In this webinar, I’ll be explaining why loyal customers are one of the most important assets any business have. I’ll also tell you how to build loyalty to ensure that your company is as strong as possible. It’s not something that’s easy to do, but it is worth rising to the challenge. Click the button to get started.
I started an online advertising agency back in the year 2000. Many others started at the same time, and put investment and resources into building an effective sales funnel. We put those same resources into gold plating our service. And 15 years on the business is still growing strong whilst many peers have fallen aside.
Big businesses know the value of loyalty too. It’s an often-quoted saying that Brits are more likely to divorce than change their bank. Whilst that might not be rooted in truth, in the UK we have huge banks built on the back of loyal customers.
Look at car manufacturers too. They know that with the right branding and reputation an opinion formed in youth will last a lifetime.
And then we turn to technology, evidence of loyal advocates are plentiful. Consider Google. Almost every time they launch a product it goes into closed beta, by invite only. Not only do early testers and brand fans give them reliable feedback, they spread the word about great product that’s coming. It’s a word of mouth marketing engine that can’t be bought with money. That’s what fans and loyalty can do for your business.
So aside from these anecdotes, why would you want to build loyalty for your business? Well the cold hard facts speak for themselves.
It costs five times more to acquire a new customer than to keep one of your current ones. So from an investment point of view, you are far better off focusing on retention than acquisition.
Aside from that, it’s a lot easier to sell to existing customers than new ones. Typically, you’ve got almost a 70% chance of selling to someone who has bought from you before, whilst your chances of converting someone new to your brand might be as low as 5%.
These numbers play out when you look at the profitability of your business. Customer churn is the rate at which customers leave your business. Reducing customer churn by just 5% can add up to 125% profit to your bottom line.
When considering loyalty it’s important to understand which of your customers you need to work hardest to retain. It’s quite normal for up to 80% of your company’s revenue to come from just 20% of existing customers.
Aside from all the bonus of loyalty, it’s worth considering the wider implications for disloyal customers. By their nature, a customer of leaves will probably be an unhappy one. Whilst a happy customer will tell at least one person how great you are, dissatisfied ones will moan to 10.
Add all these facts together and it’s clear that customer loyalty should be at the heart of your business.
How do you measure loyalty?
Before you even consider how to improve your customer loyalty, it’s important to measure where you are now. If you know how you’re performing right now you will have a much better chance of improving later on.
The first thing to focus on is collecting data from your customers. The key bit of data you need to understand is your business’ Net Promoter Score or NPS.NPS is measure of likelihood that your customers will recommend you to others. The customer is sent a survey with a single question: On a scale of 1-10, where 10 is ‘very’ and 1 is ‘not at all’, how likely are you to recommend our business to others?
Customers who respond with anything from 1 to 6 are called ‘detractors’. They are more than likely to say bad things about your brand or products, and will actually persuade others to not buy from you.
Customers respond with a 7 to 8 are ‘passives’. They’re satisfied with your service but unlikely to recommend you to others.
Those who say 9 or 10 are active promoters. These are your fans and will actively recommend your services.
These values are then turned into a percentage of promoters to give an NPS score.
You will no doubt have received these surveys yourself. Sometimes they’re sent following an interaction with a business – perhaps a support call. This will give a business what is known as their ‘Support NPS’ score. This lets a business know how happy a customer is immediately following an interaction, so it usually reflects their most recent experience.
At other times they are sent in bulk to many customers, irrespective of whether or not they have been recently in touch. This is called a ‘marketing NPS score’, and will let a business know how customers feel about it on a day-to-day basis.
The very highest level to aim for is anything over 70%. Super successful brands like Apple score in this range.
An admirable but more realistic level is 30% to 45%. Many brands with quality products and good customer service – Sony for example – score in this range.
The time to really start worrying is if your NPS is below 0%. At this point your customers are no longer an asset but are actively dissuading people to buy from you. It needs urgent attention.
So our suggestion with NPS is to use it to get a feel for how satisfied your customers are. Set up a simple survey using a tool like surveymonkey and ask your customers the key question of recommendation. Calculate your NPS so you know where you stand, and how urgent your issues are. (You can find a Customer Service Satisfaction template from Survey Monkey here.)
