The 'Everything You Need To Know' guide to Loyalty
1. Defining loyalty
Loyalty is the act of shopping with a particular brand or buying a particular product repeatedly. When customers feel loyalty to a brand or product, they're more likely to choose that brand or product over its competitors. In the long run, customer loyalty is an important driver of revenue for businesses.
Loyalty is an integral factor in customer-brand relationships. A strategic loyalty program helps businesses build trust, retain customers and drive conversions. The importance of loyalty is so pronounced that more than 90% of businesses have some form of customer engagement or loyalty program, and the market is forecast to be worth more than $201 billion by 2022, representing a CAGR of 4-5%.
However, while loyalty programs are widespread, a large percentage of loyalty programs lack the incentives and rewards that actually lead to improved customer experiences and increased engagement. In fact, the average American in 2020 belonged to 14 loyalty programs, but used only half of them actively. This represents a huge opportunity for brands and businesses to capitalize on a market that is used to and actively seeking loyalty programs. The challenge is not in selling the concept, it’s in building a program and a strategy that meets your customers’ needs and expectations — and perhaps exceeds them.
Not all user segments are made the same, however, and it’s particularly challenging to earn customer loyalty from younger groups — especially Generation Z, who are particularly inclined toward switching brands based on price and convenience. This, in turn, also represents opportunity. If price and convenience are top-of-mind, loyalty programs can successfully help you position your brand.
When building your loyalty program and strategy, the first step is determining which approach will serve your business goals and KPIs, and how you can tailor it to meet the needs of your customers. To do this, you need to understand loyalty and the factors that drive in on a basic level.
In the most general sense, Loyalty is the act of shopping with a particular brand, or buying a particular product repeatedly. It’s a highly prized metric among brands for many reasons — it equates to higher long term revenue through increased sales, it builds brand recognition, and it can even lower marketing spend.
To achieve loyalty you have to convert new customers into repeat buyers. New customers have a sale success rate of just 5-20%, compared to 60-70% for existing customers, so any investment in customer retention will more than pay off in the long run. Businesses target customer retention using a variety of different techniques, including branding, advertising and promotions. Promotions in particular influence customer behavior, and can be customized specifically to drive certain types of loyalty.
Download our customer case study to see how Jüsto increased repeat customer visits with promotional campaigns powered by Talon.One.
1.1 Concept of loyalty definition
The term ‘loyalty’ is used in numerous different contexts in the wider field of marketing. It’s a fundamental concern for businesses pursuing long-term sales growth. Having repeat business is a key differentiator for a successful firm — and it’s achieved with the help of initiatives in branding, advertising, and promotions.
It all comes down to the concept of loyalty — typically defined as faithfulness to a person or philosophy.
Loyalty in the context of marketing and consumer behavior isn’t that dissimilar from loyalty in the dictionary definition of the term. Take the example of a loyal friend. They’re someone you can trust to be there for you when you need them — and, hopefully, they feel the same about you.
The same goes for loyal customers. They feel a deeper connection to their favorite brands or products and, as a result, display a preference towards them when shopping. Luckily for businesses, there are ways to gain more loyal customers, i.e. through loyalty software features and other promotions.
1.2 Customer loyalty marketing definition
If you ask 10 marketers for their definition of customer loyalty, there’s a good chance you’ll get 10 different answers. Generally, customer loyalty simply refers to a customer’s positive sentiment towards a brand, product, or service. This positive sentiment usually translates into a purchase preference — or customers being more likely to recommend products to others. As a consequence customer loyalty marketing is the strategic effort of an entity to create positive touchpoints with (potential) customers. The main goal of customer loyalty marketing is to become the preferred choice of their target group. This goal can be subdivided in milestones such as becoming part of the 'relevant set' of options and share of mind.
Generally, customer loyalty is expressed by a desire or willingness to pick a specific product or brand repeatedly over a long period. This can be a result of many different factors, including product quality, customer service, brand image, good value, and so on.
1.3 Brand loyalty definition
The term brand loyalty is largely interchangeable with customer loyalty. However, it specifically relates to customers’ loyalty towards a particular brand. In comparison to product loyalty, which is often related to product utility and is therefore mostly functional, brand loyalty more commonly forms around factors like brand values, brand image, or prestige.
