The Relationship Between Customer Retention and Business Success
By Kerry Thomas, Head of Customer Experience at IQbusiness
While several metrics serve as indicators for marketing success, customer retention is certainly one of the most important. And rightly so. A brand’s ability to attract new consumers, while ensuring existing ones remain both satisfied and loyal, is what can make or break a business. According to a Genex Insights report on loyalty modelling, customer loyalty requires trust, customer satisfaction, and perceived value.
Once loyalty is established, a loyal customer is one who is likely to return to a company and repeatedly use their services or products because of a positive customer experience. This decreases customer acquisition costs and increases customer lifetime value. When developing marketing strategies, businesses should focus their attention on nurturing this kind of customer loyalty to the brand and the experience that the company delivers.
Why customer loyalty is important
Loyal customers can make and save businesses money. First, because their willingness to return helps maximise profitability; in fact, Genex Insights states that just a slight increase in customer loyalty can dramatically increase profits. Second, because they act as free promoters for your business. After all, word-of-mouth is one of the most powerful marketing tools and is increasing in both useage and popularity. And with that, comes the opportunity to cut down on costs you would have spent on advertising!
Loyal customers are also key to capturing feedback that can in turn help businesses build a better product or service. Their reliability also means that they are less likely to walk away, but instead will suggest a better way of doing things through regular feedback. These kinds of insights are like gold to companies! It’s this kind of valuable information that can lead to growth, improved customer satisfaction, and subsequently, an increase in revenue. Loyal customers are more likely to stay customers, even when economic conditions are tough, making businesses with loyal customers more resilient.
Now that we know their value, what’s the best way to create and retain a loyal customer?
It’s no secret that South Africans love a good loyalty programme! Suddenly we’re exercising more to get a play on Discovery’s gameboard, shopping at Checkers to gain eBucks or choosing Clicks to get our meds so that we can swipe our cards and get cashback. A 2019/20 Truth & BrandMapp Loyalty Landscape Whitepaper revealed that 72% of locals who are economically active use loyalty programmes. This is understandable especially considering the difficult economic conditions and the tough curveball that 2020 has thrown at us.
We have certainly become more conscious of our spending habits and have started seeking alternative ways to save. This is where loyalty programmes thrive. According to Truth, 67% of respondents reported that loyalty programmes influence where they shop, while 38% said they influence what they purchase.
Why they work
No matter what shape or form they come in, loyalty programmes are a hugely effective way to incentivise repeat business and can be a tool to drive a change in a customer’s purchasing behaviour. This is because they build trust, customer satisfaction, and perceived value – the three factors required to create loyal customers. Some loyalty programmes incite a sense of exclusivity and they’re a great way of obtaining valuable consumer data. Using the information gathered, businesses are then able to personalise their marketing efforts to ensure that they resonate with the right categories of customer. The result? Brands are far better positioned to deliver a product or service that their target market will actually buy into.
Importantly, because loyalty programmes reward customers for their support, they ensure that the business they represent remains top of mind. A good example of this is First National Bank’s eBucks programme, whereby consumers are rewarded for doing everyday things outside of just banking! This includes personal shopping or even filling up with fuel. The success of the programme is in the numbers, with 54% of respondents who are eBucks members indicating it’s their programme of choice over all others, as reported by Truth.
Trends to consider
With technology evolving at a rapid pace, the possibilities seem almost endless when it comes to the future of loyalty. As consumer acquisition costs increase, more brands will build loyalty programmes, and only the best will be successful. The Genex Insights Loyalty Modelling report shows that building consistently excellent customer journeys, and constantly evaluating programmes to ensure they continue to offer value are both key to effective loyalty programmes.
The number of omni-channel programmes, emotionally based programmes, and paid programmes will rise, and mobile apps will become an increasingly popular way to reach consumers. This, thanks to their ability to update and change when necessary, and because of the interaction, they encourage.
The gamification of loyalty programmes is another trend making headway among consumers as it adds an element of fun. Consumers are then far more likely to interact with a brand and suggest it to friends, which in turn does wonders for profitability. Another advantage for businesses is that, through gamification, they’re able to encourage certain behaviours in a way that benefits them.
More programmes will incorporate technology that enables hyper-personalisation, and machine-learning, big data, and blockchain will enhance this. We may come to a point where your loyalty programme knows what you want before you do!
There’s certainly a win-win outcome when it comes to loyalty programmes. The customer feels acknowledged, appreciated and, importantly, rewarded for their loyalty. For businesses, this leads to increased revenue through additional revenue streams and decreased costs.
It’s important to note, however, that there are no shortcuts when it comes to these programmes. Building a programme that retains customers and contributes to business success requires market research, constant product development, and data analysis. By leveraging technology, businesses can adopt an approach that best caters to the needs of their unique consumer base.