As Harvard Business Review (HBR) points out, companies that score high on two oft-forgotten (and closely related) marketing research metrics—brand loyalty and customer loyalty—not only grow profits 2.5 times faster than their industry peers peers, but also provide two metrics: shareholder returns of up to five times over a 10-year period. The fact that brand loyalty, i.e. the long-term commitment to repeat purchases of a particular brand, is independent of price makes this a particularly powerful metric for both revenue and profitability (i.e. profitability).
The main reason why brand loyalty is so important to profitability is simple: 65% of most businesses' revenue comes from retaining existing customers. Not only are existing brand loyal customers 90% more likely to buy than new customers, but maintaining brand loyalty is far less expensive than marketing to attract new customers.
With sales plummeting during the 2020 pandemic, it's more important than ever for businesses in all industries to increase their investment in marketing programs to support every business' most valuable asset: existing customer base and loyalty.
Key points
- Brand Loyalty: Repeat purchases of a particular brand based on perceived higher quality and better service than any competitor, regardless of price.
- Companies with high brand loyalty grow profits 2.5 times faster than their industry peers.
- Brand Loyalty Leaders also return shareholder returns two to five times over a 10-year period.
- The first and most important condition of brand loyalty is quality. No matter how big the marketing spend, poor quality will kill brand loyalty.
- Brand loyalty is measured through customer retention rates, lifetime customer value, and customer satisfaction surveys.
What is brand loyalty?
Unlike customer loyalty, which is based on money (prices and discounts), brand loyalty is based on perception (image and experience). Brand-loyal buyers believe that a particular brand provides better quality and service than any competitor, regardless of price. Brand-loyal shoppers may make fewer purchases, but the return on their purchases is higher.
Once established, brand loyalty is fairly easy to maintain, provided, of course, that product quality and service levels remain high. Brand loyalty also costs less than customer loyalty, so you need to consistently offer low prices and regular discounts to maintain your status as the best deal on the market.
How to build brand loyalty
Most branded products operate in highly competitive markets, competing for market share with old and new competing products, many of which are barely visible. To succeed in this dynamic, marketing departments are using a variety of tactics to build and maintain brand loyalty, including tracking purchasing trends, analyzing spending data, and developing advertising campaigns that target consumers, existing customer segments, and are likely to continue to do so. .
Here are some of the most frequently cited strategies for building and maintaining a brand-loyal customer base that can take your business to the next level.
Best-in-class quality: The first and most important characteristic, a prerequisite for brand loyalty, is quality. No matter how big your marketing budget or how many celebrities you have, the worst products and services will always be ridiculed on social media. On the other hand, companies that consistently deliver the best quality will turn customers into loyal brand advocates who spread positive word of mouth and never feel the need to shop anywhere else.
Customer Service – Exceptional customer service is expensive (24/7 chat agents, social media managers, phone operators, support staff), but ensuring customers always receive top-notch service is an investment that increases brand loyalty and returns more revenue. . In fact, in a crowded marketplace, top-notch service that makes customers feel valued may be the only thing that sets a brand apart from the competition. For customer service to increase brand loyalty, customers must have access to intuitive systems for sending feedback and registering complaints, and a dedicated team of employees must be trained to respond quickly to their queries.
brand ambassadors . In addition to loyal customers who share their products for free on social media, companies hire representatives to act as brand ambassadors for their products. In addition to strong marketing experience and an established online presence with active networking across all platforms (via blog, email, webinar), a successful brand ambassador must have an authentic and professional presence, with deep product and service knowledge. and highly developed skills in building loyal customer relationships. In addition, the best brand ambassadors are also adept at gathering valuable customer and competitor insights that can lead to profitable business improvements.
Loyalty programs . Creating an existing customer loyalty program for your business is one of the most direct ways to build brand loyalty. It's worth remembering that regardless of the value of store credit returns, discounts and freebies, investing in and retaining existing customers is far less expensive than marketing to new customers. This is especially true for premium brands, as an exclusive loyalty program discount can be the right incentive to choose an expensive brand over a cheaper one.
Online community. As e-commerce continues to grow (online spending in the United States is expected to reach $1 trillion by 2022), building an online community to build brand loyalty is critical for businesses in all industries. Unlike static advertising, social media offers a range of tools to create deeper, personal connections with clients, from Q&A sessions and live streams with staff to client visits to behind-the-scenes agency.
Not only does a digital community serve as a simple entry point to engage with customers who spend hours online, but as an extension of your website, a community can also act as a bridge between social engagement and conversion.
Brand loyalty is said to have originated in the 18th century, when an American merchant distributed copper coins to his loyal customers.
The leader in brand loyalty
Here are two examples of companies that have made high-return investments in brand loyalty by prioritizing quality and customer service. Not only can these brand loyalty leaders charge more for their products, but they can also save on marketing costs: social media and email marketing to existing customers is only a small part of the cost of acquiring new customers.
an apple . In 2021, Apple's brand loyalty rate was 92%—the tech giant retained a higher percentage of existing customers than any other company in any industry. Apple's status as the world's most valuable brand is based not only on innovative technology and cutting-edge design, but also on unparalleled brand strength and exceptional customer service.
