What is Customer Loyalty?

I learned the concept of Customer Loyalty during my MBA and tried observing myself as a customer. I found that I have been loyal to many brands and companies. For example, there are many brands that offer oats but I always buy Quaker oats If I don’t find in a supermarket, I will definitely explore other options rather than buying it from other brands. Similarly, I always buy facewash from the same brand. There are multiple reasons for it like the product is really very good, it’s good for me, it’s affordable for me, it suits me, etc. The most important thing is that I am being loyal to the brand by becoming a regular customer.

What is Customer Loyalty?

We all know a customer simply means the one who buys your product or service. A product/service/business has millions of customers but not all are same. Some May be Loyal and Profitable, some loyal but not profitable, some profitable butt not loyal and some neither profitable nor loyal.

Some of the key considerations for managing customer Loyalty

A satisfied customer can be a loyal customer. A loyal customer is one who repeatedly buys your product/services. Customer Loyalty means the likelihood of a customer to buy product/services from you again and again. Loyal Customers account for most of the business’s profit.

Types of customers

In every company, customer relationship marketing aim towards managing the four types of customers to obtain higher levels of loyalty and profitability.

  1. Top performers- They are also known as golden Nuggets or crown jewels of the businesses. With their above-average loyalty and customer profitability, they contribute a lot to business profits. Top performers are further divided into two categories.
    • Advocates: They generally buy almost all the products and services offered by a company.
    • Loyalist: They are generally good at recommending your products and services to others. They can also become the voice of your products or services.
  2. High Potentials- They are the rough cut diamond of any business. They are repeated buyers and contributes a lot to profit but are not loyal.
    • Big Spenders: Big Spenders are repeat customers who buy above average. They buy frequently but for others.
    • Underachievers: They buy often but relatively do a small purchase.
  3. New Opportunities- They are the “new discoveries”, the “unpolished gems”, of a business. They are either first-time customers or returning customers who are not yet loyal or profitable. They need “critical care”.
    • Win back customers: These are the top performers or high potential customers who switched to competitors because of some reasons and are likely to resume their former purchasing pattern with you.
    • New Potentials: They fit the business’s profile for target customers. How they are managed as new customers will determine how their purchasing patterns and customer loyalty will develop.
  4. Non Profits– They are unprofitable and unlikely ever to be loyal. Nonprofits are a drain on a business’s profits because the cost of acquiring them can never be recouped.
    • Misfits: These may be wonderful people and great customers’ needs. While they were initially attracted to this business and its value proposition, they will never be satisfied.
    • Spinners: These customers buy one time and then exit. They buy your product because it is being offered at an attractive price or with another promotional incentive.

Why Customer Loyalty is important?

We all know customers are the rulers of the Market. There are multiple options available in the market. If they will not buy from you then they will buy from your competitors. That’s why loyal customers require because they buy consistently from you only.

Loyal customers helps business grow. Loyal Customers always talk good words about your product and service which develops a positive image of your product/service in the eye of others. This make others buy your product or service.

They also brings new customers through referral. When someone ask them about recommending a good brand of a product/service that you offer, loyalist recommend your brand.

Loyal customers helps generate high profit. In the previous section we discuss how much each and every type of customer contributes to the profit. You can see Loyalist are on the top of the list.

They are very much beneficial for your business in long run as they help you grow consistently.

How to calculate Customer Life time Value?

Keeping a customer happy, satisfying, and loyal for a longer period is not a very easy task. So we need to keep calculating customer loyalty from time to time.

Customer Lifetime Value is an average/economic value that a customer’s relation provided to the company during the period of the relationship between customer and company. In simple words, you can say how a much customer contributed to your profit within a period of customer’s relationship with company.

CLV is used as a measurement category of Customer Relationship Management.

It can be calculated on monthly, Quarterly, half yearly, Annually basis.

In order to calculate CLV first thing you need is data. You need to constantly monitor and observe data. You can classify data into different categories.

You also need below details in order to calculate CLV from Roger J. Best’s Marketing Performance tool.

The period under consideration of analysis (e.g. month, quarter), Discount rate of a company (cost of capital), Planning horizon (how many periods), Frequency of buying/turnover, Average turnover per buying, Estimated customer retention, customer feedback data.

In this all you need to do is to fill your data in starting data section and you will get result in analysis section. It helps you calculate Customer Satisfaction and profitability, Customer retention, Life time value of a customer and Customer Loyalty and profitability.

Apart this tool there are other tools such as moLotus, Hubspot, ChartMogul, Unbounce and Kissmetrics. I would suggest you to explore all tools and choose best.

Takeaways

In this article, you have learned that a loyal customer constantly helps a business grow and is very much important for all businesses. You have learned about the types and subtypes of customers. Top performers are the best type of customers. The concept of CLV is how valuable a customer is to your business during his/her lifetime with your business.

In the end, I have a task for you. Try to observe yourself and let me know in the comment box to which product or service you are proving your loyalty. Also, try to categorize yourself.

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