Customer Loyalty: What It Is and How To Build It

Customer loyalty is key to building and maintaining a strong brand that can withstand economic challenges and industry changes. Having a loyal customer base affects everything, from conversion and AOV to acquisition, growth, and reputation.

In order to reap the benefits, customer loyalty needs to be prioritised across your business as a holistic part of operations, marketing, and brand strategy. Here, we’ll explore:

• What customer loyalty is and how it helps businesses to create a repeat customer base and save money on acquisition efforts
• How to approach customer loyalty and build it into your overall business strategy
• Ways that different types of loyalty programs can engage customers and build a reliable and loyal base

Understanding the potential of customer loyalty and what turns repeat customers into loyal customers is essential to creating a solid foundation for both retention and growth. Read on to learn how to approach customer loyalty at every stage of the journey.

What is customer loyalty and why is it important?

Customer loyalty is the positive relationship between a brand and its customers that causes customers to choose a business time and time again.

It’s based on an emotional connection for reasons that go beyond price, product availability, convenience, and service. While these elements are crucial to creating an environment where customer loyalty can grow, true loyalty lives within the trust and allegiance that customers feel when they shop with a particular brand.

The difference between loyalty and retention

Customer retention and customer loyalty are closely related, but there is a distinct difference between the two terms. Customer loyalty can’t exist without retention, but customer retention can exist without loyalty.

Customer retention is about the transaction – it’s defined by the number of customers who return to purchase from a business multiple times. Retention can be traced to tangible reasons, such as competitive pricing or good service, which can be enough to bring people back to shop with a particular brand.

Customer loyalty is about what happens before, during, and after the transaction to ensure that customers decide to choose a particular business. It’s closely related to the customer experience and journey (such as pricing and service) but is also affected by wider aspects that help customers develop an emotional connection to the brand.

While the line between retention and loyalty isn’t always clear-cut, the true difference lies in the way that customers identify with a brand. Retention is transactional, whereas customer loyalty drives deeper into a more personal and emotional space that goes beyond a purchase decision – loyal customers are more likely to recommend your brand to others, follow you on social media, and choose you even when presented with a better price or service.

The importance of customer loyalty

Customer loyalty is crucial to building a stable business, as loyal customers generally make up 60% to 70% of sales.

As well as serving as the core base for revenue, loyal customers offer more value to a business:

• Loyal customers are more likely to convert: Studies have found that customers who have purchased from a brand multiple times are more likely to return, and this likelihood grows after each purchase.
• Loyal customers tend to spend more: AOV also grows higher the longer a customer has been shopping with a given brand.
• Loyal customers spread the word about your brand: As well as showing up themselves, loyal customers are more likely to recommend a business to their family, friends, or wider network.
• Loyal customers cost less than new customers: Customer retention and loyalty is up to 5 to 25 times cheaper than the cost of customer acquisition. As a result, growing retention and loyalty by 5% can boost profit by 25% to 95%, according to a leading study.

Maintaining a loyal base of customers is a highly efficient way to create a solid foundation upon which you can run your business. It creates stability that allows for better planning and forecasting, so you have the flexibility and support you need to grow.

How to build customer loyalty

Customer loyalty takes ongoing effort – it’s not based on a single thing, and there’s no firm finish line that customers cross and become loyal for life. It takes an all-encompassing effort to deliver upon the expectations your loyal customers have.

In order to build customer loyalty, brands need to incorporate a customer-centric philosophy into their operations, marketing, and overall business strategy. From there, it’s about being adaptable, reactive, and responding to competition to ensure you’re still the best option for the loyal customers who turn to you first.

Here, we’ll break down key aspects of a customer loyalty strategy.

1.Take a customer-first approach

A customer-first approach is all about ensuring customers have a positive experience with your brand at every single touchpoint. It’s not a single tool that can be implemented, but an overall philosophy that drives everything from website experience and customer communication to product presentation and customer service.

