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Customer Loyalty: What it is and how it can be measured

Customer Loyalty: What it is and how it can be measured

One of the most prevalent misconceptions in today’s business environment is the idea that a repeat customer implies customer loyalty. Business owners and managers like to believe that a customer who brings business again and again is a loyal patron of the establishment. While this may not be far from the truth, there is a subtle difference between a ‘loyal customer‘ and a ‘repeat customer‘.

 

What makes customers loyal?

Let us see the various reasons why a customer may be choosing to do business with you repeatedly:

  1. It takes a lot of effort to go elsewhere
  2. You have achieved cost leadership in your segment
  3. Old habits die hard
  4. They may have developed bonds with your employees (rather than your business)
  5. They are keeping you as a ‘safety back-up’ while actively searching for alternatives

In each of these cases, a competitor can swoop in and win away your customer by attractive discounts, aggressive campaigning or simply upgrading their service offering. It turns out that loyalty is above repeat customers.

Customer loyalty may be loosely defined as a strong belief in your customers that your organization’s product or service is their best available option, maximizing their value appeal. Loyalty is expressed by customers when they stand by your business through thick and thin, when they are not seeking out competitors, and if approached by them, ignore them. They will spend extra time and effort to approach your establishment.

 

How can you build more customer loyalty?

To sum up, customer loyalty is much more than repeat customers, and it goes a long way in building your brand. Here is how you can build loyalty among your customers:

  1. Reward your customers for choosing you over competitors.
  2. Treating your employees well – it is said that employees are the first customers of any company. The surest way for you to induce a sense of customer service in your employees would be to treat your staff just as you would like your staff to treat your customers.
  3. Maintaining accounts of your repeat customers and keeping track of repeat customers preferences and dislikes.
  4. Keeping in touch with your customer base over the Internet – advertising all major events on social media, and a personal email on birthdays and anniversaries.

Easier said than done! Any business operating in the service industry would probably already be doing, or have a plan in place to start doing each of these tasks to strengthen their customer base. The important question that remains then is – how to measure what impact has it created?

 

Measure Customer Loyalty

Quantifying customer loyalty however, can get tricky. There is hardly anything to be gleaned by asking your customers directly if they are loyal to you, as customers may easily report being loyal to several businesses simultaneously! To measure customer loyalty, we need answers to questions that address the behaviors and attitudes of truly loyal customers:

  1. Likelihood of recommending your company to other people.
  2. Likelihood of continuing purchase of products and services from your company, equal to or more than the current quantity.
  3. Believing that your products or services are the best in the market at the current price level.
  4. Opinion formed of staff members who directly interact with and deliver service to them.
  5. Ease of giving honest feedback to your company to help overcome any shortcomings in service quality.

These are few of the questions that can help a business determine which of their customers are strongly attached to the brand, while which are most vulnerable to leaving for a competitor at the first notice.

Measuring loyalty is just a piece of the puzzle. The other part is to figure out why few customers are loyal, few are vulnerable and several lie between the two extremes – let’s call them neutral. And since the best information is always the one that is obtained from the source itself, businesses should invest in developing systems that enable them to collect feedback from their customers about their service level, areas of improvement and any gap between their expectation and actual delivery.

So, are you doing your bit to figure out your customer loyalty?

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