Why Customer Loyalty is a Way of Doing Business...

Customer loyalty. The economics are clear. It's cheaper and easier to grow your business through existing customers.

Yet marketers routinely spend more on acquiring new customers. There is even a school of thought that brands should just focus on customer acquisition, and loyalty will take of itself.

Of course, brands need new customers. Even the most loyal customers can disappear over time, as their personal circumstances change. However, the idea that marketers need to make a choice between new and existing customers is a false premise, based on the traditional notion that loyalty equals loyalty programs, with their points, discounts and coupons.

Rather, when a brand is centered on inspiring the loyalty of customers , a virtuous circle of growth comes into effect that both attracts new customers and strengthens the loyalty of existing customers.

Loyal customers stay longer, and increase their spend over time. 

The first two elements of this circle are the traditional pursuits of loyalty marketing: to increase retention, and to capture more of the spend of existing customers.

However, there are three further elements that complete the circle.

Loyal customers attract new customers, through word of mouth. 

This has always been true. I don't know how many times customers have told me they first tried a brand, thanks to their family or friends. However, in today's connected world, brand advocacy has become even more important. Loyal customers are not only likely to reach larger networks, but can also build a brand's reputation, through such things as reviews. 

Loyal customers are more efficient to serve

This releases funds to invest further in improving the customer experience.

For example, as several studies have shown, they complain less often, and by bringing in new customers, reduce customer acquisition costs. They tend to be less price sensitive, reducing the need to discount, and will participate in customer support communities, reducing customer service costs further.

Loyal customers help improve the customer experience.

First, by sharing their personal data to make their own experience better. Car rental programs such as Hertz Gold are long standing examples of this, while Safeway's just for U program uses customer data to make shopping both cheaper and easier. 

   (3 Steps Brands Need to Take Now to Build Customer Trust...)

Second, by collaborating with the brand to improve the experience for everyone. This was famously at the heart of the UK retailer Tesco's transformation back in the 90s, using the insights that came from their loyal customers to improve their pricing, assortment, customer service, environment, and innovation (detailed in the excellent book Scoring Points).

With all five elements, the virtuous circle is complete. Loyal customers stay longer, spend more, and attract more customers. Costs are reduced, and the experience improved, which strengthens loyalty further, and attracts yet more customers.

So rather than choosing between customer acquisition and customer loyalty, embrace earning loyalty as the way of doing  business, and get the best of both worlds...

Simon's new book "Creating Loyal Brands" out now.