How to measure customer loyalty: easy-to-use metrics
08 February 2022 • 3 min read
Deconstructing customer loyalty into easy-to-measure quantitative and qualitative metrics
Just like any other initiative, businesses want to see their customer loyalty programme deliver a return on investment. To make sure it does, you’ll first need to establish a clear definition of what customer loyalty means to you – only then can you decide on the best metrics to measure it.
From this baseline, you can take action, experiment with ideas, measure your impact and change customer behaviour.
What is customer loyalty?
A top-level definition of customer loyalty is ‘the positive relationship between a customer and a business, leading to repeat purchases and a positive perception of the brand by the customer’.
Deconstructing this slightly, loyalty can therefore be measured in two ways:
- Behavioural loyalty – transactional loyalty measured by a customer’s behaviour and interactions with the brand
- Attitudinal loyalty – the loyalty a customer feels towards the brand, relating to brand awareness and perception
Behavioural loyalty is mostly quantitative and fairly easy to collect data on, while attitudinal loyalty is qualitative and much harder to measure.
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Customer behaviour analytics and purchase history are recorded by most companies, so collecting data and calculating loyalty can be reasonably straightforward. The most important measures to look out for are:
- How often do customers take an action of interest (such as making a purchase or accessing content)?
- How much do they spend or pay for services?
- How many different types of products or services do they buy/use?
Armed with this information, you can start to make predictions about how frequently different products are purchased by your most loyal customers, and then tailor your advertising to reach as many customers as possible, at the most relevant time.
For example: imagine you run a website selling handmade, personalised gifts. Some items – such as mugs or fridge magnets – will be quick turnaround, low-value purchases (~£5-10) that may be purchased several times a year by the same customer. A retention rate of ~3-4 products per customer, per year is reasonable for this type of item. On the flip side, a slow turnaround, high-value item – like a personalised photobook – would be purchased less frequently. A retention rate of ~1 purchase per customer, per year is realistic in this case.
Your marketing team can now tailor their advertising strategy to ensure product ads are more timely and relevant to your customer base. This will help improve the profitability of your advertising spend, boost sales and increase behavioural loyalty.
Attitudinal loyalty data is much more difficult to capture. Not only are attitudes subjective (you’re asking customers to self-score their perception of your brand), there’s also likely to be an inherent bias within your data pool. Only the customers engaged enough to complete surveys will provide responses, meaning a large amount of data could be missing. The most important measures to look out for are:
- How do customers feel about your company/brand?
- How satisfied are they with your products or services?
- How likely are they to recommend your company, brand or offering?
- How likely are they to switch to another brand?
Despite appearing seemingly subjective, attitudinal loyalty data provides valuable insight to inform your loyalty initiative. Customers that are happy with the brands they choose are 33% more likely to refer others than users with a similar level of behavioural loyalty – both actively via referral programmes and passively through word of mouth. These customers are also more likely to provide feedback – both positive and negative – and can often form your core user group. They interact with your brand most frequently, and are therefore the most likely to notice improvements over a longer period of time. They’re also the most likely to complain about any changes they don’t like!
Product and marketing teams can tap into this resource to understand customers, improve your proposition and harness the positive perception of your brand to attract new customers.
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