The Ultimate Guide to Customer Loyalty: Definition, Importance & Strategies

The ultimate goal of any business is to grow revenue in the most efficient and optimized way possible, and building customer loyalty is a great way to do that. After all, customer retention is easier and more cost-efficient than customer acquisition. Once you’ve gained the trust of a customer, it’s less difficult to make them buy from you again rather than to convince someone with zero experience with your brand to buy for the first time.

But what exactly is customer loyalty and how is it different from customer retention? How does it help ecommerce businesses grow? What are the metrics that entrepreneurs use to measure how loyal their customers are? And how can you boost it?

We’ll answer these and many other important questions in this article.

To learn everything you need to know about customer loyalty in 2023, keep reading our guide.

Table of Content

• What Is Customer Loyalty?
• Why Is Customer Loyalty Important for Ecommerce Businesses?
• How Do You Measure Customer Loyalty?
• 4 Customer Loyalty Strategies to Try Out in 2023

What Is Customer Loyalty?

The definition of customer loyalty is easy: Customer loyalty is a continuous positive relationship between a brand and its customers based on strong brand awareness and customer satisfaction with the products or services provided by the company. This results in repeat business which means that customers are ready and willing to continue using this brand’s products over competitors. Moreover, they are happy to talk positively about the brand and encourage others to opt for it to achieve the same positive experience.

Based on the customer loyalty definition, it goes well beyond customer retention. A retained customer might simply stay with the brand (rather than churn) and may or may not purchase again. Meanwhile, a loyal customer will continue doing business with the brand and even recommend it to their network (online or offline).

As you can imagine, this comes with many benefits and a huge potential for growth from an enterprise’s point of view.

Why Is Customer Loyalty Important for Ecommerce Businesses?

Customer loyalty offers a number of advantages to brands that are able to embrace it and build it. Let’s take a look at the most important ones:

More Repeat Sales

The first major benefit of building customer loyalty is an increase in sales in a relatively effortless manner, at least as compared to ecommerce marketing and customer acquisition. InMoment reports that 61% of loyal customers go out of their way to purchase from a brand they are loyal to. Moreover, 60% of them buy more frequently, and this share goes up to 70% among millennials who are becoming an increasingly larger part of consumers. In addition, according to Bain & Company statistics, returning customers spend 33% more, on average, than first-time customers.

What this means is that when a brand builds customer loyalty, its clients will not only choose it over competitors but will actually spend more money than they would otherwise. This translates directly into more sales from the point of view of ecommerce businesses.

Increased Share of Wallet

As a result of coming back more often and spending more, loyal customers raise their share of wallet.

What is share of wallet?

This is the money that a customer spends on a brand rather than the brand’s competitors. This spending can go towards the same products or services that the consumer first bought or towards complementary products. In any case, as an online store, you want your customers to spend their money with you and not with your alternatives.

Higher Customer Lifetime Value

When customers trust a company and feel loyal to it, this will increase their customer lifetime value (CLV). The CLV is a popular metric in business which measures how much average revenue an enterprise can expect from a typical customer for the time that they remain a customer.

According to InMarket, 77% of consumers stay with the same brand for 10+ years. Can you imagine the income potential and the customer lifetime value if you manage to turn all your clients into loyal customers? Regardless of whether you sell jeans and T-shirts, dog food, or SaaS, this means that your business is secured for decades to come. Not only will customers keep returning to your store, but they will spend more and more money than new customers.

More New Customers

Yet another reason why customer loyalty is important is that loyal customers frequently become brand ambassadors. A brand ambassador - or a brand advocate - is someone who promotes a company and its products or services to new potential customers. The easiest way to gain brand ambassadors is to build customer loyalty. Otherwise, if you’d like to engage influencers to promote your brand, that will require significant financial resources in the form of commissions and direct fees.

Once customers are convinced of the value of your company, you can offer them a relatively small incentive for referrals. This is also known as word-of-mouth marketing which is more cost-efficient and more effective than many other types of ecommerce marketing.

In other words, in addition to spending more money themselves, loyal customers will also get others to make purchases from your online marketplace.

Decreased Ecommerce Marketing Spend

Since customer loyalty helps boost sales through multiple channels, your online business can continue generating sales and growing while decreasing the spending on ecommerce marketing. The customer acquisition cost (CAC) of customer loyalty programs is significantly lower than that of most digital marketing strategies.

If you invest in building and retaining the loyalty of your customers, you can achieve considerable savings on your marketing budget.

Faster Growth

All in all, customer loyalty is important for an ecommerce business because of the opportunity to grow at an unprecedented rate. Instead of constantly chasing after new customers, it makes much more financial and business sense to put your efforts into retaining those that you already have.

Of course, this is not to say that ongoing customer acquisition is not beneficial. To the contrary, you should never stop working on marketing your business and attracting new clients. But you should ensure that you depend less on this strategy and more on loyal customers because of the advantages listed above.

How Do You Measure Customer Loyalty for an Online Store?

