The Customer Loyalty Loop

An Introduction

“So, you wanna start a business. How do you start? What do you need? Well, first of all, you need a building. And secondly, you need supply. You need something to sell. Now this could be anything. It could be... a... thingamajig. Or a.... whosi-whatsi. Or... [pulls out a candy bar] a Whatchamacallit [throws bar]. Now, you need to sell those in order to have a PayDay [takes out a PayDay, throws it]. And, if you sell enough of them, you will make a 100 Grand [throws 100 Grand bar]. [pulls out a Snickers] Satisfied?”

Michael Scott, Regional Manager
Scranton Branch, Dunder Mifflin Paper Co.
1

What makes a successful business? What do you need? Unlike the views expressed by business ‘savant’ character Michael Scott from ‘The Office’, there are a couple fundamental things each business needs to do to stay in business and be successful. These may not be the thoughts that are on the top of your mind, but chances are if you’re the owner, entrepreneur, or management team of your business you inherently know them, and are instinctively driven by them.

To be successful in business we need to create outstanding customer experiences and outcomes by solving real customer problems and creating delighted customers. When you continually deliver on these fundamental concepts, just about everything else in business - from profits, to growth, to brand reputation - is downstream. And it doesn’t matter what type of business you own or operate. If your business does not continually deliver great customer experiences, you’re not likely to be in business for very long. For those of us that do focus on delivering great customer experiences, we’re typically rewarded with repeat customers, growing numbers of customers, and loyal customers who behave as ambassadors of our brand, promoting our business to others. These businesses enter and stay in the so-called ‘customer loyalty loop’.

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Delivering great customer experiences positions your business to develop loyal customers. But why are loyal customers important? Loyal customers tend to be the most profitable customers, requiring less effort and expense to support. Loyal customers tend to buy more from you, and as an existing customer each incremental sale requires little to no extra expense (again contributing to increased profit). And lastly, yet arguably most importantly, loyal customers can be your best (and lowest cost) way to promote your business and brand to others. Research conducted by the father of Net Promoter Score, Frederick Reichheld of Bain & Company, shows an increase in customer retention rates of just 5% can increase profits by more than 25%2! Keeping customers in this loyalty loop pays dividends. So how is this done?

Creating great customer outcomes and delivering great experiences are business skills and processes that can be easily formed by any business. Regardless of whether your business is large, small, established, a startup, service-oriented, product-oriented, traditional ‘brick & mortar’, or 100% online, this paper aims to educate you as to the methods by which you can employ processes to deliver outstanding customer experiences and build your own customer loyalty loop.

Although Michael Scott missed the importance of creating great customer experiences in his business discussion during the hysterical episode “Business School” from the The Office, if you employ the practices discussed in this paper and help your customers enter and stay in your customer loyalty loop, you too will enjoy a “PayDay”.

1 “Business School.” The Office. 5 February 2007. Season 3, Episode 16. Television.

2 Reichheld, Fred. “Prescription for cutting costs.” Bain & Company Inc.

2. The Difference Between Customer Satisfaction and Customer Loyalty

Your customers are your business. Without them, you would be making products with no one to buy them, hiring staff with no one to serve, or buying inventory to get dusty on the shelves. Hopefully you love what you do, but more hopefully you do it because you want to make customers happy. Happy customers become loyal customers, right? Well, sometimes they do.

Customer Satisfaction (CSAT) is your customer’s attitude (many times, emotional feelings) toward the product or service they bought from you. If you’re thinking, ‘I provide great service, so all my customers must be satisfied!’ then think again. Just providing good customer service isn’t enough. If you have done the research to make sure you are providing the right message to the right person at the right time, then your customer satisfaction is likely to be high. In order to deliver the right message to the right person at the right time, you must be strategic.

Customer Satisfaction Defined
Right message

Right Person You should know who your customer is. ‘Anyone could use my product!’ is not good enough. Creating customer profiles helps you to know who exactly your ideal customer is and how to reach them (here’s a handy Customer Profile Template3). Knowing the demographics of your customers such as age, gender, motivations, and locations, will allow you to find the right person for each of your products.

Right Time Once you know who your customer is and what you want to say to them, you can start to discover how to reach them. This has been true since the beginning of advertising. Want to sell pantyhose in 1940? Put an ad in Woman’s Day magazine. Procter & Gamble (P&G) perfected this with “their decision, long ago to produce radio and then TV programs to reach the audiences most likely to buy its products— hence, the term ‘soap opera.’”4 Of course, this principle now applies to the digital world. Your marketing efforts online should be coordinated to reach your customers at just the right time on social media, your online store, or search, as well as traditional media.