Having taken steps to address loyalty – which we will come onto later – retest your NPS score. Efforts to boost loyalty are typically long term. So it’s not worth testing NPS more than frequently than every 6 months. But be sure to build this regular survey into your activities and keep track of your progress.
Another important metric to understand is churn. This is a measure of what percentage of your customers leave you every month. It can give you a clear idea on how hard you need to work on acquiring new customers, just to stay still.
To calculate churn, just count the number of customers that lapse or leave you each month, and divide that by the total number of existing customers you have. If you have a small business with very few customers, then it make sense to do a calculation every 6 months, and then divide it by 6.
If, for example, you have a churn of 10% this means that you will lose just under half your customers in 6 months. With a churn rate of 3% you lose less than one fifth every 6 months.
Ask yourself the questions: how many customers do I acquire every month? Are you carrying out enough marketing to replace all the ones that you’re losing? Would you efforts be better-spent reducing churn rather than acquiring new?
Again, it’s hard to find benchmarks, but generally speaking 2% is a good target. That means that your typical customer might stay for 4 years. That’s not bad by any standard.
The key point here is: measure your churn and start to track it over time, then see what impact your activities have on the rate at which customers leave.
Another key thing to focus on is the percentage of customers you win through recommendation. This of course will be closely tied to NPS, but will give you a definite picture on how recommended your business is. That’s always better than a theoretical calculation of whether or not your customers are singing your praises.
The best way to find out this information is to ask every new customer how they found out about you. Record that information against your customer record and then calculate your recommendation rate.
If it’s hard to ask that question then you need to take away the impact of all of your known marketing activities. Look in your Google Analytics to see what impact your AdWords campaigns, Facebook advertising, SEO and email is having. The amount that is left – often people who find you through branded search or through Direct type ins – is the number of customers that come through recommendations.
Another way of course is a general customer survey, by asking the same question ‘how did you find out about us’. It won’t give you feedback from every single customer but should at least give you a representative picture of what is going on.
Next step: Understand what customers want from businesses like yours, and whether or not you are giving it to them.
This is the point where you really start to dig into customer loyalty. And that’s all about the customer lifecycle.
Take a look at this diagram. It describes the customer lifecycle – the process that every customer goes through with every business.
To start with the customer becomes aware of your brand or business. Perhaps they see an advert, they see something that you’ve written, or a friend mentions your name.
Then they move into the phase where they think they have a need and try to work out how to address that need. It might be that they tyres are wearing thin on their bike and so they start to read about tyre wear, and perhaps the tyres that you sell in your bike shop.
Then they reach the comparison phase where they see the tyres that you offer against what your competitors are offering.
Having weighed up the options they decide that you are a good choice and they select right product for them, before moving through to purchase the tyres.
They then get the product experience – receive the tyres, fit them and use them.
As a business you know that they will need tyres in future so you work hard to be front of mind when they next decide to buy, retaining them as a loyal customer.
And of course if they’re really happy with their experience and love the tyres, then there’s a good chance they will tell others about you thus driving brand and product awareness.
No matter what stage the customers are, they have needs. It’s more complicated than just wanting some tyres. As a business, you need to understand what those needs are.
There are of course ways that you can find out this information. Here’s a few ideas.
When they’re in they’re in the awareness phase you can find out more about them and what their needs are with a simple survey, using a tool like Google consumer surveys.
When they’re in the research phrase, you can find out what questions they’re asking by looking at a service like Quora.
For the comparison service you need to understand how they’re stacking up you versus competitors. It might be that they’re looking on comparison services or reading review sites.
In the selection phase you can look within your Google Analytics to understand how they found you and what they’re looking at on your site.
It might also be that chat on your website can help you learn what issues are foremost in their mind.
Within the purchase phase, again you have Google Analytics to understand what problems they had when buying from you, and what information seemed to convince them. CrazyEgg is another great tool to understand what they’re looking at on your site in this phase.
If you want to take it a step further then consider something like usertesting.com – an easy way to highlight purchase problems on your website.
For the more advanced, consider ‘Inspectlet.com’ to watch in real time how users are struggling with your site.
In the experience phase you can gather feedback from them in the form of questions they ask for support.