Building out a customer-first approach takes discipline and an all-hands-on-deck mentality – the customer must become a conscious priority across every single thing you do, from launching new products to updating content on your website.

As a result, customers will feel the benefits of a business that is geared entirely towards making their experience the best it can possibly be, which results in positive interactions that lead to loyalty.

2.Reward loyalty

During almost every purchasing journey, customers are presented with a variety of options and alternatives from other companies. Loyalty and reward programs are an impactful way to incentivise and thank them for choosing yours.

We have many clients that use Red Letter Days experiences to reward customer loyalty. In turn, by inviting customers into a program that’s designed for them, you can build a sense of community, which in turn can increase conversion and AOV – 57% of customers who are loyalty program members spend more on those brands.

There are a variety of ways to encourage customers to continue choosing your services, which you can use as a creative way to connect with your audience and boost your brand (more on that below).

3. Respond to customer reviews

In keeping with a customer-centric approach, getting feedback from your customers is crucial to improving your operations and creating a space where loyalty can naturally develop. Of course, your customers’ voices can be heard through reviews – but listening isn’t always enough.

A 2023 study found that 98% of customers consult online reviews before making a purchase, and 88% of customers are more likely to use a business that responds to all reviews – positive and negative.

By making it a priority to read, respond, and action feedback in reviews, you’re showing customers that you not only pay attention to what they have to say, but also value their feedback, stories, and opinions enough to respond. As a result, you’ll develop an authentic and open line of communication, which will build trust and loyalty.

4.Engage with customers on social media

Having a strong social media presence can help build loyalty in many ways – and it’s a space where your customers are already looking for you: at least 32% of customers check Instagram when considering using a local business.

Creating social media content is an opportunity to show your brand’s authenticity, expertise, and personality, which allows you to connect with your audience on an emotional level. This can help you build loyalty by humanising your brand, entertaining your audience, and developing a sense of community.

It’s also a space where you can connect with your customers in a casual manner by engaging with their posts, chatting with them in the comments, sharing their content, and asking them for feedback. This open communication shows that you care about what they have to say and how they interact with your brand, which can drive loyalty.

5. Offer discounts

While loyalty is cemented in positive interactions and relationships, there’s no doubt that customers are driven by value – 92% of customers say that price and value keeps them loyal to a specific retailer.

Having a pricing strategy that provides your customers with strong incentives to purchase from you is key to delivering the value your customers are looking for.

What this looks like will depend on your business and pricing structure, but some common and successful discounts and price-based incentives include:

• Limited-time flash sales and offers that drive excitement and urgency
• Post-purchase discount codes that encourage customers to return soon
• Exclusive offers sent to loyal customers via email or social media
• Monthly or seasonal offers that customers can count on and look forward to
• Free shipping and free returns
• Gifts with purchase

6. Prioritise good customer service

Good customer service is at the heart of a customer-centric approach and is one of the core elements to creating a brand that is worthy of customer loyalty. Having quick response times, clear communication, and prioritising solutions are all basic yet essential factors to creating a strong customer service foundation.

To really encourage loyalty and differentiate from other brands, consider what you can do to go above and beyond to ensure customer satisfaction. What this looks like will depend on your brand and product – can you go the extra mile and offer educational materials for your products or check in with customers after a purchase to ensure they’re happy with everything?

As well as building good relationships with customers by delivering good service, it’s important to maintain the standards you set to prevent customers abandoning your brand after a negative experience.

7. Personalise your brand

Customer loyalty is born out of positive interactions and emotions, and creating a personalised experience is a great way to connect with your customers on a deeper level.

Personalised experiences can include anything from small touches, such as dedicated discounts on their birthday, to a large-scale personalised marketing strategy in which customers are being served with content that has been tailored towards them.

Our variety of fun experiences are a great way to offer customers a personalised reward incentive that is geared towards their lifestyle.

8. Ensure products are available when your customers need them

It might sound like a simple thing to do, but delivering on the promises and services you advertise to your customers is crucial to building trust and loyalty.

