Customer Loyalty Metrics: Part 1 - Behavior Categories

Earning and retaining customer loyalty is more critical than ever. Measuring your loyalty performance is the only real way to ensure you are aligning your customer behaviors with your goals.

The Three Loyalty Behavior Categories

Customer loyalty behavior typically falls into one of the following categories: continued purchase, improved purchase, or earned promotion.

Most businesses see a clear ROI from efforts that drive all of these behavior categories through their loyalty program. That said, if you’re just starting to track your loyalty program, it may be worthwhile to simplify and focus on one category to drive and measure.

Below, we take a closer look at these categories.

 

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Continued Purchase Behavior

The goal of many loyalty programs is to nudge that first-time buyer into a repeat customer. And those repeat customers, as most retailers know, are very critical to making a profitable business.

The value of the repeat customer rests on three main factors: cost, advocacy, and transaction volume.

On the cost front, repeat customers are much less expensive to acquire than new one-time buyers. Repeat customers know you, after all, and take far less effort and advertising to convince and convert.

A converted customer is also much more likely to become your advocate. Chances are, if they’re returning to you, they like you and will be willing to tell others about it. In the world of repeat-business, we can not overlook the value of customer advocacy. According to a 2017 study by the IDC, 87% of B2B companies agree that customer advocates are critical to attracting buyers.

In terms of driving continued purchase behavior in a loyalty program, teams should find ways to motivate customers to make the same purchase over and over again. The long-term goal here is to create habitual purchase patterns so that those repeat customers will only need very little nudging to return and buy.

Improved Purchase Behavior

In contrast to continued purchase behavior, where we encourage repeat purchase habits, with this sort of behavior we focus on driving customers to increase their spending over a set period.

Examples within this category include encouraging a customer to increase their number of visits over a defined timeline (purchase frequency) or increase the number of items they buy in a shopping visit (new buys).

At first glance, it may seem more straightforward to drive purchase frequency than it would be to convince them to buy something new. Afterall, your customer has already shown their preference for a particular product or service.

While this is true for many businesses, it’s also important to understand that customers often hit a threshold where the utility (value they derive from that product or service) quickly declines to zero.

This threshold often depends on the type of product or service sold. Take for instance take-away coffee. Sure, I might be completely addicted to my favorite shop’s brew. So much so that my second cup of the day might seem just as valuable as my first. But by about cup three or four, it’s likely that that utility will wane as I realize I’ve become jittery from caffeine overload.

Understanding the utility curve for your particular product or service is essential when seeking to drive improved frequency of purchase behavior.

Investing in the improvement of purchase behavior through new buys then often overcomes the utility issue for many brands. The reason? The customer receives an entirely new product or service, never experienced before. And typically that’s exciting.

Returning to the coffee example, while that third cup of coffee may not have appealed to me, a hot chocolate or muffin may because of their uniqueness relative to my coffee overconsumption.

Keep in mind, that new buy behavior may threaten to cannibalize existing purchasing behaviors. Say, for instance, I discover on one of my new buys that I absolutely love the shop’s hot chocolate (so much so that I replace my coffee habit for my newfound hot chocolate love).

A new favorite wouldn’t be so bad so long as the hot chocolate is more expensive than my coffee and so long as I buy as many per day as I did of coffees. A problem exists, however, if the profit from my new buy is less than my earlier coffee consumption.

The best approach is to drive improved purchase behavior as a blend of frequency and new buys designed to compliment one another and to provide an exceptional customer experience.

Earned Promotion

Lastly, we have earned promotion. This type of activity is where people become evangelists for your brand—referring new customers, talking about you favorably on social media and filling out favorable reviews. Customer behavior under this category differs somewhat from the other categories discussed in that customers typically are self-motivated to behave a certain way.

Keep in mind that earned promotion is different from motivating customer behavior with extrinsic rewards such as prizes, status, or even cash. These rewards can be useful tools to drive desired behaviors (including those behaviors in the previous categories), but in terms of measuring loyalty based on earned promotion you need to ensure you’re measuring based on intrinsic motivation—that is, a customer’s sense of affinity or affection for your brand. If you can, try to segment your metrics between those that are loyalty-based and those that are incentive-based.

An exciting feature of earned promotion is its ability to create even greater loyalty from a customer. It does so by acting as a positive feedback cycle between you, your customer, and that customer’s contacts.

Consider this. A loyal customer has been with you for years and deeply loves your brand. Wanting others to experience what you’re about, they happily tell their friends all about their experiences with you. But each time in doing so, they risk that you won’t deliver the same value to their friend as they’ve experienced with you.

In essence, they put their reputation on the line each time they vouch for you.

Should you follow through, however, and deliver exceptional value to their friend, you’ve proven your worthiness to them. The trust just deepened, as has their loyalty to your business.

Just like the behaviors mentioned above, earned promotion should be tracked and rewarded. But be careful. Offering an extrinsic reward to an intrinsically motivated behavior can often backfire. Instead, offer them sincere thanks and authentic interactions—such as a retweet or social media share to show them you notice and appreciate their loyalty.

Also, be sure to identify those loyal customers for later segmentation and promotion to increase their loyalty even further.

Customer Loyalty Metrics: Part 2
The Essential KPIs

While there are a lot of possible metrics out there, we outline the three you can (and should) get started with right away.

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