Loyal customers are ideal for all businesses. They are more likely to buy more than one product, make positive reviews, recommend us to others, and be more willing to pay a higher price for our products.
But how do we identify our loyal customers? And what can we do to keep more of them loyal to us? Various market research methodologies attempt to understand important factors relating to customer behavior and augment customer loyalty through initiatives like rewards programs, discounts, and complimentary items.
That’s where customer loyalty research comes in.
Loyalty research involves collecting data and feedback about our customers’ attitudes, perceptions, and behaviors toward our brand. This information can help us identify what loyalty looks like for our customers and how we can increase it.
What is Customer Loyalty?
Customer loyalty is a deeply held commitment to re-buy or re-patronize a preferred product or service consistently in the future. This commitment results in repetitive same-brand purchasing behavior. It is about both attitude and behavior.
We can view loyalty in terms of the brand. People are often loyal to a brand because they associate it with a positive experience, such as excellent customer service or consistently high product quality. This is where brand loyalty comes into play, as it fosters stronger connections with consumers and encourages repeat business.
It’s about many positive interactions that build trust. This doesn’t mean every interaction must be flawless. Although customer loyalty can handle a few negatives, it provides a strong enough relationship with the brand to overcome a few bumps in the road.
Customers won’t necessarily lose their loyalty to a brand if they have an unpleasant experience. It’s all about how the business deals with the issue.
Customer loyalty is powerful because it involves trust.
Share of Wallet
When measuring loyalty, it’s important to determine if it really means anything or if it will benefit the business. When you consider financial performance, customer loyalty is all about “share of wallet.” While market share is an important measure of success, the share of wallet is a deeper metric that better shows how companies can become exponentially more profitable without exponential growth in the number of customers.
How much money will your customer spend regularly with you?
What is Share of Wallet (SOW)?
The customers’ share of wallet (SOW) is the average amount they regularly devote to a brand over competing brands in the same product group.
Said another way, the share of wallet is the percentage of the money a consumer spends on one particular brand in relation to that spent on competing brands.
Inertia
Customers may continually frequent certain businesses, such as supermarkets, but this behavior may not be loyal. They may shop at the same supermarket every week but will readily switch to a different one if they get a better deal.
Consider mobile phone carriers, insurance, or energy bills. They will often have a significant share of your wallet for many years. This is not necessarily because of loyalty. It is usually because of either necessity (a contract that you have signed for at least a year) or inertia (“you don’t want to shop around”).
Market research has shown that switching costs are not as strong a technique for maintaining the customer base as maintaining customer loyalty.
Customer loyalty goes beyond whether customers spend money with you. It’s also about emotion and identity.
Loyalty and Identity
Customer loyalty varies widely across different industry segments.
Identity products are those that are highly visible and which support a customer’s self-image or public persona.
Selling and building customer loyalty with an identity product is quite different from a product like an insurance policy.
Your car is a prime example of an identity product. The jewelry and clothing you wear, as well as the mobile phone you carry every day, are identity brands.
So, with an identity product, it’s not about the amount you spend—your loyalty exists because of your relationship with the brand and its role in helping you define and communicate your identity. This relationship is deeply tied to the brand experience, which is crucial in fostering long-term customer loyalty.
Why is Customer Loyalty Important?
A loyal customer is…
- 5x more likely to repurchase
- 5x more likely to forgive
- 4x more likely to refer
- 7x more likely to try a new offering
These behaviors are positive and helpful to a business. They reflect both a positive attitude towards the company coupled with positive behavior.
Loyal customers are a driving force for business growth and are valuable customers.
Traditionally, companies have used customer satisfaction surveys or net promoter scores to identify loyal customers and measure customer loyalty. Unfortunately, these measures focus primarily on attitudinal measures and neglect behavioral elements.
Customer satisfaction does not guarantee loyalty.
“Between 65% and 85% of customers who defect said they were ‘satisfied’ or ‘very satisfied’ with their former supplier.”
-Frederick F. Reichheld, “Loyalty and the Renaissance of Marketing”
Loyalty is essential for many reasons. Not least, it takes much less effort to keep a customer than it does to gain a new one. If you don’t have to, why would you spend more money to sell to an existing customer?
According to Paul Farris, author of Marketing Metrics, a repeat customer has a 60-70% chance of converting.
New customers can be difficult to convert as they know little about your business. It is important to make them aware of your business and brand and a detailed marketing strategy to drive them down the funnel.
Customers who have already purchased from you will be more familiar with your business, and persuading them to buy again will be easier. This means that the more repeat buyers you have, the less money you will have to spend on conversion strategies like abandoned cart offers.
There are other reasons, too. Loyal customers will continue returning to you, spending more time with you, and telling their friends about your brand.
Mapping the Loyalty Landscape
Several elements contribute to a company’s loyalty landscape. Any loyalty research project or measurement program must assess the relative contribution of each.
Perceived Quality
What are the customers’ impressions regarding the company’s brands and how they are delivered? Perceived quality is instrumental in effective customer acquisition strategies.
