CEOs must consider a number of strategies for growing their companies. Should they diversify into new markets? Develop new products? Grow through acquisition? Making the right choice is a leadership challenge, and even with the best analysis, there are always questions about which path to take. There is one strategy, however, that should be a “no-brainer” for any company: cultivating brand loyalty.
I’m surprised at how often companies fail to look at their customer base – one of their most important assets – as a proven strategy for growth. The return on this strategy is realized through turning customers into loyal customers, true brand followers who behave very differently from the average, garden-variety customer. According to Frederick F. Reichheld in The Loyalty Effect: The Hidden Force Behind Growth, Profits and Lasting Value, making loyalists out of just 5% more customers would lead, on average, to an increase in profit per customer of between 25-100%. Given these numbers, why wouldn’t a company pursue this strategy? The reason is that brand loyalty, while easy to understand, seems difficult to achieve. This perception of difficulty leads many companies to satisfy themselves with the status quo where customer loyalty is concerned and move on to what they feel are greener pastures. Because the return on a more brand loyal customer base is so significant, it is worth some time and effort to understand how to cultivate it. To do that, I’ll examine what brand loyalty is, how to measure it, and suggest a plan to increase it.
What is “brand loyalty”?
Brand loyalty is a product of the experience your customer has with your brand. It assumes certain prerequisites, such as awareness of the brand, but it goes beyond that and enters the realm of emotion. At its core, brand loyalty is about the trust a customer comes to have in your brand. That trust produces a set of feelings and commitment to a brand, leading loyal customers to intentionally, consciously and repeatedly seek out your brand. Customers who feel this way about your brand will still choose it even when it’s not the most convenient or least expensive, disregarding the competition. Brand loyalty, then, acts like glue that keeps you and your customers together even when market or competitive forces try to separate you.
Measuring brand loyalty
Measuring brand loyalty with precision has always been challenging, but there are some brand measurement categories that are excellent loyalty indicators: retention, repurchase and referral.
- Retention. You can’t achieve any degree of brand loyalty if you don’t hold on to your customers. According to Reichheld, increasing customer retention by 5% can increase profits by 35 to 95%, depending on the type of business. The start to any brand loyalty growth initiative, therefore, must begin with customer retention. If you want to build a brand loyalty dashboard, include a retention metric. If your retention is below average for your industry, stop the bleeding before you do anything else to cultivate loyalty.
- Repurchase. Logic says that repeat purchasers must have some attachment to the brand. But repurchase behavior is often the product of convenience or price. At other times, minimizing risk is the motivation, because your solution has always worked in the past. Clearly, repurchase activity has several motivators, and we can argue that as long as the repurchasing activity persists, the motivation is irrelevant – we welcome the business for any reason. We can also agree, however, that devotion to the brand is the most powerful motivation and the most impervious to competitive influence. So use repurchasing as a loyalty metric, but factor in what motivates it.
- Referral. Every business understands and values referrals. For a customer to refer, it takes a high degree of satisfaction with a brand. The willingness to do so is therefore a strong loyalty indicator. You can measure this through surveys that ask how willing customers are to recommend your brand to others.
Ideally, your brand loyalty dashboard should include a metric from each of these categories.
Improving brand loyalty
Brand loyalty isn’t a relationship condition over which you have no control. In fact, there are many things you can do to influence it in your favor:
- Create the culture. Brand loyalty flourishes in cultures that emphasize service quality. The emphasis must come from the top of the organization and permeate throughout. It’s not enough to just send out a memo telling the team to create delighted customers. You have to trust them and empower them to do this. If you’re not willing to let your team use their judgment in pursuit of this goal, you might as well forget about it.
- Study what loyalty means. This means understanding your customers well enough to operate using their definitions of quality and satisfaction. If you’re not defining loyalty from their point of view, then you’re doing it wrong. This means learning how and why customers choose products or services, why they stay loyal, and what level of frustration or inconvenience causes them to reconsider the relationship.
- Influence the loyalty process. Loyalty is the fruit of a trusting relationship. The way to build relationships has always been through listening. Refine your corporate listening processes to not only hear complaints, but also solicit them. It is amazing what customers will tell you when they perceive that you’re really listening. You also influence loyalty simply by being grateful to your customers. Training customer-facing staff to say “thank you” to customers goes a long way to strengthen relationship bonds.
- Measure your brand loyalty. The metrics will differ for each company, but build a dashboard that includes at least one metric for retention, repurchase and referral. You may find the retention and repurchasing data for your dashboard in the data warehouse or other internal systems, but collecting referral data usually requires a survey.
Customers remain faithful to the brands they trust. Brand loyalty is an emotional attachment. It starts with a relationship and is nurtured through quality service and a dialogue. Few forces in business are more powerful for keeping customers hitched to brands, and encouraging customers to spread their love of those brands. Companies that must rely on product advantages or clever marketing to get new customers will remain at a disadvantage to those that cultivate a loyal brand following.