Truly loyal customers are the type that will recommend your products or services to others. They won’t bolt the first time the competition dangles a discount in their face or if some change you make rubs them the wrong way.
But is loyalty something that can be measured and improved? The answer is yes, and doing so can be a big help in predicting the future path – and profitability – of your business. “Too many companies spend a ton of time and effort getting a customer to make a purchase, then just hope for the best after that,” says Jeff Sauro, author of “Customer Analytics for Dummies” (Wiley, 2015).
The problem with that approach is that you’re operating blindly when it comes to gauging loyalty and might make bad decisions that could come back to bite you. If you can learn how to measure loyalty you can make the most of it and make better strategic decisions going forward.
“Loyalty” can mean different things in different industries. But for most businesses, it comes down to a few basics: How likely are customers to buy from you again, and are they willing to recommend you to others.
Here are four ways to get a handle on customer loyalty and put it to better use.
1. Track repeat purchasers. A great way gain insight on customer loyalty is to compute the percentage of customers who are repurchasing, reusing or returning to a product or service. You can do this by collecting data on past sales or from surveying customers about their past – and future – intent to purchase from you.
Repeat purchase habits are measured differently depending on the product or service. For example, a small rental car company would consider the repurchase rate a good indicator of loyalty because certain customer segments rent multiple times per year and have many choices. For other companies, simply renewing a maintenance contact year after year indicates loyalty.
Collecting this kind of information can take years, however. So to speed things up and gauge loyalty before buyers have a chance to defect, survey your customers and ask their intent to repurchase. For best results, keep the survey short.
2. Calculate a Net Promoter Score (NPS). NPS is a popular way of measuring customer loyalty. It essentially helps you measure word-of-mouth. It’s a three step process. First, ask customers how likely they are to recommend your product or service to a friend, family member of colleague.
Next, use those answers to put customers into three buckets: promoters, passives and detractors. Promoters are customers who are most likely to recommend you. Passives are generally satisfied, but less likely to recommend you to others. Detractors are the least loyal and might actually discourage others from using your product or service.
Finally, compute the NPS by subtracting the percentage of detractors from the percentage of promoters.
3. Discover what customers like best about your product or service. One of the most effective ways to understand what drives customer loyalty is to conduct a “key driver” analysis. Key drivers include such things as quality, value, utility and ease of use.
Analyzing your key drivers tells you which aspects of your product or service have the largest impact on customer loyalty. You can do an analysis of all of your customers, and also of specific customer segments.
4. Pinpoint your detractors. While it’s always great to strive for more promoters, it’s often the customers who are least satisfied who have the biggest impact on the business. Research shows that dissatisfied customers are far more likely to be vocal about a bad experience – in person or on social media. The negative effects of detractors can easily outweigh the positives of promoters.
If you want to win over detractors you’ll have to find out what will make them happy and loyal. Then decide if it’s worthwhile to make those changes or would be more efficient to seek new customers who would be happy with the way your business already operates.
Copyright © 2000-2014 BizBest® Media Corp. All Rights Reserved.