Even if competitors have objectively better products, brand loyalty can be powerful enough that customers will overlook shortcomings in their favorite brand. This makes brand loyalty a very valuable company asset, and it has the potential to be a powerful sales driver. Loyalty marketing itself can even help struggling brands build up their core customer base.
There’s the added benefit that the factors that foster brand loyalty among existing customers will also make your business more attractive to new or potential customers. Because of this, it pays to focus on developing brand image, alongside other initiatives that will foster brand loyalty.
1.4 Customer loyalty definition
The first is customer loyalty, which Oracle defines as “how willing a customer is to engage with and repeatedly purchase from you versus your competitors”. It’s built around factors like price, ease of use of a product, product quality and other practical considerations. Customer loyalty is mainly behavioral, and it’s impacted significantly by sales promotions, including discounts, coupons, bundles, etc.)
1.5 Brand loyalty definition
Brand loyalty is less tangible than customer loyalty, and it develops for different reasons. It usually exists regardless of the price of products, instead forming around the customer’s sentiment towards the brand itself. In this sense, brand loyalty is an emotional rather than a practical connection.
Emotional loyalty is built around three core elements:
Affinity – how well the customer’s values align with the brand’s values and image
Attachment – how much the customer feels valued by the brand
Trust – how much the customer feels they can trust the brand’s motivations and behavior
To build all three of these elements in unison, you need to nurture the customer relationship regularly across as many different touch points as possible. You can achieve this with the help of omnichannel promotional campaigns combined with personalized messaging across a variety of different touch points.
For many businesses, brand loyalty is the ultimate goal. It’s harder to break, and it tends to last a lot longer. A perfect example of a brand that has transitioned from customer loyalty to brand loyalty over the course of its life is Apple.
Over many years, Apple developed groundbreaking products that blended great design with hardware and features that met customer needs. It has now built up a huge following of brand loyal customers who are dedicated to the Apple brand itself rather than any particular product or product feature.
1.5 How do we define loyalty at Talon.One?
As the marketing leading promotions software provider, we view promotions as an essential tool for building loyalty in all its different forms. But we see loyalty itself as a holistic concept that is best achieved using a variety of strategies.
Our Promotion Engine gives brands the power to build promotions that will help them develop all corners of their business with an assortment of interlinked promotional campaigns and unlimited customization options.
Loyalty is the act of repeatedly shopping with a particular brand or buying a particular product. When customers feel loyalty to a brand or product, they're more likely to choose that brand or product over its competitors.
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2. Customer loyalty
2.1 What is customer loyalty?
Customer loyalty is hard to measure as a general characteristic, especially among a wide customer base. Each customer displays different levels of loyalty to different brands, and no two individuals will ever be completely alike.
Some brands in specific industries are more likely to have more loyal customers (take luxury fashion brands). At the same time, many businesses are highly successful in their field without their field or business model being particularly suited to, or even particularly concerned with customer loyalty (take gas stations for example).
Ultimately, customer loyalty is something that needs to be prioritized at a strategic level in order to have the biggest positive effect on a business. In comparison to many other measures of business health, customer loyalty is intangible. It’s tricky to measure the value it brings to a business, especially when compared to something like customer acquisition, for example.
2.2 Why is customer loyalty important?
Customer loyalty is important for a number of reasons. As mentioned above, the more loyal a customer is, the more likely they are to return to a particular brand or product — time and time again. This can be a big boost for revenues over the long term. It also helps increase brand awareness. Loyal, satisfied customers are more likely to recommend the brand or product to their friends, a potentially lucrative source of new customers.
Customer loyalty also has a strong impact on customer retention. This is important because it’s a lot cheaper to retain existing customers than it is to acquire new ones. In fact, most estimates suggest that it costs five times as much on average to acquire a new customer than it does to retain an existing one.
If you’re looking to focus on customer retention instead of solely on customer acquisition, check out this article for some relevant promotion ideas.
2.3 How to build customer loyalty
Customer loyalty varies from individual to individual, business to business, industry to industry, and even generation to generation. So what do businesses have to do to increase it?
