Customer Loyalty - why loyal customers are key to your business growth
Why Loyal Customers Are The Key To Your Business Growth

Customer retention and customer loyalty have always had massive impact on retailers, yet many of today’s retailers — brick and mortar and e-commerce — have not improved the way the view and treat their customers since the 1990s. While they have installed massive data analytics teams, data scientists, and customer service specialists, there seems to be a clear miss on what is really going on in the minds of customers, especially in the age of social media.

In The Beginning How The Web Has Changed

In the early years of e-commerce, it was universally accepted that customer loyalty was irrelevant; with only the click of a mouse customers could shop the world to find the cheapest price––Here today, gone tomorrow was the cry––always looking for massive amounts of ‘hits’ to websites.

Thankfully much has changed since the early days of the Internet, yet some companies still compete only on price, discounts, and ‘new customer offers’ always trying to bring in new business, while neglecting the hundreds of thousands of dollars spent to acquire their current customers. What about their rewards? What about the fact they are already customers?

Customer loyalty is about much more than repeat business. Indeed, even a customer who buys again and again from your company may not necessarily beloyal, but instead may be trapped by inertia, indifference, or exit barriers erected by the company or circumstance. They may also just be waiting around for you competition to inspire them to leave. Without loyalty, your business has no guarantee for residual income from any one customer — whether in B2C or B2B.

Without Loyal Customers There Is No Growth

Profitability is therefore clearly affected by true customer loyalty. While repeat or regular customers aren’t always profitable, their choice to stick with brand’s product or service typically reduces a company’s customer acquisition costs (CAC). This continued loyalty also drives your businesses top-line revenue growth. Clearly, an enterprise can not scale growth if its ‘customer revenue bucket’ is leaking. Indeed, loyal customers can raise the revenue ‘water level’ in the bucket; customers who are truly loyal tend to buy more over time, as their incomes grow, or as they assign a larger share of their wallets to the brand they feel treats them well and respects their business.

The Loyalty Affect–Asking The Right Question

Research proves that in just about any industry regardless of the size of the company, there is a strong correlation between a brand’s overall revenue growth and the percentage of customers who are promoters — or brand evangelists — or those who recommend a company to a friend or colleague on their own.

So, what is the right question? Based on the proven success of the Net Promoter Score research, it is as follows:

How likely is it that you would recommend our company to a friend or colleague?

Using this question to obtain a Net Promoter Score provides your business with a fundamental customer loyalty metric. It was introduced by Fred Reichheld in his 2003 Harvard Business Review article “One Number You Need to Grow”.

Now how do you measure the answers or results?

It must be intuitive to customers to readily assign a number so that your team or partners can be responsible for interpreting the results, held accountable for these results, and to take appropriate action. With customer loyalty measured as a strategic goal, marketers can work against these brand performance results metrics.

This only requires a sliding-scale as simple as the question that will effectively segment customers into rational groups deserving different attention — from automated to personalized responses.

Ideally, the scale will be easy to understand so that executives, engineers, investors, or analysts can grasp the resulting data without the need of any translation.

Closing The Customer Feedback Loop

Net Promoter teaches that customer feedback should be the start of a closed loop. Much like the frequently quoted Satmetrix Customer Acid Test, on a scale where ten means “extremely likely” to recommend, five means neutral, and zero means “not at all likely.” When we examined customer referral and repurchase behaviors along this scale, we found three logical clusters:

Based on Mr. Reichheld’s research, the respondents are grouped as follows:

  • Promoters (score 9–10) are loyal enthusiasts who will keep buying and refer others, fueling growth
  • Passives (score 7–8) are satisfied but unenthusiastic customers who are vulnerable to competitive offerings.
  • Detractors (score 0–6) are unhappy customers who can damage your brand and impede growth through negative word-of-mouth.

While the one-to-one interactions are powerful relationship builders, the Net Promoter teaches that customer feedback should be the start of a closed loop. There is no benefit to ambiguity in these surveys, so keeping the numbers simple and consistent provides measurable customer transparency for scalable impact on top-line revenue growth.

Two additional smart loops build on the frontline process. A one-to-many closed loop for action planning that engages executives and management in overall improvements to customer experiences. Then, a resource allocation closed loop guides executives to engage in organization-wide prioritization.

Also, it is important to limit the promoter designation to only the most enthusiastic customers to avoid grade inflation, which often infects traditional customer-satisfaction assessments, in which a customer only a gradient north of neutral is considered a satisfactory result, or worse yet, a promoter.

Segmenting customers into three categories — promoters, passively satisfied, and detractors —will provide the most intuitive and best predictor of future customer behavior. Importantly, my focusing on enthusiastic customers, it will be intuitive and simple for your company’s marketing and customer relationship managers to move the needle and be measured around the goal of increasing promoters and reducing detractors.

Converting Customers into Promoters–The Key To Revenue Growth

Marketing executives are always chasing the sometimes-elusive lead generation silver bullet, ignoring the simplicity of NPS. The call for constant ‘customer acquisition’ is so loud, they forget the solution that is in your CRM. Has big data turned us from focusing on simple and measurable results in our own backyard?

Over the past 15 years, I have found it is because of the love of complex data; analyzing touch points, heatmaps, and complex data mining algorithms. This analysis is great to leverage big data against pre-determined data sets that map to behavioral visitor or customer modeling. They do nothing to know the real ‘intentions’ of the consumer, visitor, or customer. The after the fact analysis of behavior attempts to get into the mind of what occurred, rather than what did not occur.

The methods for maintaining and activating promoters through customer retention, loyalty, and growth programs, should be practical, sustainable, and predictable.

Stay on The Path–Keep It Simple

Everyone in your organization must know which customers they are responsible for, how to manage the touch points, and communications feedback. Lately, I have seen the leadership of this process by the Chief Marketing Officer or Chief Customer Officer (many times one in the same position), than for the COO, or GM of a Business Unit. Truthfully, with multiple stakeholders that are affected by the success or failure of this endeavor, it is too important to delegate to just one side of the enterprise.

The net-promoter number is still very relevant nearly 20 years after much of these surveys and research was put in place. For sustainable, profitable growth, the path begins with creating more promoters and fewer detractors and making your net-promoter number transparent throughout the enterprise. This number is the one number you need to grow. It’s that simple and that profound.

The only real path to sustainable and profitable growth, lies in a company’s discipline to support and activate loyal customers to become a powerful marketing department in everyday life, and on the web.

Where will your business be in 2017 and beyond? I encourage every business executive, and company leader to take action now to activate customers and give them something exciting to promote. If not you, someone else will.