Right Message Representing yourself accurately in your marketing efforts is key to high customer satisfaction. There is no use in misrepresenting or overselling your product, because in the end, people’s satisfaction is a factor of what they expected to get and what they got. If you build up your service to be more than it is, then the customer will be disappointed. When you know who are you trying to reach, talk to them in a way that is engaging and helpful. Your message should feel tailored to them, not mass-broadcasted to the world. So, Satisfaction = Reality – Expectations.

Customer Loyalty is your customer’s ongoing behavior to continue purchasing from you. It is related to CSAT, but different. Typically, satisfied customers are more likely to be loyal, but just because they had a good experience once doesn’t mean they are magically going to buy from you from now on. It’s what happens after the sale that turns one-time customers into repeat customers. Loyalty is an ongoing customer experience decision - you must decide to actively engage your highly satisfied customers, even after they have completed their purchase. Following up with customers to let them know about additional products you offer, letting them be the first to know about new product launches, and listening to their feedback are good jumping off points to creating lasting customer loyalty.

Customer Loyalty Defined

3 Brown, Kristi. “How to Create a Customer Profile in 2019 [+ Template].” fitsmallbusiness.com, 2 January 2019.

4 David Court, Dave Elzinga, Susan Mulder, and Ole Jørgen Vetvik. “The Customer Decision Journey.” McKinsey Quarterly, 2009. pp. 1.

3. The Evolution of Customer Loyalty Management

Your gimmick-free game plan

Customer loyalty has been around for centuries, even if it didn’t always have that name.

You can bet the first humans who were bartering goods hoped that they could go back to the same guy and offer more wheat for more leather pelts. Jump forward a few centuries to when Betty Crocker introduced loyalty Box-Tops, followed a few more decades later by every airline announcing frequent flier miles, such as American Airline’s Aadvantage5. Now, it seems as though every coffee shop has a (digital or analog) ‘punch card’ system - buy ten lattes, get one free! Other companies have paid monthly subscriptions or tier-based options to increase customer loyalty. Amazon is perhaps the most notable of the paid loyalty programs, with Prime Membership offering free shipping as well as streaming and listening services.

Points and rewards programs can help create repeat customers, but don’t confuse repeat purchase behavior with customer loyalty. When a better points program comes along, your repeat buyers may simply move over to the vendor with the flashier program. Focus on giving the customer experiences first, then remind your customers why they bought from you and why they were satisfied in the first place. When you consistently deliver outstanding customer experiences, you’ll be rewarded with growing numbers of happy, repeat customers many of whom will be brand advocates for your business. When people become advocates and promoters of your brand, you’ve successfully developed loyal customers. Think about Apple and Harley Davidson. Customers of these two companies are fiercely loyal, embracing the entire brand as part of who they are as people. These loyal customers ‘feel’ as if they are actually part of the company, and in reality they are because the company treats them as such by giving them outstanding customer experiences. They’re part of the company culture and express this with their loyalty. Their brand loyalty is so strong, they’ll continue to buy the company’s products even if they are lesser than products offered by competitors, or more expensive. That’s customer loyalty! Customer loyalty management is about doing a good job and making customers, particularly loyal customers, happy. Moral of the story – focus on delivering outstanding customer experiences that drive loyal customer behavior.

5 ”Aadvantage® – American Airlines.” Awardbird.com, accessed 12 December 2019.

4. Measuring Customer Satisfaction & Loyalty with Surveys

You never know how your customer feels if you don’t ask.

Let’s face it - we are inundated with surveys. Chances to win gift cards that will never materialize, false promises of ‘quick’ surveys, and unacknowledged poor experiences all lead to a general frustration with surveys as a whole. They are typically too long and inconveniently navigate away from whichever email or webpage they originate from.

However, surveys really are the most efficient way to receive feedback from customers. Many transactions occur online, so there is limited or non-existent opportunity to create in-person relationships with customers. Surveys are a direct communication from consumers about their experience with your brand. Therefore, you should be using them to gather feedback from your customers. Surveys are also an integral part of the post-purchase experience phase of the ‘customer loyalty loop’ (see Section 5, The Evolution of the Customer Decision Journey).

If you’re going to use surveys (and you should), do it right. Asking for feedback is one aspect, and acting on it is an even bigger one. If you genuinely want to know what your customers are thinking/feeling about your brand, and are committed to creating a long-lasting relationship with your customer to keep them in the customer loyalty loop, follow these guidelines: keep it short, make it easily accessible, know what you’re trying to measure, and (most importantly) follow up.

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People are busier and more distracted than ever.