There are many different branding, sales, and promotional techniques that help increase customer loyalty.
Time is an essential factor when it comes to building customer loyalty. Most initiatives aimed at increasing customer loyalty are long-term projects. You generally won’t see tangible results for some time after implementation. And even if you do, you’re best leaving these initiatives in place to build on these positive results going forward.
Customer experience also plays a big role in customer loyalty. For example, a website that offers easy navigation and responsive customer service will help a brand make a good impression with customers.
Brands in different industries tend to have their own approaches towards customer loyalty. But generally, the most common strategies for increasing customer loyalty are:
Good customer service
Positive brand messaging
Promotions (specifically loyalty programs and referral programs)
A combination of all of these factors is especially effective. But it takes a concerted effort to keep on top of all of them at once.
Loyalty varies from customer to customer and business to business. Some loyal customers will be much more likely to buy more from your business, while some will be more likely to leave positive reviews. In the long run, customer loyalty is an important driver of revenue for businesses.
3. Loyalty programs
3.1 How do loyalty programs work?
One of the most effective ways to build customer loyalty is using loyalty programs. Businesses run loyalty programs specifically to encourage repeat visits from their customers. They do this by offering loyalty program members rewards each time they shop.
Loyalty programs also help increase brand recognition and customer satisfaction. As a result, they’re regarded as one of the most versatile promotional campaign formats around.
While loyalty programs help businesses improve their relationship with their customers in a number of different ways, the concept behind customer loyalty programs is pretty simple:
Customers sign up to the loyalty program using their personal credentials (these are simply used to verify the account, although they can be used to offer more specific rewards if the customer wants)
When loyalty program members shop they receive loyalty points which are stored on their account
They can then exchange their points for rewards and other privileges
When customers sign up to a loyalty program, they receive loyalty points when they shop. Many businesses choose to only offer loyalty points on certain products. Others give loyalty points depending on the amount of money the customer spends.
Either way, the loyalty program members can save their loyalty points and spend them on rewards and other products when they like. Ultimately, loyalty points are an incentive that encourages customers to keep shopping with a business.
3.2 Common loyalty program formats
Loyalty programs come in all shapes and sizes. Many brands invest in exclusive loyalty program features and rewards as a way to stand out among their competitors. As a rule of thumb, the better the quality of the loyalty rewards that a business offers, the more likely customers are to choose it over its competitors.
Customer loyalty programs can be fully customized to meet any business’s individual needs. But there are some common loyalty program formats that you see often:
Tiered loyalty programs
Many businesses opt for tiered loyalty programs because they offer numerous advantages over standard, non-tiered loyalty programs. Tiered loyalty programs comprise multiple loyalty tiers. Each loyalty tier offers its own exclusive rewards and incentives. Starting at the entry tier, loyalty program members have to collect loyalty points to progress to higher tiers. The higher the tier, the better the rewards and incentives.
Gamified loyalty programs
Gamified loyalty programs are also very popular. They use gamified features, like random prizes, graphical elements, and special offers, to create an enticing loyalty experience for users. A good example of a gamified loyalty program comes from Flash Coffee.
Hybrid loyalty programs
Hybrid loyalty programs combine elements from multiple other types of loyalty program, or even other promotions. For example, a business may have a tiered loyalty program, with special gamified rewards which are also tied to their referral program. This would be classed as a hybrid loyalty program because of the many different elements that work together as one. Hybrid loyalty programs are becoming more and more common as brands try to expand their loyalty offering with something unique.
Paid/VIP loyalty programs
Paid loyalty programs are also becoming increasingly popular. After paying a monthly membership fee, paid loyalty program members get access to more exclusive benefits and rewards. The membership fee allows the business to offer higher value rewards. It also adds a level of exclusivity, which is a big draw for customers of luxury brands.
3.3 Loyalty program ideas
Businesses in practically every industry make use of loyalty programs as part of their marketing and sales strategy. All that’s needed to make a successful, impactful loyalty program is a plan, a small bit of customization, and some basic knowledge of how loyalty programs work.
