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Glossary – Loyalty

Loyalty

Nikiforov Alexander
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Definition of Loyalty

Consumer loyalty represents the commitment of customers to a particular brand, which is the foundation for forming long-term relationships between the company and its clients. The main goal of this process is to turn casual buyers into true brand advocates who will willingly recommend it to their friends and family.

Achieving a high degree of loyalty is a complex and multi-stage process that requires time and effort. However, it yields significant dividends, as loyal customers become repeat buyers, willing to make purchases even in unfavorable economic conditions. Moreover, such customers become brand defenders, ready to support it in any situation.

Importance of Loyalty for Business

Consumer loyalty is an integral part of a successful business, especially in highly competitive markets. Repeat customers have a higher lifetime value (LTV) and are less sensitive to price changes. Research by Bain & Company shows that a 5% increase in customer retention can lead to a profit increase of 25% to 100%. Loyal customers often choose products from one brand, ignoring competitors' offers, and remain with the company despite external circumstances.

Types of Consumer Loyalty

There are four main types of loyalty that help companies determine whether to invest efforts in attracting certain categories of customers:

  • Absent Loyalty: Customers show no interest in the brand and do not engage with it. Reasons may vary from lack of need to preference for another brand.
  • False Loyalty: Customers make repeat purchases, but this occurs out of habit rather than true attachment to the brand. They can easily switch to competitors if they offer more convenient conditions.
  • Latent Loyalty: Customers have a high attachment to the brand but make purchases infrequently for various reasons. For example, they might be dissatisfied with delivery conditions.
  • True Loyalty: These customers actively purchase products and recommend them to others. They represent the greatest value for the business.

Strategies to Increase Loyalty

To boost customer loyalty, companies can use various mechanisms, categorized into hard and soft methods.

Hard Mechanics

  • Discount Programs: Offering discounts and partial refunds on purchases.
  • Accumulation Programs: A system where the discount amount increases with the total amount of purchases.
  • Closed Club: Privileges for customers who reach a certain status, including additional discounts and access to exclusive events.
  • Multi-Brand Discount: Joint programs with other brands allowing customers to accumulate and exchange points.
  • Prize Promotions: Raffles for gifts for customers who made purchases during a certain period.

Soft Mechanics

  • Personal Manager: Individual service to create a unique customer experience.
  • Early Booking: Opportunities for customers to access services and products in advance.
  • Birthday Gifts: Intangible bonuses that create a positive impression.
  • Personalized Service: A personalized approach that makes interaction with the brand more enjoyable.

Measuring Consumer Loyalty

To assess the level of consumer loyalty, companies use the NPS (Net Promoter Score) index. This method is based on a single question: “Would you recommend our company to your friends?”, to which respondents answer on a scale from 0 to 10.

Responses are classified as follows:

  • 0-6 points: Detractors, dissatisfied with the product.
  • 7-8 points: Neutrals, who can easily switch to competitors.
  • 9-10 points: Promoters, satisfied customers ready to recommend the brand.

Regularly measuring NPS allows tracking changes in consumer loyalty and taking measures to enhance it. The formula used to calculate this index is: % promoters − % detractors = NPS. This approach helps companies make more informed decisions in marketing and service improvement.