What is customer loyalty and how do you build it?

Customer loyalty is when customers reward a company with repeat business over time. Here’s how to increase customer loyalty for lasting brand success.

By Tara Ramroop, Staff Writer

Published March 10, 2020
Last updated May 17, 2022

Some brands seem to have a complete hold on their customer base.

You’ll never see a Starbucks groupie in the Philz Coffee line if there’s a Starbucks within 10 miles. Lululemon purists are willing to spend three times as much on the brand’s signature leggings to be part of the “Lulu Lifestyle.” And most Apple users scoff when a text comes through in a green bubble instead of a blue one.

These brands have nailed the secret sauce to customer loyalty. Their cult following is willing to pay top dollar just to be part of the club. This level of customer loyalty is difficult to achieve but worth striving for. With a loyal base, your business is better prepared to weather the ups and downs of the market and thrive for years to come.

What is customer loyalty?

Customer loyalty is when customers reward a company with repeat business over time. Loyal buyers consistently choose to do business with a particular brand and often defend it against its competitors.

Loyalty entails developing a customer base so devoted to your brand that they’re willing to buy whatever you offer—no matter the price—even when there are cheaper alternatives out there. Loyal, happy customers can also become brand advocates, who promote your product or service to friends and family and stick by your brand even in tough times.

For customer loyalty to happen, a company must create an experience that inspires buyers to return again and again.

For customer loyalty to happen, a company must create an experience that inspires buyers to return again and again. The most loyal customers are often those who feel emotionally connected to a brand.

Essentially, loyal customers are those who:

  • Make repeat purchases
  • Aren’t interested in your competitors
  • Engage with you on various channels
  • Provide feedback on how your company can improve its offerings
  • Advocate for your brand and recommend your products or services to others

Why is customer loyalty important?

Building customer loyalty is vital to the long-term survival of your business. Customers who form an emotional connection with your brand are more likely to stick by you. This helps you increase customer lifetime value and grow your revenue.

  • Loyal customers will go out of their way to buy from their favorite businesses. Customers who continue to choose your brand over competitors protect you from the distractions of the “next big thing.”
  • Seventy-five percent of customers will pay more for products from companies that provide a good service experience. So, once you win customers over with a great brand experience, these loyal buyers likely won’t leave if you charge them more. This allows you to build and increase revenue over time.
  • On the flip side, nearly half of all customers will switch to a competitor after just one bad customer service experience. Creating positive experiences for your customers builds loyalty. But allowing negative experiences to happen can lose them for good.
  • Retaining customers is much more cost-effective than acquiring new ones. Merely a 5-percent increase in customer retention can boost profits by 25 to 95 percent.

A 5-percent increase in customer retention can boost profits by 25 to 95 percent.

Consumers who reward companies with their business—maybe generations of repeat business—send a message: They find consistent value in the products or services, and the overall experience they have with the brand is positive. As a company, there’s no greater compliment.

To earn and retain loyal fans, put customers’ needs and wants at the center of your business. Customer-centricity will help you build trust and establish good customer relationships—both of which are key to generating customer loyalty.

Types of loyal customers

Customers are loyal to businesses for certain reasons, whether it’s the low prices, convenience, company values, or quality of the product. Here are a few different types of loyal customers.

  1. Satisfied customers

    Also categorized as happy customers, these buyers genuinely like your products or services and regularly make purchases. Though they may be satisfied, they can easily be swayed to switch to a competitor for a better deal, discount, or experience.

  2. Convenience loyals

    These customers shop with you because it’s very convenient for them. They may appreciate the ease of making a purchase, the location, or the shipping speed. Convenience is what makes them stay with you for the long haul—and they’re willing to pay more for it.

  3. Loyalty-program loyals

    These shoppers are loyal only to your loyalty program—not your brand. They’ll make purchases just to get discounts or freebies. As long as they see value in your loyalty or rewards program, they’ll continue to buy from you instead of your competitors.

  4. Low-price-loving customers

    These customers buy from you because you offer the lowest price or the best deal compared to the competition. While shoppers will stick around if prices remain low, they’ll also be quick to leave for a better deal elsewhere.

  5. Truly loyal customers

    Also known as customer advocates, these buyers are your biggest fans. They love your products or services and will shout it from the mountaintops—literally. Truly loyal customers tell their friends and family about your company and encourage them to buy from you. They also make frequent purchases, provide feedback, and participate in your loyalty program. Best of all, it’s highly unlikely that they would ever leave you for a competitor.

How to build customer loyalty and retention

  1. Reduce customer effort
  2. Provide excellent service
  3. Create an emotional connection
  4. Start a loyalty program
  5. Update how you define customer loyalty

5 ways to increase customer loyalty and retention

One thing’s for sure: Loyalty must be nurtured constantly. It’s not something you can work on once and automate later.

