Bain & Company conducted research where it was seen that if the customer retention rate increases by 5% then profits for the business increase from 25% to 95%. This shows that the success of SMEs depends on retaining customers. Having customer loyalty is the biggest factor that contributes to business growth.
Various factors play in building and maintaining customer loyalty. In this blog we will discuss what customer loyalty is, the importance, and strategies SMEs can use to retain customers.
Understanding What is Customer Loyalty
Customer loyalty can be defined as a relationship between customers and the business. It is more than a professional relationship; it is more about how a business builds a deep emotional relationship with its customers. It fosters trust which influences the consumers to buy only the products and services of that business. Let’s take an example:
Company A specializes in selling fried chicken. Their consumers expect good food and service. If the company does not provide a good service, then it is likely that the customers would not prefer to return to the business, even if they prepare good quality food.
But, if that company provided good service, and provided offers, or promotions which attracted the customers, along with selling premium quality food then they are likely to return to the business frequently. This action will contribute to sustainable growth in their business and increased revenue.
The main factor that the SMEs should focus on is building good relationships with consumers. It will create confidence in customers to make their purchasing decisions. SMEs should also focus on creating personalized experiences for their customers through engaging conversations, customer-friendly activities, offers, and discounts. If the enterprises are successful in building a loyal customer base, then it will be difficult for their competitors to sway those customers to their brand.
SMEs should invest their time and effort to retain their customers. This will make the customers eager to invest their time, money, and loyalty only to them. Let us discuss the importance of customer loyalty in detail.
Significance of Customer Loyalty in SMEs
Here are some reasons why SMEs should invest their time and effort to retain customers:
- Brand Loyalty: Customers who are loyal to a brand help the business grow sustainably over the years. They are eager to pay more, as they trust the brand to deliver quality products and services. It is also observed that they are less likely to be concerned if there is any change in prices. SMEs can utilize this willingness to spend to create more experience which further increases customer loyalty.
- Easy Lead Generation: Let’s take an example. There’s a loyal base of consumers for company X, which sells body soaps. All these customers are satisfied because they make their products from organic substances, have ethical manufacturing processes, and are inclined towards sustainability. These loyal customers will be prone to spread the word about the products to their family or friends or promote them on their social media platforms. This form of “word-of-mouth marketing”, is more effective in generating leads for any business.
- Reduced cost: SMEs spend a considerable amount of their revenue on generating new customers. By leveraging the brand loyalty of customers, they can change the direction of their investment, which is, towards retaining their old consumers. This will lead to a cost reduction in customer acquisition.
- Gain a competitive advantage: If customer loyalty is strong, it becomes difficult for the competitors of SMEs to change the mindset of their customers. For example: Company B is a competitor of Company C. Company B has been trying for a while to target the consumers of Company C with their new products and promotional offers. However, Company C has been successful in creating strong relationships with its customers through good customer service, offers, and engaging interactions. This prevented Company B from taking over their customers.
Key Strategies to Retain Customer Loyalty
What are Different Customer Business Loyalty Business Models?
Here we have discussed some important customer loyalty models that SMEs can utilize for continuous growth:
Net Promoter Score
Net Promoter Score or NPS is a customer feedback measurement tool used to gather insights from businesses. This is how NPS is measured:
Businesses ask questions like: “On a scale of 1-10 how would you rate our service?”, or “How did you like our customer service? Please rate us!”. These questions gather feedback from customers which generates an average NPS score that determines the stability of the businesses’ customer base and their loyalty. These insights will also reveal if SMEs are at risk of losing their customers. Analyzing this feedback from customers gives opportunities for businesses to rectify and enhance their customer service experience.
Want to learn how to calculate your NPS? Use these simple steps:
- Conduct NPS surveys: Ask strategic customer feedback questions that can help generate insights about your customer base. The result of the NPS survey will depend on the accuracy of the questions and the answers from customers.
- Separate answers into Detractors and Promoters: Segregate the customer base into 2 categories: The first category will be promoters- customers who marked answers between 9 and 10. The second category will be detractors – customers marked between 0 and 6.
- Use this formula: To calculate your NPS score, use this formula: NPS score = % of promoters- % of detractors. If the result obtained is higher, it will determine the processes implied to retain customers are working. If the result obtained is lower, think about enhancing customer service.
- Continue measuring: Frequently calculating your NPS score will give an idea of how SMEs are performing.
Apostle Loyalty Model
The Apostle Loyalty Model was developed by Harvard Business School. This model shows that customers can be divided into four categories, unlike NPS. Here are the categories:
By segregating the customer base, it becomes easy for businesses to understand the areas where they might be lacking and work on them. This will also create opportunities to engage more with customers and find innovative ways to retain them.
How to Leverage Customer Loyalty for Business Growth?
Leveraging customer loyalty for business growth involves strategic approaches that capitalize on existing customer relationships. Here are some key ways to achieve this:
Surveys:
Conducting surveys is a great way to turn loyal customers into brand advocates. By seeking their feedback, businesses can show that their opinions matter and gain valuable insights to improve their products or services. This not only increases their loyalty but also helps gather testimonials and positive reviews.
Customer Loyalty Programs
Implement effective customer loyalty programs that reward repeat purchases and advocacy. Offer exclusive perks, discounts, or early access to new products to incentivize continued engagement.
Brand Advocacy Cultivation
Encourage satisfied customers to become brand advocates. Leverage social proof through testimonials, user-generated content, and referral programs to attract new customers.
Personalized Engagement
Develop personalized communication strategies to foster emotional connections with customers. Use data analytics to understand preferences and tailor interactions accordingly.
Conclusion
By focusing on these strategies, SMEs can strengthen customer loyalty, enhance customer retention, and ultimately drive sustainable growth. Utilizing the customer loyalty business models, now gather insights and analyze them with ease. Develop personalized experiences to strengthen the relationship between the brand and customers.
At Kasmo, we leverage Salesforce to help SMEs stay ahead in this competitive market. We provide our expertise to help our clients stay informed about how many customers are churning so that they can take immediate action to prevent it. Now create innovative solutions to enhance customer loyalty.