Perceived Value
How do customers feel about the price and value-for-money of the company’s brands? We may enhance the perceived value through the employment of loyalty programs.
Switching Costs
How do customers perceive the switching costs if they decide to leave?
Dialog
Is the company reaching out and communicating with its customers frequently?
Customer Experience
How do customers experience the brand across all touchpoints? The customer experience is important for cementing the brand's relationship with new customers on an emotional level.
Service Recovery
How do customers feel when the company makes a mistake? How do they feel about the way the problem was handled?
Customer Satisfaction
How satisfied are customers with the company’s products?
The Asymmetric Loyalty Matrix
This matrix identifies and provides the ability to segment customers across critical loyalty categories to assess attitudinal and behavioral outcomes.
Positive Customer Churn
Every business experiences churn. Customers will discontinue using a company’s products or services for several reasons.
The goal is not only to minimize churn and assess retention opportunities but also to ensure that those who leave do not do so with a negative opinion of the brand.
High-Risk Negative Defectors
Customers that are leaving and who had a negative attitude toward the brand are a threat as they may become brand assailants who actively discourage others from using the brand.
The goal is to assess retention opportunities and to eradicate assailant motives.
Trapped
Trapped customers have a negative attitude towards the brand but must continue or even expand their relationship. These customers will defect when presented with the opportunity and may become brand assailants.
The goal is to ease the negative attitudes of these customers and improve their customer experience.
Loyal Customers
Customers that develop a positive attitude toward a brand pass through four stages of customer loyalty development, each requiring different management strategies.
Customers that develop a positive attitude toward a brand pass through four stages of customer loyalty development, each requiring different management strategies.
Cognitive Loyal is the first stage of loyalty and is broadly based on brand perceptions of superiority and not deep experience.
Affective Loyal is the second stage of customer loyalty and, in this stage, customers develop a genuine liking and positive attitude toward the brand. This is based on repeated satisfying experiences.
Conative Loyal is the third stage of loyalty and at this stage, customers develop high involvement and intense connections with the brand. At this stage, customers become brand advocates.
Champion Advocates are customers in the fourth stage of loyalty. Here, they become evangelists and will work tirelessly to overcome any potential obstacles that might prevent them from using their preferred brand.
Loyalty Research
Customer loyalty research projects are an important type of market research. They begin with a strategy session to align the research agency with the interests, concerns, and desired outcomes of the company.
These customer loyalty research projects begin with measurement, principally through surveys. Once the survey is completed, the data is analyzed and the report is prepared.
The customer survey is designed, coded for online participation, and then launched. Loyalty surveys target customer behaviors and attitudes within the universe of current customers.
Typically, these surveys are done online, but they can also be conducted by telephone. History has shown that today, most customers prefer to take part in online surveys. We tailored the sample size of the survey to the specific needs of the company but is at least n=200.
Once the results of the customer loyalty research survey are collected and collated, the analysis begins. First, we segment the customers according to their loyalty type. Subsequently, they are profiled and evaluated using detailed diagnostic analysis.
Once the analysis is completed, the final report is prepared and a presentation is made to the company.
Profiling Segments
Once the loyalty segments have been sized, we develop a detailed profile to facilitate strategic prioritization. We should fully represent each customer segment in the survey, so quotas may be necessary to ensure proper representation.
We must customize the profile to a company’s particular business and brands.
Typical profiling variables for customer loyalty research include customer value, the product used, age of client relationships, complaint profile, servicing costs, frequency of contact, and participation in a rewards program.
Activation
We present results in a cross-functional workshop that is ideally made up of representatives and stakeholders of each key customer touchpoint. The workshop is used to prioritize loyalty activation insights.
Output from the workshop is summarized and documented for the company in a permanent report, replete with raw data, analyzed data, charts, and slides. For each loyalty segment, we develop a strategic impact matrix, mapping the impact on loyalty and relative performance for each of the loyalty drivers.
Once segments are prioritized for the company, improvement areas can be easily mapped and activated.
Six Impacts of Increased Customer Loyalty
- Loyal customers buy more frequently and are often willing to pay more.
- These customers do not stray and their lifetime value increases.
- Loyal customers actively refer others to the company.
- They increase employee loyalty.
- Loyal customers provide valid and constructive feedback.
- A loyal customer is more forgiving.
According to a market research study conducted by Bain & Co., increasing customer retention by 5% increases profits by 25%-95%. Most companies underestimate the raw power produced by creating loyal customers.
What is Customer Lifetime Value?
Customer lifetime value (CLV) refers to the total value of a customer’s business over the entire duration of the relationship. This is an important metric because it costs less to keep existing customers than to gain new customers.
Increasing the value of existing customers can be a great path to growth. Understanding the CLV can help businesses create strategies to attract new customers or keep existing customers while still maintaining profit margins.
