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Browse our database of just about everything you need to know about a loyalty program and how one can be beneficial to your business. Also included are recent updates or bug fixes to Loyal~n~Save and announcements of new integrations and features.

Why Is Customer Loyalty Important?

May 7, 2020 Loyalty

The importance of customer loyalty cannot be overstated. Every single customer that enters your retail location is your opportunity to win their business for life. You want your first-time customers to become lifelong, loyal customers, but you aren’t the only clothing store—or restaurant or hair salon or arcade—in town. How are you going to accomplish this? What can you do to earn loyalty from your customers?

Why Is Customer Loyalty Important?

You’ve started a company. You filed the paperwork. You’ve opened your store. You’re officially in business. Then—drum roll, please…—you get your first customer! And… you never see them again. Huh?

This isn’t exactly what you were hoping for when you decided to launch your business, but hey, your store is getting traffic, right? Shoppers are coming and going. Customers are swinging in to use your services. Even if you don’t start seeing familiar faces, what’s there to complain about?

A lot.

The importance of customer loyalty cannot be overstated. Every single customer that enters your retail location is your opportunity to win their business for life. You want your first-time customers to become lifelong, loyal customers, but you aren’t the only clothing store—or restaurant or hair salon or arcade—in town. How are you going to accomplish this? What can you do to earn loyalty from your customers?

Before you look at the “hows” and “how-tos” of generating customer loyalty program ideas and the benefits of customer loyalty to your business, you first need to understand the “whys”, so why exactly is customer loyalty important? It’s all about revenue, mainly, you want to increase it as quickly as possible for as little money as possible.

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Churn rate is your friend, but only if those numbers are low. In business, the term “churn rate” refers to the annual percentage rate—and the inferred losses—at which a customer stops subscribing to your store.

In 2020 alone, U.S. companies across all industries reported a churn rate of more than 23% according to Forbes Magazine. To help you wrap your head around that, at this rate a company that has 1 million customers with a $500 average revenue per user, or ARPU would lose $100-million or more. Yikes!

You definitely don’t want to lose customers, i.e. sales, so ideally, your churn rate should stick to 0%, but there isn’t a company in existence who has pulled this off. If you do, let us know. You belong in the Guinness Book of World Records and we know a guy.

If you’ve just opened up shop, try not to fret about your churn rate for now. Focus instead on your “acquisition rate” and your “retention rate”. Your acquisition rate is the financial cost your business accrues to get new customers and your retention rate is the cost of keeping those customers shopping at your store.

As amazing as your products and services are, they alone will not be the only reason your first-time customers choose to frequent your store time and again. The primary reason customers stick with stores is because every time they shop, they save money. If a customer isn’t saving, or worse, if they save more when they shop at your competitors’ stores, you won’t see them with the kind of regularity that is going to positively impact your bottom line.

“When the economy crashed in 2008 and the company’s churn rate shot up, HubSpot delved deep into its churn data to see what it could find out about which customers were more likely to leave and when. Using that analysis, the firm targeted customers they suspected might cancel and offered services to convince them to stay.” Amy Gallo, Harvard Business Review Journalist

HubSpot knew what they were doing and in 2008 they made the right move when they began offering discounts, deals, and incentives in order to retain their customers. In fact, no matter what the economic climate, there are never any disadvantages of customer loyalty.

The cost of customer retention is a measurably lower business investment than customer acquisition, but calculating retention costs is not easy. While there isn’t a commonly accepted formula to calculate this cost, retention figures can, in fact, be calculated. If you’d like a little hand-holding, check out another Loyal~n~Save article, “How to Calculate Retention Costs to Maximize ROI” and we’ll walk you through it.

Customer loyalty starts with a great loyalty program that includes customer loyalty cards, a user-friendly app, and emails, all of which will enable you to build a win-win relationship with your customers. First and foremost, you want to show your first-time customers that you are loyal to them, so loyal that you’re willing to lower your prices, offer discounts and deals, and points-earned towards products they love—just for them. Don’t worry. With the right platform, you’ll sell more, not less, and this is the next article you need to read to learn all about customer loyalty programs in retail.

This article was written by Loyal~n~Save, an omni-channel customer loyalty solution for retailers looking to increase customer retention and new customer acquisition.
Mira Gibson
Mira Gibson

Mira Gibson is a Loyalty Strategist at Loyal~n~Save where she develops innovative marketing strategies for small businesses. She is a content machine and advocates that marketing consistency and frequency is tantamount to success. She’s a passionate writer, avid reader, and she also manages a political blog in her spare time.