor costs, which can arise when switching providers to the competition.
In terms of individuals, a typical example here would be the use of several electronic items (e.g. laptop, headphones and smartphone) that can be used together in a way that offers beneficial added value. Another example would be a software package consisting of several individual components whose functionalities are coordinated or integrated with one another.
In some cases, this involves payments that have already been made to a company offering the product, which give the buyer certain advantages at this point in time.
4) Technical-functional loyalty
The customer may use a specific technical system or software provided by the offering company. This usually involves updates and maintenance work by the provider to keep the system or software up to date.
This makes the customer dependent on the company, as they rely on the provider's expertise for upgrades, maintenance and other changes. Entrepreneurs have a decisive advantage here: they can retain customers to use the products or services by offering them what they need without them having to look for an alternative provider.
Technical loyalty is particularly relevant for companies with a digital focus, as it enables them to retain customers in the long term and generate revenue at the same time.
5) Emotional loyalty
This variant of customer loyalty is a type of special relationship that customers enter into voluntarily. It is based on mutual trust and is the result of the customer's satisfaction with the company or product.
This type of customer loyalty is extremely valuable, as it can not only increase sales, but also contributes to the formation of loyal customers. In addition, this emotional connection strengthens the company's image and makes it more attractive to new customers. However, if customers are no longer satisfied or lose trust, this bond can be broken at any time - there is a clear difference between this and a legal or contractual bond.
By the way: You can find more information on customer loyalty in a broader sense - for example, how you can best recognize satisfied and dissatisfied customers - in the following blog post.
The Bäckerei brotsüchtig app by hello again
Community building through a digital loyalty club and direct communication.
Which customer retention measure really works best?
There are many different types of customer loyalty, each suitable for different purposes and situations. When choosing the optimal customer retention measure, it is important to find a balance between the costs and the potential gains in order to achieve the overall goal - higher sales.
In most cases, the individual measures will be based on a combination of several types of customer loyalty: For example, digital bonus programs offer clear added value, but no contractual commitment. Instead, an emotional factor is created: Customers can engage more deeply with the company's offering and interact in more diverse ways, as more touchpoints are available.
In any case, the decision should be made taking all factors into account - especially cost efficiency - in order to achieve the best possible result.
