Loyal customers – worth their weight in gold?
Customer loyalty is regularly cited as the key to business stability and growth. The big question is – how much profit do loyal customers actually contribute to your business? What is their real value?
To help answer this question, I have carved out some time to review recent research and data from active business loyalty programs.
What I’ve found is this….
A business without loyal customers IS heading towards extinction!
In many cases, extinction may not be reached quickly, but as sure as death and taxes, it will come – and is often a slow and painful process for all involved.
So, the three key points are; what is a loyal customer, why do we need them and how do we nurture them?
In this two-part blog, we will explore the nature of customer relationships and why loyalty is so important.

What is a loyal customer?
A loyal customer is someone who consistently and freely chooses to support a product, brand or service, ahead of those provided by other suppliers. Customer loyalty is created when satisfaction or trust, associated with a product or offering, is higher than those linked to a competitor’s solution.
Successful organisations recognise that customer loyalty is a journey with great opportunities and understand that to sustain a customer relationship; it must be proactively nurtured.
When a customer’s relationship is cultivated, it evolves and can often transition into a passionate and lifelong association. When loyalty reaches this level, price becomes a secondary factor in buying decisions.
Loyalty also provides a ‘forgiveness buffer’ to challenges and mishaps that would not usually be afforded to others, or first-time providers.

Why do we need loyal customers?
1/ The financial reality of loyalty.
Studies show a range of financial benefits resulting from loyal customers, such as:
• Between 20-90% increase in profits
• Highly satisfied loyal customers targeted with focused marketing can deliver 80% more value than a satisfied loyal customer
• Reduction in new customer marketing expenditure (new customer acquisition can cost 5 to 25 times more than retaining a customer)
• Just 5% increase in the retention rate of loyal customers can lead to a revenue increase between 25-95%
• Decreased operating costs
• Understanding the lifetime value created by loyal customers sharpens the focus and attention to building this base and their experience within your business

2/ Data confirms overarching benefits.

Sales data extracted from the loyalty programs I examined showed the positive relationship between loyalty-based clients to non-loyalty sales. Data analysed clearly showed the high value of loyalty program customers; sales volume was 12-58% higher than walk-in customers.

Sales outcomes greater than 58% have been excluded, as these cases traditionally involve one-off transactions that are not a part of an ongoing spending pattern.

Beyond the direct sales impact provided by loyal customers, other benefits include:

• Referral of new customers to the business from loyalty-based customers

• Loyal customers who come from referrals made by highly satisfied customers have a higher lifetime value

• Businesses with a referral-based loyalty program have experienced 86% higher growth than those with no program.

3/ The 80-20 rule drives different types of “Loyal.”

Loyalty programs are not the only source of information that a business can use to identify loyal customers.
Leveraging your relevant sales information sources (e.g. your invoice system) enables you to determine, “How loyal”, “How often” and “What are their buying preferences”?
Often, we discover that 20% or less of our customers can contribute up to 80% of our business volume and profits.
Studies have shown that highly satisfied customers can deliver 80% more value than a satisfied customer, and new customers referred from this group produce a higher lifetime business return than those we attract through marketing.
This information highlights the significant contribution to business sustainability made by the segment and that close attention must be paid to these customers.
Segmentation provides a highly focused lens, enabling a series of targeted solutions designed to deliver better business outcomes.

In part 2 I will share-
* ways to segment your customer base
* simple strategies to boost your business profitability through enhanced customer experiences.

Click here for part 2

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