ULTIMATE GUIDE

Improving
customer
loyalty
 Table of 3 Introduction

contents 6 The importance of customer loyalty

10 Building customer loyalty

17 Determine if your efforts are working

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Ultimate Guide // Improving Customer Loyalty

Introduction Keeping existing customers is easier, and quite often more profitable, than trying
to win new ones. But what makes a person stay?

People are loyal to a brand because they associate it with positive experiences – whether those
stem from consistently high product quality, feeling connected to the brand’s values, or great
customer service. Because their needs were met, these experiences were positive ones.

As a result of multiple positive interactions, people build up trust for your brand over time, and
this trust can turn into loyalty. Earning customer loyalty pays off. After all, it’s what drives repeat
purchases, prompts customers to choose you over a competitor, and encourages positive
word-of-mouth and brand advocacy.

Customer
loyalty
repeat choosing you over brand
purchases a competitor advocacy

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Ultimate Guide // Improving Customer Loyalty

Introduction Customer loyalty is a benefit – not something that should simply be measured. It should be
fostered by listening to customers and understanding their needs and expectations. And then
taking action to make sure every experience meets those needs and expectations.

It’s important to note that customers can change their behaviors, perceptions, and attitudes
based on a number of factors – some of which you can control and others, like environmental,
competitive, and societal influences, are completely out of your hands. Companies that apply
an ongoing process to understanding and tracking loyalty are able to be agile and adjust to
these changes as they occur.

This guide will help you understand how improving customer loyalty makes your customer
experience (CX) program stronger. You’ll also learn how focusing on customer loyalty – and
not vanity metrics – delivers solid business outcomes.

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 SECTION 1

The importance of customer loyalty

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SECTION 1 // The importance of customer loyalty

The When people purchase products or services, they’re also buying an experience. That
experience doesn’t have to be groundbreaking; it can be as simple as the clean teeth and nice
importance breath that you expect to get from toothpaste, or the ease and convenience that you enjoyed
of customer when you placed an order online.
loyalty

of customers will pay more for

a better customer experience.1

Expectations. That’s the key. Customers expect that the brands they buy will meet their needs
and fulfill their wants. When brands consistently deliver, while understanding and listening to
their customers, they are often rewarded with lasting loyalty.

The companies that understand how customers behave and act at every stage of the customer
journey deliver better experiences. They don’t just react to problems as they occur; they
predict and mitigate those problems before they ever happen. And they build a brand that
people will trust. This is the very essence of Experience Management (XM) – the creation of
a culture of action that strives to constantly improve experiences and foster customer loyalty.

1
IBM CEI Study.

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SECTION 1 // The importance of customer loyalty

The importance And loyal customers deliver incredible business benefits. It costs 5 to 25 times more to attract
of customer loyalty a new customer than to retain an existing one.2 By growing loyalty, you can spend less time and
effort trying to replace customers who have left, and more time realizing results like:

Greater revenue Revenue for loyalty leaders grows 2.5 times faster than that of their peers.3

94% of consumers who rate a company as very good in CX are likely to

Higher customer retention
purchase again.4

64% of consumers who are pleased with a company’s CX are very likely to
Easier conversions try a new product or service immediately after its introduction versus 12%
who rate that company poorly.5

2
Amy Gallo. “The Value of Keeping the Right Not only do loyal consumers pick you over the competition, but they are also
Customers.” Harvard Business Review. A competitive advantage
59% more willing to recommend you.6
3
Harvard Business Review. “ Are You
Undervaluing Your Customers?” January-
February 2020.
4
XM Institute. “The ROI of Customer
Experience 2020.”
5
XM Institute. “The ROI of Customer
Experience 2019.”
5
Yotpo. “New Data Reveals That Brand Loyalty Is
on the Rise Among Consumers.” November 2019.

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SECTION 1 // The importance of customer loyalty

The importance Loyalty also affords forgiveness. We all do things we regret from time to time. And the same
of customer loyalty thing goes for brands. Customer loyalty can withstand a few negatives – although too many
could cause a break in the connection.

About three-quarters of consumers who rate a company as very good in CX are likely forgive
that company for a bad experience, compared with only 15% who gave that company a very
poor rating.7

of consumers who rate a company as very good in CX

are likely forgive that company for a bad experience

Since customer loyalty is a gateway to better business results, you should make sure you’re
taking steps to build it.