In the retention and loyalty phase you can uncover how much they’re using your product and what would make them use it more, and what problems they’re having. A customer survey would be a great way to gather this information. If they’re leaving you then an exit survey is a vital tool to understand which straw broke the camel’s back.
And of course to understand their likelihood to recommend you have the NPS survey to fall back on.
Having understood the customer needs at easy stage of the lifecycle, the next step is to address them at the time they occur.
If your consumer survey uncovers a passion amongst your target market for a particular topic, then create content around that topic and promote it on your blog.
For example, here at 123-reg we surveyed our customers and found them really interesting in Search Engine Optimisation. So we knew that to interest and engage them we’d need to write about SEO.
Of course, don’t lose sight of the fact that the content needs to be super relevant to what you do. For example, if you offer a dog walking service and you find that your target market are into stamp collecting, it’s going to be hard to tie content on that topic back to your dog walking service!
For the research phrase, if you know what questions they’re asking then you know what your content should answer, whether that’s on your blog or your product pages.
If you know people are comparing you with others by reading relevant blogs then make sure you have a presence there. And if they’re using review sites then focus your efforts in building lots of positive reviews.
If your Google Analytics shows that people in the selection phrase are discovering you from SEO and are landing on your homepage, but are then mostly ending up on the contact us page, move those details to the homepage and find out what questions they’re asking. Consider adding the answers to those questions to your home page.
For example, here at 123-reg we looked in our Google Analytics and found that lots of users were searching on our site to see if they could use our email service on their mobile phone. So we created some videos showing how they could do this, and linked to them from our email product page.
If Crazy egg tells you that not many people can find your ‘buy now’ button in the purchase phase, make it stand out by using white space, colour, or copy.
If your support team lets you know that the questions most customers are asking in the experience phase, then consider sending that information to every customer along with their product.
And when your survey in the retention phase tells you that the product is hard to use, consider that feedback in changing or updating the usability.
And finally, if your customers are giving you a 1-6 on your NPS survey, call them up and find out why they wouldn’t recommend you to others. Address those issues, they will be the key to boosting customer loyalty.
If you can understand the customer needs at all phases of the cycle, and tailor your product or service so it addresses those needs, and you offer good support to, loyalty is bound to grow. These are the building blocks of a strong, recommended brand.
Building loyalty efficiently
Of course, it’s all very easy to read about this stuff. When it comes to applying it, the task can seem daunting.
Therefore try to build efficiency into your approach to building loyalty.
Early indicators
To start with, before you begin gathering any data, speak to a few current and lapsed customers to understand what they liked and disliked about your brand and products. This will give you an early indication about what you should focus on.
The right customers
Then think about the customers you really want to build loyalty. As we mentioned above, most businesses make 80% of their revenue from 20% of their customerbase. Not all customers are equal.
Make sure you focus on understanding the needs of two distinct customer groups.
-High value customers: those who spend a lot on each visit, have visited recently, and visit frequently. This type of segmentation is known as Recency, Frequency, Value. These will be the 20% that give you 80%.
-Newly joined customers. It’s natural for every customer to churn eventually. So focus on those who have recently joined you – the ones you have just invested in to become a customer – and work hard to understand and address the needs they have.
Automation
Understand users’ needs and addressing them is a massive task, so consider what you can automate.
For example, set up your surveys to be triggered automatically so you are in a constant data gathering phase.
And deliver your content in an automated way too. For example: if you sell to recently engaged couples then promote your content to them consistently on Facebook.
If your users require specific information at certain stages of the lifecycle, make that easy to find on your website, or email it to them directly.
If you know that you can help newly joined customers with advice and guidance, then promote your blog content to them using display remarketing.
If you can understand the customer needs at all phases of the cycle, and tailor your product or service so it addresses those needs, and you offer good support to, loyalty is bound to grow. These are the building blocks of a strong, recommended brand.
It’s a process that will never end. You need to constantly gather the feedback, apply improvements and updates to what you do and then retest your NPS so you can understand the impact of your changes.
And if you only do 1 thing – ask customers who leave you: why? Understanding this fundamental pain point and addressing it may be the most important thing you can do for your business.
That was Customer loyalty: why it matters and how to get it. My name is Nick Leech and I’m the Digital Director here at 123-reg.
If you have any questions, please leave them in the comments below and we’ll be sure to answer them as soon as we can.
