The Importance of Customer Loyalty
Customer acquisition is top of mind for most businesses – most of their marketing budget is spent on advertising materials meant to drum up new visitors. Not to mention, new technologies such as group buying sites and consumer reviewing apps are emerging to help businesses expand their reach. However, many fail to put as much focus on customer loyalty programs.
Building and growing a restaurant or retail business is much more than just accumulating new customers – it’s retaining recurring ones, too. Many businesses overlook the importance of customer retention and loyalty programs. They are able to bring increased sales, brand awareness and a sense of security during tough times. In fact, the Gartner Group reports that 20 percent of a business’ existing customers generate 80 percent of its profits.
In order to bolster profitability, businesses must cultivate and care for their recurring customers, engaging them in customer loyalty programs and providing them with frequent incentives.
Here are five reasons why loyal customers are essential to your business:
1. Loyal customers are easier to sell to
Because loyal customers are more familiar with their preferred businesses, they are usually more inclined to try new menu items, new products and recommendations. In fact, according to Marketing Metrics, the probability of selling to new prospects is about 5 to 20 percent, but for an existing customer is 60 to 70 percent. In other words, it’s extremely worthwhile – businesses can put forth the same amount of effort, but expect much higher success.
2. Loyal customers can act as brand ambassadors
As brand ambassadors, your loyal customers can reinforce your values to other consumers. Because they frequent your store or restaurant and are satisfied with your product, they are also more likely to share their positive experiences with others – in the form of recommendations, reviews or social media praise. They are also more inclined to speak about your brand in everyday conversation with their peers, or “word-of-mouth marketing.
3. Acquiring new customers is more expensive
Research has shown that it is six to seven times more expensive to acquire new customers than to continue serving loyal customers. To acquire new customers, restaurants and retail stores have to catch their eye with advertisements, provide introductory information about their brand, draw them in with discounts and deals and encourage them to try new items or products. Each of these tasks can be costly. On the flip side, focusing on customer loyalty is much less labor-intensive.
4. Loyal customers protect your business from competition.
Your loyal customers are the foundation for your restaurant or store. If competition gets stiff or budgets get tight, they will be there to give you some padding – an “economic moat” as Warren Buffett puts it. Newer customers will be more likely to switch to a competitor, hurting your sales. Loyal customers reduce the risk of price sensitivity; they aren’t likely to abandon your brand after a small price adjustment. In tough times, your business’ ability to retain customers could be its saving grace.
5. Loyal customers offer constructive feedback
How can your brand grow if you are unsure which areas of your business need improvement? Your loyal customers know your brand inside and out and can tell you, honestly and constructively, what you’re doing right and what needs some work. Newer customers could shy away or develop biases after one or two unpleasant experiences, giving way to negative reviews that might not be an accurate representation of an average visit. Feedback is essential to maintaining quality products and service.
So, now that you know the importance of customer loyalty, what are you doing to reward and retain your loyal customers?