According to CX leaders, many qualities we value in our personal relationships also apply to our relationships with brands. Among them: consistency, being a good listener, acting upon what you learn, and being honest.

Taking a customer’s entire experience into account, the ideal way to build loyalty is a mix of internal processes and emotional factors.

1. Reduce customer effort

One way to drive customer loyalty is to lower customer effort. This means designing experiences that are simple to understand and navigate. A seamless experience makes customers more likely to return.

You can make it easy for customers by adopting an omnichannel approach to support—be available wherever (and whenever) a buyer reaches out. This also makes it simple for customers to self-serve when they have an issue, instead of having to wait on a live agent.

Provide these “low-effort” experiences and use Customer Effort Score as a benchmark—it’s a better indicator of customer loyalty than a high customer satisfaction score (CSAT) or Net Promoter Score (NPS)®. This was a key finding in a Corporate Executive Board (CEB) study on customer service and loyalty.

Keeping customers isn’t about creating a flawless product or service that perfectly meets their needs. It’s about providing a great user experience, making their buying choice an easy one. Strive for an easy, convenient user experience to be well on your way to loyal customers.

2. Provide excellent service

Companies known for inspiring customer loyalty with great customer service say that being proactive is key. That means anticipating your customer’s next question and helping them head off problems before they start. Excellent customer service positions your brand as a strategic partner, not a one-off problem-solver.

Unsurprisingly, going above and beyond for customers is linked to strong CSAT scores and customer loyalty. A well-trained support team can fix immediate problems, but agents who can also provide a positive service experience help build lasting partnerships. So when hiring new support agents, you should put just as much emphasis on soft skills as technical understanding. Soft skills include developing empathy, establishing rapport, and being able to connect emotionally with customers when under pressure.

Refocusing on connection rather than resolution may also mean updating your team’s key performance indicators (KPIs). At home decor brand Magnolia, for example, the “number of tickets solved” and “time to resolution” aren’t the best KPIs. Magnolia’s definition of success includes much more than helping customers with billing or shipping issues; it means making personal connections and creating community. Customers are just as likely to call for “transactional” support as they are for “experiential” support—sharing their experiences with agents who are trained to lend a kind ear.

3. Create an emotional connection

There are many ways to form a connection with your customers, but you have to start by getting them emotionally invested in your brand. A top-notch rewards program or social media influencer promotion won’t be effective without first earning emotional buy-in.

Tap into the power of emotional data to help identify high-impact customers—those who present the most opportunity for a lasting relationship. A Deloitte study found that using emotional data smartly can increase customer lifetime value and turn customers into brand ambassadors.

As in all relationships, you can’t force an emotional connection with consumers. The best way to connect with customers emotionally is to acknowledge and respect their needs at all levels of the business. Newer channels like messaging give you more options to personally connect with customers. Customers overwhelmingly want to interact with businesses on the same messaging channels they use to talk to friends and family. So, offering service on channels like WhatsApp and Facebook Messenger gives your customers a more personal, one-on-one experience for building emotional capital.

It’s also important to use customer data ethically to personalize experiences—don’t sell it for a quick buck—and to keep your customers at the center of your business. The most customer-centric brands organize their entire business model around customers’ needs, helping to build trust with buyers.

4. Start a loyalty program

Once an emotional connection is there, customer loyalty programs can be a great way to increase customer retention. As part of a loyalty or rewards program, buyers receive discounts or freebies after reaching certain thresholds, like having been a customer for one year. This incentivizes customers to make more purchases.

Take Sephora, for example. The retailer offers a Beauty Insider program where customers receive reward points for every dollar they spend. They can then use those points to choose gifts. Loyal customers are rewarded just for continuing their buying habits, further deepening their ties to the business and giving them value they can’t find at competitors.

When creating a loyalty or referral program, choose rewards that your particular audience would find enticing. You can base your customer rewards on how much money they spend, how often they make purchases, or how many people they refer. Not sure what your customers would prefer? Ask them.

5. Update how you define customer loyalty

Understanding what inspires customer loyalty isn’t a destination—it’s an ongoing journey that’s influenced by various factors.

Earning a strong base of loyal customers depends on a company’s ability to identify and respond to such changes. Part of that process includes throwing outdated definitions of customer loyalty out the window.

A traditional definition of customer loyalty might be a buyer’s unwavering dedication to a single company—be it an airline, brand of shoes, or car manufacturer—for many years. But a more modern definition acknowledges that customers who pledge brand loyalty to several (even competing companies) are more common.

Forward-thinking businesses accept that this behavior is completely okay. Julie Currie, former SVP of retail product leadership at The Nielsen Company, outlined customer disloyalty at the 2019 National Retail Federation Big Show.