CLV differs from the net promoter score (NPS) which attempts to measure customer loyalty and CSAT, which is another type of market research that measures customer satisfaction. CLV is tangible and linked to revenue rather than a promise of loyalty or satisfaction.
Customer Lifetime Value (CLV), is an important metric that businesses use to measure the value of long-term relationships. CLV is directly tied to the company’s bottom line, making it especially useful for customer success teams and marketers. It allows them to quantify an organization’s customer experience (CX).
Certain people will be more loyal to your company than others. You might find them loyal initially, but then lose that loyalty. Or they may be neutral and build loyalty. It is possible to notice that their loyalty manifests in their buying patterns but does not translate into related behaviors such as referrals, positive reviews, or recommendations.
It is important to measure customer loyalty over time because of its complexity and power. We can do this using a variety of metrics that capture customer journeys via business data and customer feedback.
This will allow you to understand your customer base and the loyalty behaviors that drive them. It also allows you to determine how your company can help customers stay loyal. This is true regardless of whether you are a large corporation or a small company. Knowledge and insight are the keys to customer loyalty.
Loyalty Programs
Retailers and other companies sponsor loyalty programs that offer discounts, rewards, and other incentives to keep and attract new business.
These loyalty programs should encourage repeat business and offer a reward for loyalty to the store or brand. The rewards are usually higher for customers who patronize the merchant more often and spend more.
Loyalty programs serve two primary functions. They reward customers who return their repeat business and provide the issuing company with a wealth of data and consumer information. Companies can still evaluate anonymous purchases, but loyalty programs provide additional information about the products and the effectiveness of certain incentives.
Conclusion
Customer loyalty research is a valuable method of identifying not only a satisfied customer but one that is likely to exhibit both positive attitudinal and behavioral characteristics. While a satisfied customer is a positive asset for a company, a loyal customer is more valuable by an order of magnitude.
Companies of all sizes can use loyalty research. This type of research can help determine the goods and services your customers value most. Focus on the customer is an asymmetric strategy to help you win in the marketplace against competitors that are not as customer-centric.
Frequently Asked Questions About Loyalty Research
What is loyalty research?
Loyalty research involves gathering and analyzing data about your customers' behaviors, preferences, and satisfaction levels. This helps businesses understand what drives customer loyalty and how to improve it.
How can loyalty research benefit my business?
Loyalty research can provide insights into customer satisfaction, identify areas for improvement, and help develop strategies to increase customer retention. This can lead to higher customer lifetime value, more repeat business, and improved brand reputation.
What methods are used in loyalty research?
Common methods include surveys, focus groups, customer feedback, and data analysis of purchase behaviors. Advanced techniques might involve sentiment analysis, net promoter scores (NPS), and customer journey mapping.
How often should I conduct loyalty research?
The frequency can vary based on your business needs, but it's generally recommended to conduct loyalty research annually or biannually. Regular monitoring helps track changes over time and adapt strategies accordingly.
What key metrics should I focus on in loyalty research?
Important metrics include customer satisfaction scores, NPS, customer retention, churn, and repeat purchase rates. These metrics help gauge your loyalty programs' effectiveness and identify areas for improvement.
How do I implement changes based on loyalty research findings?
Start by analyzing the data to identify key areas of improvement. Develop action plans that address these areas, such as enhancing customer service, improving product quality, or launching targeted marketing campaigns. Monitor the impact of these changes and adjust as needed.
Can small businesses benefit from loyalty research?
Absolutely. Loyalty research is valuable for businesses of all sizes. For small businesses, understanding what keeps customers returning can be crucial for growth and building a loyal customer base.
How does loyalty research integrate with other marketing strategies?
Loyalty research complements other marketing strategies by better understanding customer needs and preferences. This information can be used to tailor marketing messages, develop personalized offers, and enhance overall customer experience.
What are some common challenges in conducting loyalty research?
Challenges include collecting accurate data, ensuring a representative sample, and interpreting the data correctly. It's also important to act on the findings promptly to make meaningful improvements.
How can Asymmetric Marketing help with loyalty research?
Asymmetric Marketing offers comprehensive loyalty research services, including survey design, data collection, and analysis. Our team can help you interpret the findings and develop actionable strategies to boost customer loyalty and drive business growth.
Use Loyalty Research to Power Your Growth
Asymmetric, led by former Army Delta Force operator and corporate executive Mark Hope, can help you implement these ideas in your business. You can contact Mark by email at mark.hope@asymmetric.pro, or by telephone at +1 608-410-4450, or you can schedule a complimentary strategy discussion by clicking here. You can follow all of his articles on Medium.
Mark Hope
Mark A. Hope is a co-founder and Partner of Asymmetric Marketing – a unique agency specializing in building high-performing sales and marketing systems, campaigns, processes, and strategies for small businesses. Asymmetric has extensive experience with organizations across many industry segments. If you would like some help in implementing ideas like these in this article, feel free to give Mark a call at 844-494-6903 or by email at mark.hope@asymmetric.pro. Read Mark's other work on Medium.