7
XM Institute. “ROI of Customer
Experience 2020.”

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 SECTION 2

Building customer loyalty

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SECTION 2 // Building customer loyalty

Building Customer loyalty is a key indicator of a successful CX program. If loyalty is increasing, then your
customers are satisfied. And that means you’re definitely doing something right.
customer
loyalty But loyalty is more than just whether people are spending money with you. You may receive a
large percentage of share of wallet – money a customer regularly devotes to one brand rather
than competing brands – simply because the customer is tied to you through a contract or
because it’s too much effort to shop around.
CX drives over
two-thirds The three pillars of customer loyalty
of customer
loyalty,
outperforming
brand and price Understanding your
products and brand
Believing your offering
to be a good value
Identifying with your product
on a personal level

combined. 8

8
Gartner. “Creating a High-Impact Customer
Experience Strategy.”

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SECTION 2 // Building customer loyalty

Building Building loyalty requires that you give customers what they want, when they want it, on a
customer loyalty consistent basis. By following three steps, you can improve key moments in the customer
experience and keep them coming back.

Listen and remember

What experiences are driving customer loyalty? Numerous factors along the
customer journey impact customer loyalty, including whether or not:
• Customers’ needs and expectations were met.
• Your employees and contact center provided great customer service.
• Products and services met expectations, especially for value and quality.
• Customers generally had a good experience with your company.
• Customers were satisfied and happy.
• A specific point in the customer journey caused friction, resulting in churn.
• The experience was easy.

By listening to your customers in real time at each touchpoint, you can spot
patterns, such as areas where experiences break down and cause churn and which
interactions directly correlate to a loyalty measure (e.g., average spend, repeat
purchase, advocacy).

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SECTION 2 // Building customer loyalty

Building Include your frontline employees – in-store staff, customer service teams, and
customer loyalty account managers – in your listening program. They hear firsthand what your
customers think about products, services, and promotions and can help your
company quickly pinpoint and address serious issues. Because they are directly
interacting with customers, they can offer ideas that will improve processes and
policies that impact the customer journey.

Understand and process

Once you’ve collected feedback from your customers, you can begin to generate
insight into the key drivers of loyalty, how to prioritize your customer base, and how
to encourage customer loyalty. Combine operational data (O-data) like sales and
win rates with this experience data (X-data) to surface answers to these questions:
• What makes your customers loyal to you?
• What trends are you seeing?
• What areas along the customer journey are failing and must be fixed?
• What areas are working that you can ramp up?

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SECTION 2 // Building customer loyalty

Building Using X- and O-data gives you a complete picture of what loyalty means to each
customer loyalty customer. From there, you can build rich customer profiles and segments that will
enable you to deliver more personalized experiences at scale, increasing satisfaction
and loyalty.

tells you tells you

what happened why it’s happening

Create a culture of action

While it’s important to understand exactly why a customer churns or remains loyal
to you, insight without action is meaningless. To successfully impact customer
loyalty, you must be able to use what you’ve learned to take action – whether
that be saving a customer at risk of churn or scaling the experiences that are
generating loyalty.

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SECTION 2 // Building customer loyalty

Building Closing the inner and outer loop

customer loyalty By combining the feedback from step one and the analytics in step two, you can use a
prediction model to spot the signals of customer churn, taking action before the customer even
realizes there’s an issue or a breakdown in the relationship. This proactive intervention is often
one-to-one: The signals are spotted, a ticket is raised, and an agent calls the customer.

Inner loop
Immediate 1 2 3 4 5 6
follow-up with
customers
Collect feedback
Explain to Enable your teams Deploy a ticketing
at specific Define the
Define rules or workflow
customers why touchpoints in closed-loop with training,
around what will system to manage
you want their the journey as process processes, toolkits
trigger alerts and report
feedback well as at internally and resources
on progress
relationship level

Outer loop
Organization 1 2 3 4 5
changes

Prioritize Ensure the Measure the

Use key driver initiatives based Launch initiatives initiatives are customer,
analysis to on volume to transform the delivered using operational and
understand the and value of moments that project and financial impact
most important customers matter most to program once the initiative
issues impacted and customers management has been
business case software delivered

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SECTION 2 // Building customer loyalty

Building Because taking action on insight should not be an added burden, it’s vital that
customer loyalty you have the capability to automate these actions and workflows, so you can scale
your CX program and close the loop for twice as many people without doubling
your headcount.

Preventing experience breakdowns

Once you’ve identified the areas along the customer journey where experiences
break down, you can take action to fix these interactions for good. Use your analysis
to identify key drivers for the actions you wish to amplify, like repeat purchases or
upsell, and those you wish to stop, like churn.

Determine the root cause of issues. Could there be an inefficient process in place?
Is better communication needed? Does your product need an update or a pricing
adjustment? Take action to fix these problems and prevent bad experiences from
happening at all.

And empower your employees to improve experiences by giving them the tools to
close the loop quickly and solve problems easily. After all, they are the people who
can bring the customer experience to life in the moments that matter.