“In the age of disloyalty, it is the selfless retailer who will win over customers,” Currie said. “The selfless retailer will do everything they can to meet the needs of the individual consumer, regardless of the fact that they are or aren’t a current customer.”

Also consider that loyalty is a two-way street between businesses and customers. Companies want repeat customers who will stay with them through the ups and downs—yet they don’t always return the favor to customers. You must remember that buyers have plenty of options. To make sure you stay on their shortlist, show loyalty to your customers. Responsibly use data to make customer-centric decisions, personalize customers’ marketing experiences, meet them on their support channel of choice, and respect their time.

What is a customer loyalty program?

A customer loyalty program or rewards program is a customer retention strategy that motivates customers to continue buying from your brand instead of competitors.

Types of customer loyalty programs

1. Points programs

Points programs are among the most popular types of customer loyalty programs. They're useful because points are easy to earn and easy to redeem. Customers can redeem points for credit toward their next purchase, discounted services, or giveaways. Customers can track points programs with a loyalty card, online account, or mobile app. Because so many brands employ a points program, it's an easily recognizable format for customers. They understand how to take advantage of them, and it's a seamless experience.

2. Tier-based programs

A tiered program starts with a points program that allows customers to earn rewards with every purchase. Tier programs are like video games. Once you complete one level of spending, customers can unlock a new level that gives them access to more significant benefits and more perks.

3. Refer a friend programs

Referral programs are a type of customer rewards that reward customers for referring their friends and family. They help turn loyal customers into brand advocates.

4. Spend-based programs

Spend-based customer rewards programs allow companies to recognize high-spend customers. Airlines, in particular, are transitioning from the points programs to spend-based systems. It allows them to engage deeper with frequent fliers who pay more for fewer flights.

Check out our loyalty program blog to learn about more customer loyalty programs.

How to measure customer loyalty

Businesses always want to increase customer loyalty. But many struggle to evaluate the success of their strategy.

Some companies measure loyalty by the length of time they’ve had a relationship with a customer. Others might think of customers who’ve stayed with them through tough times, like service interruptions or growing pains. Many businesses use metrics, such as customer churn rate, to gauge loyalty.

To gain a more holistic understanding of customer loyalty, your research should be both numbers-based and behavior-based.

To gain a more holistic understanding of customer loyalty, your research should be both numbers-based and behavior-based.

For the former, use your customer service software to quickly access key metrics:

  • Customer retention rate measures the number of customers a company retains over a given period of time. Any business that wants to succeed must keep a close eye on this metric.
  • Customer churn rate represents the percentage of customers who stopped buying your product or using your service. Churn tells you which customers aren’t loyal, leaving you with those who are.
  • Recent account upgrades show you which customers are happy enough with your product or service to increase their financial commitment. If they’re willing to spend more money and rely more on what you’re selling, they’re displaying their loyalty.

Behavior is just as important to track as metrics when it comes to understanding customer loyalty, though behavioral data can be harder to wrangle.

  • Social media behavior: Routinely search by keywords related to your brand on social media (or use social listening software) to see what customers are saying about you. Find those customers who are consistently posting positive things about your business.
  • Buying patterns: Look for customers who regularly do business with your company—they’re loyal by default, especially if their spending grows over time. Take Amazon Prime, for example. Initially, a new customer may use Amazon to make just a few purchases. But as their loyalty increases, they’ll shell out for Prime. Once they’re Prime members, they’ll likely shop on Amazon more often, both to justify the cost of their membership and to reap the benefits of quicker shipping.

The most accurate customer insights are both quantitative and qualitative. Combining both research methods and tracking trends can give you a deeper understanding of your customers’ faithfulness to your company.

For increased loyalty, become your customers’ best student

Clearly, having a loyal customer base is important for long-term business stability and success. A key step in earning that loyalty is doing your homework. The companies with the most dedicated customers make it their business to understand their buyers and form a connection with them. As with any relationship, this takes time, but there are steps you can take now to begin establishing customer trust and earning loyalty.

Stay up-to-date on the latest customer behavior statistics and regularly ask your customers for feedback so you can better understand how they think and feel. From there, you can reevaluate your customer experience to see where you may be able to make improvements. Investing in customer service software is also beneficial, as it can provide even more insights into your customers and their buying habits. Get started today, and you’ll soon see the benefits of studying your customers for yourself.

Free customer experience guide

Find out how to create great customer experiences that will lead to loyal customers, improved word-of-mouth promotion, and increased revenue.

Free customer experience guide

Find out how to create great customer experiences that will lead to loyal customers, improved word-of-mouth promotion, and increased revenue.

Get the report