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Infographic: The Science of Customer Loyalty

Monday, December 5, 2016 - 14:15
Customer Loyalty Survey

Securing a new customer is a reason to celebrate, but research estimates that it costs around five times more to acquire a new customer than to keep an existing one. Want to future proof your company? Try taking a look at how much you spend on customer acquisition vs. customer retention, and don’t underestimate the importance of investing time and resources into keeping your current customers happy. Let’s examine the science of customer loyalty to better understand the importance of customer service and learn five key tips for keeping your customers happy.

The Value of Customer Loyalty

It costs around 500 percent more to acquire a new customer than to keep a current one, and it takes 16 times the cost of acquisition for a new customer to become as profitable as an old one.

While these stats ought to hit a nerve with any company, those who offer a subscription service (think gyms, mobile providers, and software as a service) should be especially concerned. Subscription-based service providers can accurately measure the impact of customer loss vs. customer acquisition by monitoring their churn rate; that’s powerful information and information should be capitalized upon.

“Churn rate” is the measure of how many customers end their relationship with a company within a given timeframe. You can calculate your company’s churn rate here.

Lowering your churn rate by just five percent can increase your profitability by 25-125 percent. That’s a lot of extra revenue potential that you could be missing out on if you neglect to pay attention to when and how many of your customers are leaving.

Value of Customer Loyalty

This isn’t to say that if you don’t offer a subscription service, you shouldn’t be taking steps to encourage previous customers to return. One percent of an ecommerce site’s users generate as much as 40 percent of its revenue, but why are only one percent of the average site’s customers truly loyal? And what steps can site owners take to increase the number of visitors that are spending regularly, and spending big?

The Science of Boosting Customer Loyalty

Loyal customers aren’t born; they’re made. It’s the things companies do (or don’t do) that determine how many loyal customers they have, and how loyal those customers really are.

Behavioral theories can provide the key to boosting customer loyalty. Let’s take a look at some of these theories and how you can apply them to your own business.

Customer Loyalty Method 1: Deliver Unexpected Rewards

Customer Loyalty Rewards

The Science: Unexpected rewards produce a huge rush of dopamine in the brain, something that doesn’t occur when rewards are expected.

Why It Works: Dopamine is a feel-good hormone, which is also responsible for habit forming behavior. If your brand is responsible for dopamine production, customers will want more of that feeling and will therefore want to keep coming back.

How To: The key is to ensure rewards are not predictable. Mix things up and try not to stick to patterns. Reward customers when they least expect it and you could reap the biggest rewards.

Customer Loyalty Method 2: Start & End Strong

Start and End Strong

The Science: The primacy and recency effect is a "cognitive bias" that causes our brains to focus on the first and last aspects of an interaction or incident.

Why It Works: A positive first and last interaction between company and customer will improve said customer’s experience and the impression they are left with

How To: Concentrate on the start and the end of any interaction with your brand, whether it’s an email, phone call, social media interaction or face to face. Always start and end in the best possible way.

Customer Loyalty Method 3: Create a Social Identity

Customer Loyalty Social Identity

The Science: Social identity theory shows us that when people feel part of an established in-group, they are more likely to stay loyal to that group.

Why It Works: Shared traits are an important part of the way people define themselves, so if a group forms part of their identity, they’re less likely to leave it behind.

How To: Help to foster this shared bond between customers by offering channels they can use to communicate with each other. Groups, events and forums can be helpful, while creating a common name or club can help build a sense of belonging.

Customer Loyalty Method 4: Let Customers Share Rewards

Share Customer Rewards

The Science: Customers may feel "cognitive dissonance" when they make a purchase, due to inconsistency between their views on the world & their own personal feelings & actions. 

Why It Works: People are frequently motivated to do something because they feel good helping others, or they would like others to have a positive impression of them. Sharing rewards with another helps to relieve cognitive dissonance, allowing them to feel positive about a purchase because someone else will benefit too.

How To: Don't just reward your customers for a particular action; allow them to nominate a friend to share their rewards with.

Customer Loyalty Method 5: Show Customers You Share Their Values

Customers Share Values

The Science: Studies show that consumer’s state shared values as a reason behind their relationship with particular brands.

Why It Works: Values are inherently important to people, more so than interests. When others honor the values that make you tick, you feel good and react positively towards them.

How To: Ensure brand beliefs and efforts at giving back are communicated to customers as well as employees. Show consumers the values you hold dear via social media or email campaigns.

Building Loyalty with Responsive, Effective Customer Service

It should go without saying that offering great customer service plays a fundamental role in keeping customers loyal. In fact, 79 percent of customers state that they would take their business elsewhere within a week of experiencing poor customer service.

But what does offering great customer service actually involve? In our experience, there are three core elements that help make customer service great.

  1. A customer service department that is reachable via a variety of different channels
  2. Quick response times, and
  3. Fast inquiry resolution

In our recent customer experience survey we found out precisely what this means.

  • When contacting a company via phone, 50 percent of customers expect their call to be answered within five minutes. Eleven percent expect it to be answered in just 1 minute.
  • Understandably, customers are a little more laid back when it comes to response times via email, however 35 percent expect a reply within 24 hours and 15 percent expect one in just two hours.
  • Social media seems to be where most customers turn when they want a response fast, but don’t fancy a one-on-one conversation. The vast majority of them expect you to respond within an hour, although 18 percent are happy to wait up to 24 hours.
  • Expectations for instant messaging services are high – as they probably should be; it’s called instant messaging after all. Nineteen percent of customers who use this method of communication expect you to reply within a minute.

Saying all this, it’s worth noting that a negative experience does not necessarily mean saying goodbye to a customer. It’s very possible to turn that experience into a positive one, and at the same time, actually boost that customer’s loyalty to your brand.

The key is in following up on negative feedback and taking steps to quickly resolve the problem. In fact, 31 percent of consumers stated they would be more likely to be loyal to a business that did this, while 19 percent would also be more likely to recommend your business to others.

You can see the full customer loyalty infographic below.

Download our recent research report, Converting Customer Experience into Revenue to learn how you can meet customer expectations at every stage of the buying cycle. And reach out to one of our experts to learn more using the form on the right side of this page.

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