A McKinsey study found that 50% of consumers will switch to another option when faced with supply shortages. This is where operations, supply chains, and product management factor into a strong customer loyalty strategy.

In the event that you face a product shortage or supply challenge that you can’t overcome, it’s important to fall back on a customer-centric approach and communicate clearly and honestly with your audience.

This means that, despite the risk that customers may take their business elsewhere, you’re still maintaining a sense of trust that will help to maintain loyalty and encourage them to keep you in consideration when the time comes for them to purchase again.

Types of customer loyalty programmes

It’s no surprise that loyalty programs and customer loyalty go hand-in-hand. Loyalty and rewards programs are a key way to level up your relationship and build a strong connection with your customer base – a McKinsey study found that loyalty member customers are 59% more likely to choose a brand over competitor and 62% more likely to spend more.

There are many different ways to implement a loyalty strategy that suits your product and operations. Here, we break down some of the most common and successful rewards programs.

Point-based loyalty programmes

In a points-based loyalty program, customers collect points every time they make a purchase, which are typically calculated based on the amount they spend.

After accumulating a certain number of points, they can redeem them for a reward – this could be a discount on their next purchase, a free item, or a special gift.

Points-based loyalty programs are common at establishments that people frequent regularly, such as supermarkets and petrol stations.

Reward-based programmes

Reward-based programs encourage customer loyalty by incentivising customers to join the brand’s exclusive ‘club’ in order to gain exclusive rewards and offers. These rewards typically become more appealing the more often they shop, and the more they spend.

There may be regular weekly or monthly rewards, as well as personalised discounts and offers based on how much a customer spends, how frequently they shop, and the type of purchases they tend to make.

The type of rewards can vary widely, depending on the business – our clients use Red Letter Days customer loyalty experiences to surprise and delight loyal customers with memorable, personalised experiences.

Value-based programmes

Value-based programs allow customers to accumulate rewards every time they shop and earn discounts and deals on future purchases. This may take shape in a percentage off their next purchase or a free item.

These loyalty programs are common at retail and hospitality establishments. Some brands offer exclusive rewards and members-only benefits, and others allow customers to earn points to swap for free products, services, and experiences.

Tiered loyalty programmes

One of the more sophisticated types of rewards strategies, tiered loyalty programs offer different types of incentives to different ‘levels’ of customers.

Very frequent shoppers can work their way up to the top tier, in which they receive the most appealing rewards and exclusive discounts. More casual customers can engage with the program at a lower tier, where they’ll still be able to redeem discounts and enjoy rewards.

Popular examples of successful tiered systems allow members to earn points or stamps every time they spend, which they can use to redeem free products or upgrades. Once they obtain a certain level of points, they are elevated to a premium member status, which comes with a suite of other exclusive benefits.

Paid loyalty programmes

Paid loyalty programs require a high level of engagement from customers, which means the benefits must be worthwhile. Members are required to pay (usually a monthly fee) to access exclusive services and perks.

Paid programs are usually an optional upgrade to a service that’s free for everyone else to access, with the aim of incentivising customers to join the community to gain an even better experience.

Amazon Prime is one of the most popular paid loyalty programs, which gives members extra-fast shipping, access to media, and exclusive sales.

Customer loyalty programmes are proven to work

Customer loyalty requires a holistic approach to virtually every step of your business. It’s about finding ways to put customers first at every stage of their journey. This includes:

• Creating a welcoming and enjoyable experience for customers while they’re shopping, so they feel valued and cared for by your brand.
• Building strong emotional connections through great content and customer service.
• Showing customers that you take their thoughts and opinions into consideration by engaging with them across different platforms, such as customer reviews and social media.
• Personalising their experience with exclusive benefits and rewards that incentivise them to choose your brand

By building a customer-centric strategy and continuing to monitor and improve it, you can create a brand where customer loyalty grows naturally.

Learn more about how you can enhance experiences for both your customers and employees by gifting personalised experiences with Red Letter Days.