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 SECTION 3

Determine if your
efforts are working
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SECTION 3 // Determine if your efforts are working

Determine if To grow customer loyalty, you first need to know where you stand today. Because loyalty

your efforts
is rooted in emotion, it’s not an on-or-off, yes-or-no thing. Some people are more loyal than
others. Some may be strongly loyal at certain times and become less so later on –
are working or vice versa.

Because of loyalty’s power and complexity, it’s imperative that you measure customer loyalty
over time, so you can continually take steps to improve it.

Customer lifetime value (CLV)

This important metric helps you see the value of a long-term relationship, rather than a single
transaction. It sums up the total worth of a customer to your business over the duration of their
relationship with you – and quantifies the value of your CX efforts. Knowing your CLV helps you
maximize profit margins by developing strategies to acquire new customers and retain
existing ones.

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SECTION 3 // Determine if your efforts are working

Determine if your Two key behaviors play heavily into the CLV
efforts are working

Repurchasing levels Multiple product purchases

Tracking the number of new customers versus
repeat customers over time helps you understand
increases and decreases in your customer
retention rate.
Tip: Measure these figures as a proportion of the
whole, rather than absolute numbers, to avoid
confusing results when overall sales rise or fall.
When a repeat purchaser buys multiple products,
they likely have confidence in your business as a
whole and are more engaged with your brand.
Tip: Track repurchasing levels and keep an eye
on how many customers are broadening their
purchasing range at the same time.

Key takeaway: Nurturing your customer relationships is how you can form lasting
positive connections with customers – and boost your CLV.

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SECTION 3 // Determine if your efforts are working

Determine if your Customer loyalty index (CLI)

efforts are working By recording a customer’s intent for future, rather than actual, behavior, the CLI measures the
strength of a customer’s loyalty toward your brand. Derived from customer surveys, the CLI
looks at a customer’s willingness to:
• Recommend a brand to family and friends
• Purchase the brand again in the future
• Try other products or services from the brand

The CLI is the average score of these three aspects. While it’s less reliable than measuring
actual behavior, it provides an overall indication of how customers feel about all three
loyalty values.

Key takeaway: By measuring customer intention scores and comparing them to reality
over the customer lifetime, you can build a more useful picture of ongoing loyalty.

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SECTION 3 // Determine if your efforts are working

Determine if your Other leading indicators of loyalty

efforts are working As customer satisfaction is the underlying driver of loyalty, your CX program should track and
monitor key satisfaction metrics. From here you can identify areas that need improvement, take
action to close those gaps, and keep your finger on the pulse of changes in customer sentiment
and behavior.

Net Promoter Score (NPS)

NPS can help you gauge how much of your customer base is likely to be loyal to you by asking
them: How likely are you to recommend us to family and friends?

Respondents give a rating between 0 (not at all likely) and 10 (extremely likely). Depending
on their responses, they’re classified as:
• Promoters – loyal and enthusiastic customers
• Passives – satisfied but not happy enough to be promoters
• Detractors – unhappy customers who are unlikely to purchase again and may even
discourage others from buying from you

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SECTION 3 // Determine if your efforts are working

Determine if your NPS is intended to be used as a relationship metric – if someone records a low NPS score they
efforts are working are often expecting you to react. Leaving a low score unchecked or unanswered could drive
churn, and at scale will impact customer perception and loyalty.

Relational NPS or customer Transactional CSAT or customer effort

satisfaction (CSAT) score (CES)

Provides a high-level view of customer Addresses customer satisfaction or effort at

satisfaction and loyalty a more granular level

Use it to: Use it to:

• Learn the overall perception • Identify strengths and weaknesses for

of your organization customer interactions along the journey at
different stages or between different channels
• Benchmark against internal or external
NPS data • Create an individual metric for different teams

• Understand overall customer loyalty • Find actionable insights at the

transactional level

Key takeaways:
• Track and monitor improvements in your products, services, or company.
• Layer customer churn data with experience metrics to predict when a customer
is likely to leave.
• Notice patterns in customer segments and find ways to improve certain touchpoints
or experiences.

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SECTION 3 // Determine if your efforts are working

Determine if your Brand engagement

efforts are working Engagement indicates enthusiasm for your brand, products, and services. It also demonstrates
that customers believe you are listening and valuing them.

Examples of brand engagement

• Making a complaint • Contributing ideas, suggestions,

and requests on your social channels
• Responding to marketing with a comment
on social media • Using online support and
customer service
• Reviewing on a third-party site
• Participating in a loyalty program

Key takeaway: Research what engagement looks like in your business. Relate
engagement to key areas in your business, such as sales, referrals, and customer
satisfaction. Put your findings into action and close the loop.

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