Loyalty programs can increase revenue, increase brand awareness, and, of course, increase loyalty. But many businesses find it difficult to come up with loyalty program ideas that will catch their customers’ attention.
The industry in which you operate, and the size of your business, are both important factors in determining which loyalty program ideas are most suitable for you. Gamification, for example, isn’t particularly well suited to corporate brands, or B2B loyalty programs. But it is a highly popular technique for luxury brands looking to connect with the younger generation of shoppers, especially in Southeast Asia.
For loyalty program ideas and more, check out this downloadable selection of promotional campaign ideas.
3.4 How do you measure customer loyalty?
Measuring customer loyalty can be tricky and time consuming. There are lots of factors to consider, and many of them are hard to quantify unless you have a lot of data to work with. But, there are some key metrics that you can use to make the process easier.
3.4.1 Net promoter score (NPS)
One of the simplest and most popular ways to measure customer loyalty is using a Net Promoter Score (NPS). Chances are you’ve seen the NPS technique in action as a consumer. It’s used very often to gauge customer satisfaction with a product or service. All that’s required is a simple feedback rating from your customers. Most businesses tend to frame these feedback questions around customers' satisfaction with their product.
Depending on their answer, customers are classified as either promoters (9-10), passives (7-8), or detractors (1-6). The proportion of promoters to detractors is then calculated to give the final Net Promoter Score. The formula is as follows:
To put this into perspective, according to a study by SurveyMonkey, the average Net Promoter Score from a sample of 150,000 organizations was +32. The top 25% of these organizations scored +72 or above.
3.4.2 Repurchase rate
Repurchase rate, also known as repeat purchase rate, is another useful metric that can help you assess customer loyalty. It allows you to calculate the percentage of customers who have bought from you more than once over a certain period of time.
The formula for calculating repurchase rate is as follows:
You can calculate repurchase rate for your entire customer base, or specifically for your loyalty program. Both figures offer different insights which can help you steer your loyalty strategy accordingly.
To get meaningful results, it’s important to calculate both figures across the same time period. The standard measurement is one year, but you can also work out your repurchase rate for a month or season too.
3.4.3 Loyalty program ROI
Rather than attempting to measure customer loyalty directly, it’s often more beneficial to measure the return on investment of your loyalty program instead. Loyalty can be difficult to pin down in any single metric. But ROI gives you a clear monetary figure that will help you evaluate how much value your loyalty program brings.
Although working out return on investment requires a bit of number crunching, it helps to think in simple terms. All you’re trying to do is weigh up your loyalty program’s costs against the money it’s bringing to your business. This can be summed up with the following equation:
Equation to calculate ROI
Once you have a good idea of the money coming in, and the expenses going out, you’ll be better placed to assess the overall loyalty program return on investment.
For more information on loyalty program ROI, and a few key metrics that can help you understand your loyalty program’s impact, check out this blog post.
Loyalty programs encourage customers to shop repeatedly with a brand, using rewards as an incentive. The more loyalty program members buy from the brand, the more rewards they accumulate. Nowadays, loyalty programs are becoming increasingly complex. They use features like gamification and personalized rewards to encourage repeat buying behavior.
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4. Building customer loyalty
4.1 Why do customers develop brand loyalty?
So, we know which campaign features and incentives tend to increase customer loyalty. But why do customers develop loyalty towards specific brands and products? Research suggests that customer loyalty forms around three main pillars — rational, behavioral and emotional loyalty.
4.1.1 Rational loyalty
Rational loyalty is loyalty that's based on tangible metrics like value, incentives, or product quality. For example, the cheaper your product is in comparison to competitors, the more likely customers are to buy it. Rational loyalty is also sometimes referred to as functional or cognitive loyalty.
4.1.2 Behavioral loyalty
Behavioral loyalty is demonstrated through continuous or repeated behaviors. This could be shopping primarily with a particular brand, or repeatedly buying certain products. Behavioral loyalty is a great indicator of customer loyalty on the surface or in a practical sense. But the reasons for behavioral loyalty can be superficial. For example, a customer may only buy from your brand because they live nearby, or your products are the cheapest. If a competitor comes along with a better product, or they add a perk like free home delivery, the customer’s behavioral loyalty to your brand can disappear immediately.