There are a few different metrics that ecommerce business owners and marketers should use to measure customer loyalty comprehensively. These include:

• Net Promoter Score: The first indicator of increasing customer loyalty is the Net Promoter Score (NPS). This score measures on a scale from 0 to 10 how likely users are to recommend your brand to their network. You can implement a 30-second survey on your website to measure the NPS for a quick measure of loyalty.
• Customer Retention Rate: Second, the customer retention rate measures the ratio of customers that you retain over the total number of customers you have. Research cited by Hubspot shows that a 5% increase in customer retention can increase to a 25-95% increase in company profits. This is enough to convince any ecommerce business owner of the importance of boosting your customer loyalty efforts.
• Churn Rate: The churn rate is kind of the opposite of the customer retention rate. It is the proportion of users who leave your company over the total number of users. Building loyalty among your customers helps decrease churn, or attrition, as they are more likely to stay with you (for as much as 10+ years)
• Share of Wallet: Another way to quantify customer loyalty is through the share of wallet. However, this is more difficult to calculate as you need to know both how much a customer spends on your brand and how much they spend on competitors. It’s still doable with good industry and market research.
• Customer Lifetime Value: To get a complete picture of customer loyalty, you need to keep track of the CLV metric too. Boosting CLV will have a long-term positive impact on your business growth.
• Referral Traffic: As loyal customers become brand ambassadors, they should start driving additional referral traffic to your online marketplace. You can easily measure this directly on Google Analytics.
• Direct Traffic: Lastly, ecommerce businesses see an increase in direct traffic as well. This is because not all new customers who’ve heard about your brand from a loyal customer will come from the latter’s website. Word-of-mouth marketing drives direct traffic too.

4 Customer Loyalty Strategies to Try Out in 2023

Now that you know just how important customer loyalty is for your business, you must be wondering how you can build it within your existing customer base. Here are the 4 best customer loyalty programs in 2023 for immediate measurable results:

Loyalty Points

A points-based loyalty program is one of the most popular types of awards programs in the ecommerce business world. A loyalty points system is easy to implement and directly encourages customers to come back to your online marketplace and shop again from your store.

A loyalty points program gives customers points when they buy your products or services that they can use towards future purchases. This model works at two levels. First of all, you provide customers with a reward for shopping from you rather than your competitors. Second, you encourage them to come back to use the discount for which they have qualified (and gain even more loyalty points when doing so). This structure makes the loyalty points program particularly popular in the retail sector including fashion, beauty, home, technology, hospitality, and everything in between.

Cashback

A cashback program is another example of a customer loyalty program that’s perfect for ecommerce businesses as it can be easily implemented from a technical perspective. A cashback loyalty program gives back customers a percentage of their sales amount to spend on a future purchase.

This encourages customers to spend more on a certain purchase as they will gain a percentage of the amount back, meaning that they receive an instant discount. The added benefit from a business’s point of view is that in order to use the discount, customers have to come back and buy again, which boosts customer retention, share of wallet, and CLV. Moreover, many customers are likely to share with their family and friends the great discount they’ve got from your online store and push them to give it a try as well.

VIP Program

A VIP program is something that you can implement along with other types of customer loyalty programs as it relates to only a select group of customers. A VIP customer loyalty program is a system of discounts, points, rewards, access to exclusive products, or any other benefits that you offer to a limited number of customers, to the very important persons within your customer base, in other words, hence the name.

There are many different ways in which you can define the VIP segment of your customers to define eligibility for your VIP program. For instance, this could include customers who have spent above a specific threshold amount, those who spend more than a certain amount per month, or those who have stayed with you the longest. In any case, it is crucial to make it super clear that these rewards are available only to a small group of your customers for their true loyalty when you launch your VIP program.

Referral Program

Another winning customer loyalty strategy in 2023 is starting a referral program. With this model, instead of rewarding customers for continuously doing business with you, you reward them for recommending your product or service to their network.

In this sense, referral marketing is very similar to affiliate marketing. The main difference between a referral program and an affiliate program is that the former provides incentives to existing customers to become your brand advocates and drive traffic to your online store, while the former focuses on third-party individuals or companies. Usually the latter are influencers in the industry, and they might have never tested your product or service themselves.

Depending on your ecommerce business model, you can offer a variety of rewards in your referral loyalty program. You can incentivize your loyal customers to spread the word about your brand by offering them points towards future purchases, discounts, a fixed fee for every new customer they bring to you, or a percent-based commission. You can also have different tiers so that customers who are more active brand ambassadors benefit from your referral program. Moreover, you can give your brand advocates access to unique promo codes to share with their network to encourage them to test your product or service. Once you’ve gained the trust of your new customers in this way, you can start working on turning them into loyal customers too.

Usually, it’s a good idea to launch a referral program in combination with another customer loyalty program for maximum results.

Launching Your Customer Loyalty Program in 2023

By now, you probably understand well the many important benefits of building customer loyalty in 2023. This will help you accelerate business growth and revenue generation like never before. However, if you own a new ecommerce business with limited marketing resources, you might be worried about the practicality and the technical details of launching a customer loyalty program.

There is nothing to worry about. Starting all the above-listed types of loyalty programs is easy with Core Loyalty. Our product will help you launch a loyalty points, cashback, VIP, or referral program - or all of them - in no time. The sooner you get started, the sooner you will begin to drive additional revenue from your newly loyal customers.

Click here to schedule a demo of Coretava.