If you have been following along with us, you’ve read our customer experience articles on Loyalty Programs vs. Incentives, Goals of a Loyalty Program and How to Design a Loyalty Program but there is one more piece that is a critical part of the process—measuring success.
As we have mentioned before, there really isn’t one universal definition of customer loyalty, which can make it challenging to pinpoint how to measure the effectiveness of your program. We say that loyalty is a feeling you can build up over time that allows you to weather storms, and increase the lifetime value of your brand’s relationships with customers. While a lot of businesses tend to focus on transactional metrics such as retention, purchase behavior and incremental sales, there is also monumental benefit in looking at emotional components.
When we define customer loyalty, we say that customer loyalty means a preference and willingness to buy from a specific brand or seller. Most commonly measured by repeat purchase, size of spend and word of mouth. (Note the need to quantify behavioral metrics as well as transactional.)
To get the most out of your measurement plan, look at a combination of customers who act loyal and customers who feel loyal to get to that sweet spot of understanding the customer base who are loyal.
4 Behavioral Metrics to Consider
1. Repeat Purchase Rates is the percentage of customers you retain who come back to place another order. Think of it like this: “Once is chance, twice is coincidence, third time is a pattern.” When a customer chooses you several times, you can self-assess why:
- Is this customer looking at you because you are positioning on price?
- If you are a premium brand, are they having a positive experience each time leading them back to you? (Note: Transactional brands can also deliver amazing experiences.)
- What’s the timeline between purchases? Are they always choosing you, or just buying a lot of products? Your brand’s sales cycle needs to be a consideration.
2. Customer Lifetime Value (CLV) represents the total amount of money a customer is expected to spend in your business, or on your products, during their lifetime.
- Admittedly tricky to calculate correctly, but this is where math is on your side.
- Accurately assessing CLV is the key to edging out value over your competitors.
- Introduce someone to your product by pricing something lower than market value, in order to get a share of wallet going forward (this works best at scale with high volume. Small customer bases and infrequent purchases can throw these calculations off quickly, and set the wrong expectations with your brand).
3. Program Interaction (non-purchase driven) recognizes customers for every interaction (across any channel) they make with a brand.
- How long is the purchase window for your products? Is it something you buy daily? Weekly? Monthly? Yearly? Once every 10 years? Understanding how often your customer thinks about you is key.
- If you are a once-every-five-years product, being top-of-mind is a massive advantage. They are likely to start the search with you—meaning it’s your consumer to lose.
- Implement trackable ways for people to interact outside the purchase cycle, and you can tie it back to your CLV measurements.
4. Share of Wallet is the amount an existing customer spends regularly on a particular brand rather than buying from competing brands and can inform Customer Lifetime Value tremendously.
- A customer is good, but could they be better? This is the “dark side” of a customer. Can you find ways to estimate how much they might be spending with competitors?
- Do you want to grow or maintain a customer? Share of wallet is the key metric to that question.
- In the past, customer loyalty was measured solely by customer behavior. A new understanding of customer loyalty and access to more insights means that today’s customer loyalty metrics include emotional connections as well. Some experts argue that even though emotional loyalty may be harder to measure, it “must be considered to build a true loyalty measurement equation.”
3 Emotional Metrics to Consider
One way to think about behavioral and emotional loyalty is that the former describes how customers act, while the latter describes how they feel. The ideal overlap is customers who both act and feel loyal, but there isn't always a direct correlation between emotional and behavioral loyalty.
Below are a few other considerations to keep in mind when gathering emotional metrics.
1. Net Promoter Scores (NPS) tells you how much your customers like you and gives you insights into whether or not they are going to stay as customers.
- It's meant to be highly volatile and rewards consistency.
- Having a consistent NPS score points to a huge strength in consistency of experience.
- Meant to attempt to capture word-of-mouth advertising—which is still king.
2. Customer Satisfaction measures how happy customers are with a company's products, services, and capabilities.
- This type of measurement is usually done through a survey asking the customer to share how they feel about an interaction or purchase with your company/brand.
- This could take the form of a sliding scale (quantitative) or an open-text response (qualitative).
3. Sentiment Analysis helps provide valuable insight into the mind of the customer and it empowers agents with data that allows them to go above and beyond, while also providing customers with an experience that promotes not only satisfaction, but also encourages loyalty.
- This type of analysis can sometimes be more granular than NPS or satisfaction.
- It helps uncover specific areas for improvement or where you are outperforming the competition.
- When setting out to measure loyalty, it is essential to understand that building emotional loyalty can take time.
Quantify Customer Engagement to Improve Loyalty
Another indication of customer loyalty is how heavily they utilize your services, and how engaged they are with your brand. While many businesses talk about the benefit of “increased engagement,” it’s important to keep in mind that engagement can be anything—number of log ins, time spent on pages, email open rates, unique visitors, returning visitors, etc.
These aren’t “bad” on their own, but if there’s no specificity to them and you’re not able to help quantify the engagement data, you’ll likely fall back and cherry pick the one that’s on the rise. Maybe you’re losing new users, resulting in longer average time spent on the site, which can look good—but you’re not diagnosing the real problem. Measurement needs to be tied to change and action. If a metric is on the rise, but you didn’t implement anything to change it, you need to look critically at what is causing the rise instead of always assuming it is good news.
If you think there are gaps in how your brand measures customer loyalty today, we can help. Let’s connect and we can help you identify ways to track and prove the value of the relationship between your brand and your customers.
A true loyalty program should address every phase in the buyer’s journey, with not only different tactics by phase, but different tactics and journeys by customer type. Keep reading to find out how customer habits impact customer loyalty.