4.1.3 Emotional loyalty
Emotional loyalty is the deeper connection customers build with brands. It takes much more than simple low prices or convenience to build emotional loyalty. This type of loyalty is based around three core factors:
Affinity is the customer’s opinion of your brand and products (they may like the design of your product, or you may sell a product that is especially useful to them). If the customer likes your brand and products, then you’ve got a good foundation for building lasting emotional loyalty. But you need the other two components too.
Attachment develops when customers feel valued by your brand. Most brands achieve this with the help of rewards and personalised messaging/communications. These techniques help customers feel like valued individuals, rather than just a source of revenue for your business.
Trust is the final component of emotional loyalty. Trust develops when customers feel respected. If they see consistent messaging around matters that concern them personally, i.e. privacy, or social issues, they’re more likely to view your brand as trustworthy.
Once you have all three of these ingredients, you have the magic recipe for emotional loyalty. Customers with an emotional connection to your brand are much more likely to stick with your brand in the long term.
4.2 Customer loyalty between generations
Interestingly, there are some significant differences in the way generational groups display their loyalty as consumers. There are many different factors that influence generational consumer characteristics. These include:
The technology individuals grew up with and are familiar with using in their daily lives
The economic and social climate in which each generation grew up
Preferences for brand identity and characteristics
These varying environmental and social inputs give each generation unique consumer characteristics. These unique characteristics tends to be displayed in a number of different ways:
Preferred shopping medium (desktop, mobile, app, in-store, etc.)
The kinds of deals they seek out
The types of rewards they like
Customer service expectations
As a result of these different factors, each generation forms loyalty towards brands in slightly different ways. Brands should be aware of these generational differences if they want to be as effective as possible at selling to a wide customer base.
If you want to find out more about the consumer characteristics of the Baby Boomer and Millennial generations, check out our blog post here. You can also find out more about Gen Z and their specific consumer characteristics here.
4.3 When will Customer loyalty likely fall?
There are many different factors involved in building customer loyalty. Businesses put a lot of effort into initiatives that will keep their customers happy and emotionally connected to their brand. But, unfortunately, it’s much easier to destroy customer loyalty than it is to build it.
It takes a long time to build customer loyalty, but just one bad experience can destroy it.
While each customer and brand is different, there are some common factors that have a detrimental impact on customer loyalty. As a general rule of thumb, customer loyalty will likely fall when:
Customers experience consistently bad customer service
The quality of your products doesn’t live up to customers’ expectations
The quality of your products doesn’t match what you advertise
Your products are inferior or become outdated in comparison to your competitors
Your brand image is damaged by negative press
Customers feel like they’re not getting a fair deal from your promotions
When running a business, you should always be aware of the factors that could potentially will make your customer loyalty fall. This is especially important as a less loyal customer base usually equates to falling sales, slower long-term growth, and attracting new customers is much harder as well as it's five times more expensive than retaining your existing customers.
True customer loyalty develops around three core factors - rational, behavioral and emotional loyalty. These equate to value, convenience and brand/emotional compatibility respectively. When a customer exhibits all three of these, they have a true attachment to your brand or product.
5. Loyalty program types
5.1 What is the difference between B2B and B2C loyalty programs?
When people think about loyalty programs, the first thing that comes to mind is B2C loyalty programs. Business to customer loyalty programs are the most common type of loyalty program. As consumers we’ve all come across them at some point. Given the stats, there’s a good chance you belong to at least one yourself.
A holistic overview of B2C loyalty programs, with best practices and other tips, can be found in our Loyalty Playbook.
But ‘business to customer’ isn’t the only loyalty program format out there. B2B loyalty programs, while less visible and not as widespread, are also very popular. They help businesses that sell primarily to other businesses.
B2C loyalty programs and B2B loyalty programs both serve the same purpose. They encourage customers to shop repeatedly by using loyalty rewards as an incentive. But it’s important to remember that there is a distinction between B2C and B2B loyalty programs. Each type has its own characteristics that businesses should be aware of.