Anyone who has seen a line of shoppers snaking around an Apple Store waiting for the latest release knows that brand strength affects the true value of a product as much, if not more, than any other factor in market performance. As Apple rolls out paid services, including Apple TV and games, the company is likely to increase its share of wallet (SOW), the dollar amount a customer spends on the company's brand and spending on its competitors.
Nike . One of the main reasons Nike is the most valuable sports brand in the world is its industry-leading membership program, which offers four factors of brand loyalty:
- exclusivity (access to exclusive benefits: tickets and product launches)
- community (free education, support for education);
- personalization (birthday and anniversary gifts, personalized product recommendations)
- multi-channel experience (in store, website, mobile app).
Brand Loyalty and Profitability Statistics
The correlation between brand loyalty and profitability has been well documented for decades. Here are some impressive statistics:
Customer Retention: In 2020, Harvard Business School reported that "industry by industry" a 5% increase in customer retention increases profits by at least 25% and up to 95%, a statistic that "launched a career in customer loyalty" . "strategies, many of which continue to pay big dividends."
Customer Lifetime Value (CLV): Microsoft released one of the most important statistics linking loyalty to long-term rewards: a 7% increase in brand loyalty increases the customer lifetime value (CLV) of each Microsoft customer by 85%. (CLV, a metric for measuring business growth, is the total expected revenue generated by an individual customer over the lifetime of the relationship.)
Customer Service: 83% of customers would switch brands because of poor customer service.
Consistent quality - 74% of consumers believe that product quality is the main reason they stay with a brand.
Corporate Social Responsibility (CSR): 25% of Gen Z and Millennial consumers will spend more on a brand that takes a strong position on corporate social responsibility (CSR).
Brand loyalty is closely related to psychological bias, as a consumer may intentionally forgo a logical choice in favor of his or her preferred brand.
Brand Loyalty: Client Capitalism vs. Shareholder Preference
One might wonder: If the relationship between profitability and customer performance, such as brand loyalty, is so well established, why do companies often lose sight of their most valuable customers? Harvard Business Review (HBR) offers interesting answers to this question: financial accounting and shareholder priority.
The HBR article argues that because corporate financial disclosure rules and accounting practices require little or no communication of customer value, short-term thinking that prioritizes quarterly profits over customer relationships misunderstands both management and shareholders. about the crucial role of loyalty in profitability. . A combination of financial reporting deficiencies, two very different profitability strategies, shareholder preferences, and client capitalism have affected how customer metrics such as brand loyalty are valued as drivers of profit.
On the one hand, in the 1950s, Peter Drucker, whom GE chairman Jack Welch called Forbes "the father of business consulting" and "the greatest management thinker of the last century," argued that "the real goal is to create and preserve On the other hand , in the 1970s, Milton Friedman argued that companies exist to maximize shareholder value, period, an argument that ushered in "the era of shareholder primacy," according to HBR.
Current proponents of the "client capitalism" approach argue that companies that put customers before shareholders can create even greater shareholder value. For example, in 2019, The New York Times reported that business roundtable leaders, including influential figures such as Apple's Tim Cook, Amazon's Jeff Bezos, General Motors' Mary Barra, Vista's Equity Partners Robert F. Smith, BlackRock's Larry and Fink have shed decades of corporate orthodoxy, saying that the "purpose of business" is no longer to serve only the interests of shareholders. Instead, companies must now create value on several new fronts, both directly for customers and indirectly by supporting customer values in areas such as environmental stewardship and ethical supplier management.
Why is brand loyalty important?
The main reason brand loyalty is important is that it is a major driver of profitability: 65% of most companies' revenue comes from retaining existing customers, and brand-loyal customers are 90% more likely to buy than new customers .
What is the difference between brand loyalty and customer loyalty?
Brand loyalty is based on perception (image and experience); Customer retention is based on money (prices and discounts). Brand-loyal buyers believe that a particular brand provides better quality and service than any competitor, regardless of price. Customer loyalty requires offering low prices and regular discounts to maintain the status of the best offer in the market.
Who are brand ambassadors?
Brand ambassadors are marketers hired by companies to showcase their products. To succeed, brand representatives need a consistent online presence with an active network across all platforms, deep product and service knowledge, and highly developed customer retention skills.
What are the 3 types of brand loyalty?
Consumers are often influenced by their head, heart or hands. Loyal customers are often motivated by the intangible benefits of a brand, such as its impact on the local community or the environment. Regular customers who make rational decisions often see analytical arguments in favor of a particular brand or product. Loyal customers often buy without considering external factors such as price; these customers are very difficult to convert.
How to define brand loyalty?
While some may sneer at customers queuing (perhaps in the rain) to get their hands on the latest mobile phone, there are clear signs of enviable brand loyalty. Products that sell quickly, are suspended, have a waiting list, or popular pre-sale volumes indicate that customers are willing to buy the asset before the market determines its value. You can also measure brand loyalty by tracking repeat customers and customer lifetime value; the higher it is for each, the more likely consumers are to make repeat purchases from the company or brand.
the bottom line
Brand loyalty is a marketing success achieved when companies can retain customers across a range of products. By increasing retention, customer value, and customer satisfaction, businesses are more likely to make more money. Rather than investing in trying to win over new customers, companies with high brand loyalty prefer to invest that capital in improving their products or improving service to existing customers.