Customer Loyalty is also commonly referred to as ‘Customer Satisfaction’. However, these are two different aspects of Customer Relations. Customer Satisfaction helps you build Customer Loyalty. Customer Loyalty is an important part of all business strategies in the current marketplace. However, before we begin to build Customer Loyalty, we need to identify who is the customer for a business. The ‘customer’ is any person (internal or external to the company) who interacts with the company to purchase products or services from them.
As the term goes, we cannot say that the customer is loyal until we have had regular transactions with him. Thus, Customer Loyalty is the behavior that a customer exhibits when they make frequent purchases of a company’s product or services. A typical customer’s lifecycle would have the following stages:
- Suspect
- Prospect
- First Time Customer
- Repeat Customer
- Client
- Advocate
A Suspect is an individual who has not transacted with the business before and has maybe just heard about the products and services offered. This is the stage where the individual is looking out for options and researching the best available company/brand that will satisfy his needs.
A Prospect is slightly more advanced than a suspect, as in this case, he would have identified the company/brand as one of the options and shown interest in it. In the traditional business model, this is the first instance the business really comes to know about the individual. Thus, this is usually the first stage that the individual is classified from the business point of view. At this point of time, the individual does not hold any loyalties to the company/brand as he is not yet a customer, let alone a satisfied one.
The individual first becomes a customer when he makes a purchase of a product or service offered by the company. This is the first impression of the direct interaction with the company. As the saying goes, “First Impressions are usually the last Impressions.” One of the key focuses of the business is to bring out the best from the first impression so as to promote repeat business. Many times companies will lose the customer at this stage itself as the expectations of the first time customer are not met. A lot of customers do not proceed further from this stage.
At the Repeat Customer stage there would be some degree of customer satisfaction since the customer has decided to maintain the relationship with the company. However, this behavior of a repeat customer cannot be termed as loyalty by just one repeat purchase. It could be a fluke… constant customer management needs to be practiced to ensure that the customer comes back to the company over and over again.
A Client is a customer who repeatedly interacts with the company and has a constant relationship with it. The degree of loyalty in this case would have increased as the customer repeatedly decides to interact with the same company. The degree of loyalty is different from one customer to another and thus is a good measure for the “value” of the customer to the company.
The next step is the most difficult to achieve and has varied degrees. If you have ever praised a product that you have bought by saying “I always go for brand X”, then you have most definitely become an Advocate. Advocates are the best sales people for the company as they increase sales by purchasing for themselves and also influencing purchases in their social circle. These advocates are usually most valued customers as they are the brand spokes people in the market place. The only way to make an advocate out of a client is to ensure regular, repeated and satisfactory interactions with the customers.
As you have regular interactions with the company of your choice, you are considered to be increasing in the degree of Customer Loyalty. This is a metric that can be measured as directly proportional to the number of repeat purchases that a customer makes with the company. It is one of the main aspects to indicate the effectiveness of a Customer Relationship Strategy for a company.
After seeing how a customer becomes loyal, you may be wondering why such a big fuss about one customer? Why do we need to focus on repeat business, the existing customers can only give us a set amount of business, we should be aiming to get new customers… right? Well… partially.
Retaining existing customers also has many benefits and may result in steady increase of business with minimal marketing investments. For starters, it is cheaper to get a customer to purchase again than it is to get him/her to do a purchase for the first time. The company does not have to sell itself as the customer has already had first-hand experience of the services offered by the company from earlier purchases. In terms of figures, studies show that it is 7 to 10 times more expensive to get a new customer than it is to retain one. Other aspects of sales & marketing which contribute to this ratio are the hit-ratio of marketing campaigns, as not everyone that the company markets to will end up making a purchase. How many times have you seen a Pepsi or Coke commercial, but remain with your own respective brand of the soft-drink?
As you can see with the above example, you have just been classified as a loyal customer. You would most probably buy from the same brand again. You would most probably buy other products from the same brand also.
Now that we know you are a loyal customer, have you ever mentioned how much you like you’re a product to your friends in a regular conversation? When you speak well about the product and services you are using, you are in a way acting as an advocate for the company. You are contributing to increasing the business of the company by referring their products and services to your social circle.
Welcome to being an advocate… Now, tell me, keeping the brand you advocate in mind, have you ever come across a defective product or had a complaint regarding a service? You must have thought at that point that you will not buy from the same brand again. Well… have you? Advocates usually give some benefit of doubt to the company that they have had long relationships with. Have you ever thought that maybe the customer service representative you have been talking to was maybe having a bad day or was a trainee so did not know what he was talking about?
As you can see, Customer Loyalty is an important part of business. It differentiates the big businesses from the small ones. If you have a customer base that is loyal to your services, they will most probably advocate them to their friends which results in even more business… and what do you have to do for this? You don’t have to spend millions of dollars in advertising… you just have to ensure your first customer is happy.
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