5.2 Characteristics of B2C loyalty programs
Businesses run B2C loyalty programs to improve their relationship with their customers. In the long run, better customer loyalty equates to increased sales and revenue. Because of this business to customer dynamic, B2C loyalty programs have a number of characteristics which set them apart from B2B loyalty programs.
The most noticeable difference between B2C and B2B loyalty programs is the rewards and incentives they offer. B2C loyalty program shows the following characteristics:
B2C loyalty programs are often gamified to offer customers a more exciting, rewarding shopping experience.
Many B2C loyalty programs make use of a tier system. This is a form of loyalty gamification which gives members better rewards depending on their loyalty tier. The rewards in higher tiers are often more akin to VIP privileges than financial incentives.
Offering customers choice is another important aspect of successful B2C customer loyalty programs. You can see how on-demand delivery brand HappyFresh set up their loyalty program here.
The incentives typically offered in B2C customer loyalty programs are geared towards building an emotional connection between the brand and the customer. Emotion plays a much bigger role in the development of loyalty among individual consumers than it does among businesses. Hence the different approach taken with B2B customer loyalty programs.
5.3 Characteristics of B2B loyalty programs
In comparison to consumer oriented customer loyalty programs, B2B customer loyalty programs operate at a slower pace. The buying process and purchase cycle tends to be much longer. This is usually because there are more stakeholders involved in each stage of the process, from research to final decision making. The amount of money changing hands with each transaction is also much greater. Generally, trust among business customers develops around different factors than trust among individual customers. As a result, B2B loyalty programs have some distinct characteristics:
Because the B2B purchase cycle is longer, B2B rewards tend to focus more on building trust over a longer period of time.
B2B loyalty programs also have far fewer members. This allows the businesses that run them to dedicate more time and resources to personalization and customized rewards.
Customer service is important in B2C loyalty programs but it’s arguably even more important in a B2B environment. Loyalty program owners need to win over clients and business customers with relevant rewards. This is usually an opportunity to save money, or a new way to add value to their business. This is also true on a personal level, where incentives can be targeted towards specific individuals within the client business.
While they're both fundamentally the same, B2C and B2B loyalty programs have a number of different characteristics. B2C loyalty programs are often gamified, while B2B loyalty programs operate at a much slower pace. Besides these differences, B2B rewards tend to be more value based in order to win over business customers.
6. Loyalty with Talon.One
6.1 How to build customer loyalty programs in Talon.One
Building a customer loyalty program in Talon.One is easy. After following a few simple steps, you can set up a fully functioning loyalty program for your customers to use whenever they shop. Using rules and effects, you can determine the logic of your loyalty program and create custom rewards based upon any criteria you want.
Many of our customers in different industries around the world use the Promotion Engine to power their loyalty programs. The sheer flexibility of our platform allows them to combine loyalty programs with other promotions, like referrals, geofencing, coupons, personalized discounts — basically any promotion you can think of. This article in our Product Docs lists a few loyalty campaign ideas that you could launch using our Promotion Engine.
You can also find out more about how to build customer loyalty programs in Talon.One in this White Paper.
6.2 Connect your data points to drive loyalty program success
To realise your loyalty program’s full potential, you should treat it as an integral part of your wider marketing and sales operation. Being able to leverage your loyalty program as part of the sales process can really help your sales pitch to customers. And it will be a big draw to any potential customers who may be weighing you up against other competitors.
You should also integrate your loyalty program with your existing business tools, SaaS platforms and other software wherever possible. This will help you provide additional functionality and features, and generally make your loyalty program more attractive to customers.
Because Talon.One’s Promotion Engine was built from the ground up with an API-first philosophy, it integrates easily with a wide range of SaaS platforms. The loyalty integration for commercetools allows you to connect all Talon.One’s product features with commercetools within a matter of hours. Talon.One’s full integration with Braze also gives you access to a host of features that will help you make your customer interactions more engaging and efficient. You can also use Braze to set up loyalty ledgers for all of your customers, and then export them as .CSV files if needed.
Building loyalty programs with Talon.One is simple. You can create complex loyalty programs with tiers, reactive rewards, geofenced promotions and much more in a fraction of the time it would take to create a loyalty program from scratch.
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