Customer Service / Customer Experience

The importance of customer loyalty

Laura Dolan

Mar 04, 2020 · 6 min read

Toolkit for download in this article

importance of customer loyalty

The beauty behind customer loyalty programs is that any type of business can implement this incentive process to keep their customers coming back. Whether it’s a restaurant, pet shop, grocery store or even an airline, some form of reward that’s presented to your devoted customers will not only make them feel appreciated, but it will help maintain your business’ customer retention.

If you think about it, there’s only a finite number of customers any given business can realistically serve. If we apply the Pareto principle, 80% of your sales come from only 20% of your customers. It’s your loyal customers who perpetuate your company and maintain profits for an extended period of time. That being said, it’s a good idea to implement a customer loyalty program to ensure that 20% stays devoted and spreads the good news about your company to their family and friends as an organic lead capture.

Infographic Source

The above infographic published by Invesp demonstrates how an increase of 5% in customer loyalty can lead to a 25% to 100% increase in profit per customer, as loyal customers are seen as 10 times more valuable than first-time customers. Customer loyalty and retention are big contributors when it comes to guaranteeing the endurance of your business.

To gain a competitive edge in the market, customer retention programs can make all the difference. For instance, I’ve recently been promoted to Gold Status for my Red Lobster Rewards account based on how many points I’ve accumulated as a loyal customer. Not only is it my favorite restaurant, which is an incentive in and of itself to go there, but it just sweetens the deal knowing one of my favorite establishments recognizes my loyalty to the brand and is therefore going to reward me for it.

Every year, it sends me a reward for my birthday regardless of how many points I’ve accumulated at the time, and it has a very streamlined loyalty program in place where it’s easy to scan a receipt with a smartphone and watch the amount of points in my account increase before my very eyes in the app. Below is the email Red Lobster sent alerting me to my new Gold Status (I had to split it into three images, as the entire email wouldn’t fit in one screenshot).

You’ll see Red Lobster does a nice job of explaining what the new perks are with my upgraded status and how convenient it is to get rewarded either at the restaurant, online or on its app, the perfect trifecta of rewards accessibility. Did you also notice the subtle mention of its Lobsterfest? Promoting special deals or events your business is having as another way to incentivize customers to take advantage of their loyalty programs is also a win-win.

As loyal customers, sometimes known as brand ambassadors, we’re spending money regardless, so having that loyalty program in place can also impact the way we consume. According to the infographic, 69% of customers say that loyalty programs influence where they shop and the reasons for joining said programs–57.4% to save money and 37.5% to receive rewards, respectively. For those loyalty programs that guarantee customers will reach a higher tier comprise 50% that say they would change their buying behaviors.

It’s tricky because as a consumer, I’m a loyalty member of PetSmart and Fry’s (Kroger) in the Phoenix area, so sometimes I’m torn on whether to buy pet supplies at Fry’s because they’re less expensive and I earn fuel points, or going for the more expensive items at PetSmart to earn points toward grooming or taking advantage of their boarding services. It’s either more money in my pocket, or more points toward a loyalty program that will save me money later on.

The infographic also says 49% of consumers tend to spend more money after joining a loyalty program, as many of them believe the more you spend, the more you save, which is how many loyalty programs are structured. It’s almost diabolical, but at the same time, very clever.

Sustaining customer retention

Loyalty programs aren’t intended to be short-term customer retention strategies. It’s important to add incentives and upgrades throughout the duration of a customer’s loyalty program to increase the likelihood that that person will remain loyal to your brand, much like Red Lobster did for me.

Upgrades to the loyalty program should be directly proportional to the customer’s spending habits. Don’t let the program go stagnant if the person is buying on a regular basis or if you notice they’ve stopped spending after a certain amount of time. Lure them back to your business with an additional enticement of sorts, creating a sense of urgency with a tight deadline of a week or two before the deal expires. As the company, you want to have the customers’ best interest at heart, especially if your loyalty program is based on a use it or lose it basis. You want your customer to earn points and get their money’s worth, so sending friendly reminders every now and then will help keep them on your radar.

Nevertheless, many companies say customer retention is their biggest obstacle. With so many brands available, it’s harder for customers to remain devoted to just one establishment. One of the main reasons why customers switch brands is due to poor customer service, which is reflected as 66% of consumers according to the infographic. No matter how much of an incentive your customer loyalty program provides, having excellent customer service and a great product on hand all contribute to customer retention.

Customer loyalty programs have made a huge impact on the market, as 83% of customers admit that they’re more likely to do business with a company that offers shopping incentives. Sure, setting up a solid rewards program requires much effort by your company’s marketing and web development departments, but it’s all worth it. Loyalty programs can bring much more attention to your brand and have a significant impact on your bottom line.


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