LoyaltyLoop Impactful Surveys

Keep it short

People today are busy and distracted. The chances of them finishing (or even starting) a long survey are almost nonexistent. Keep your survey to one or two questions for maximum response.

Make it easily accessible.

Hopefully you’ve captured as much information about your customer as possible to use in future marketing communications, with email address being the most basic piece of information. Email is going to be the easiest way to distribute your survey. Send it to your customer soon after their transaction, while their experience is still fresh in their mind.

Know what you’re trying to measure.

There is an old adage, ‘In business, like in life, you cannot improve that which you do not measure.’ What are you trying to improve? What will you do with the information you collect? There is no use asking questions blindly with no clear vision of what you’ll do with the responses. Asking highly intentional questions will yield intentional results.

Follow up!

This is an integral stage of the post-purchase experience phase of the customer loyalty loop. Thank your customers for their feedback, regardless if it’s positive or negative. Reinforce positive experiences with incentives and respond to negative feedback quickly to create a positive remembered experience and increase your chances of capturing repeat business.

Now that you’ve listened to your customers and are armed with their feedback, you need to turn their feedback into actions. Delivering outstanding customer experiences is a continual process of gathering feedback and making adjustments. Nothing in business is static. We must continually evolve and adapt based on our customers' needs.

Develop good habits of regularly reviewing customer feedback to identify trends. Implement corrective action plans when negative issues and trends crop up. Close the loop with customers to let them know what corrective action plans you’ve implemented that address specific issues they’ve experienced and expressed. When you find positive trends, ensure your marketing embraces what customers say are great about your business so others can know too. Your customer feedback process, just like your business, is ongoing.

Develop a culture where customers are heard – the good, the bad, and the ugly - their feedback is analyzed, and improvements are made. Through these customer-inspired continuous improvements, more customers will remain in the loop and you’ll be delivering greater numbers of outstanding customer experiences.

Measuring CSAT vs. Customer Loyalty

Measuring CSAT is like a snapshot of how a customer feels at a given time. CSAT is measured with survey questions in the form of open-ended questions, multiple choice questions, questions with a range from ‘Very Dissatisfied’ to ‘Very Satisfied,’ Yes/No questions, among others.

On the other hand, measuring customer loyalty is more of a long term look at the value of your customers7. Examples of Customer Loyalty survey metrics include Negative Churn, Customer Retention Rate, Customer Lifetime Value, and most importantly, NPS or Net Promoter Score (explained in side bar).

An important follow-up to the NPS question is to ask for open-ended feedback. Encourage customers to write reviews for you on Google, your Facebook page, and other review sites that matter to you. Ask if you can use their comments in your marketing materials (See Section 8, The Power of Customer Reviews and Testimonials, p. 17). Of course, you should treat your detractors with just as much attention. Reach out to them directly to discover why they had a bad experience and find a way to remedy it. In absence of your attention paid to detractors, they may seek to post negative reviews online.

Gathering this information is just the beginning; what you do with the information is more powerful than the information itself. Your goal is to use this data to improve your business and increase the number of loyal customers to you and your brand.

Net Promoter Score (NPS)

Regardless of your industry, one of the best ways to measure customer loyalty is to regularly measure your Net Promoter Score(NPS). NPS is a simple metric that allows you to gauge your customer’s sentiment toward your business. It is calculated by asking one question: How likely is it that you would recommend our company to friends and colleagues? The customer is presented with a scale from negative sentiment to positive. There are various scale options, but the most popular scale presents choices from 0 to 10 (0 being very unlikely and 10 being very likely). Those who answer 0-6 are considered ‘detractors,’ who are not satisfied. Scores of 7-8 are ‘passive’ or on the fence. The happiest, most satisfied customers who score 9-10 are considered ‘promoters.’ Promoters are your biggest fans and are highly engaged with you brand.

Promoters are your biggest fans.

People who respond to the Net Promoter Score question with a rating of 9 or 10 are your promoters. They are likely to speak well of you online and recommend you to their friends. Engage them in the post-purchase phase of the customer loyalty loop - reward them with exclusive offers, advance notice of product launches, free swag, etc. and encourage them to leave reviews for you. Learn more about promoters in Section Five, The Evolution of the Customer Decision Journey.

7 Rodriguez, Jimmy. “What’s the Difference Between Customer Satisfaction and Customer Loyalty?” Hubspot. Date unknown.

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Net Promoter, Net Promoter System, Net Promoter Score, and NPS are registered trademarks of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc. LoyaltyLoop and SurveyAdvantage are registered trademarks of LoyaltyLoop, LLC. All other marks are the property of their respective owners. All rights reserved.

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