Why is Customer Loyalty the Gold Standard?

When companies think about measuring customer satisfaction, there are many different metrics that come into play. Some companies rely on “plain old” customer satisfaction; others look to Net Promoter Score, and others use Customer Effort Scores. Some like to evaluate themselves against their competition, and some companies come up with their own metrics.

But when it comes to a Gold Standard, we stand by Customer Loyalty.

And why is that? A high degree of customer loyalty has been found to be the number one factor driving profits and growth in the service business.

As with most things in marketing, there are many definitions of customer loyalty. Perhaps the most comprehensive is this: Customer loyalty is the result of consistently positive emotional experiences, product and service attribute-based satisfaction and perceived value in the experience of being your customer. (Adapted from Beyond Philosophy.) Perhaps the most simplistic is this: Customer Loyalty is having your customers repeatedly purchase from you over a long period.

No matter how you define it, customer loyalty leads to business profitability. Here are several examples of research demonstrating the linkage between loyal customers and profitability:

  • Customer loyalty saves money. Acquiring new customers is 5 to 25 time more expensive than getting more purchases from your existing customers.
  • Customer loyalty leads to profits. Increasing customer loyalty by just 5% boosts profits by 25% to 95%
  • Lowering your customer churn rate by 5% can increase profits by 25% to 125%.
  • On average, loyal customers are worth up to ten times as much as their first purchase.
  • Loyal customers buy more. The average loyal customer spends 67% more in their third year of purchasing than they do in their first year of purchasing.

What makes Customers Loyal?

Make a personal connection. Instill a customer-oriented culture. Develop a customer reward program. Use social media to touch customers more frequently. And the list goes on and on!

There is only one way to build customer loyalty. And that connects to having more engaged employees. Here’s why:

  1. Engaged employees are more productive. This provides more value to the customer, as well as freeing the employee’s time to focus on other customer experience enhancements.
  2. Engaged employees find work personally fulfilling. Since they’re not in it for the paycheck alone, they are more likely to work toward excellence.
  3. Higher retention, lower absenteeism means you can more accurately forecast staffing levels to deliver excellent customer service.
  4. Engaged employees are enthusiastic, kind, helpful and pleasant. No wonder customers prefer to be served by highly engaged employees!
  5. Engaged employees make your organization more customer focused because they are always working on bringing better service to the customer.

The Service Profit Chain reinforces the linkages between employees, customers, and profit. To increase customer loyalty, you must deliver a consistently delightful experience and strong customer value. And that makes employee engagement a strategic imperative.

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