Companies that excel in brand loyalty not only grow revenues significantly faster than their industry peers but also deliver substantial returns to their shareholders. Brand loyalty—marked by consistent, repeat purchases based on the perception of superior quality and service rather than price—plays a crucial role in driving both profit and long-term profitability.
The Importance of Brand Loyalty for Profitability
Brand loyalty is essential because around 65% of a company’s revenue typically comes from repeat business. Loyal customers not only purchase more frequently but are also less expensive to retain compared to the cost associated with acquiring new customers. In the wake of challenges such as the 2020 pandemic, investing in marketing programs aimed at retaining these valuable customers has become more crucial than ever.
Key Takeaways
- Brand loyalty—marked by repeat purchases due to perceived higher quality and better service—does not depend on low prices.
- Companies with high brand loyalty grow revenues 2.5 times faster than their counterparts.
- These companies deliver two to five times more returns to their shareholders over a decade.
- The primary driver of brand loyalty is quality; a high marketing budget can’t compensate for poor quality.
- Brand loyalty is typically measured through metrics such as customer retention, customer lifetime value, and customer satisfaction surveys.
What is Brand Loyalty?
Unlike customer loyalty, which is driven by discounts and pricing, brand loyalty stems from customers’ perception of a brand’s superior quality and service. Customers loyal to a brand are less sensitive to price cuts, making their purchases more profitable. Once established, brand loyalty is easier and less expensive to maintain compared to customer loyalty.
How to Build Brand Loyalty
Established brands in competitive markets employ various tactics to foster brand loyalty. Here are some effective strategies:
Best-in-Class Quality
The foundational factor for brand loyalty is quality. Even the most substantial marketing budget or celebrity endorsements can’t save a brand if the quality is lacking. Companies delivering consistent, best-in-class quality build brand advocates who generate positive word-of-mouth and rarely shop around.
Exceptional Customer Service
Superior customer service includes 24/7 chat support, social media managers, phone support, and prompt resolution of feedback and complaints. Ensuring that customers receive exceptional service is critical in earning the brand loyalty that drives significant returns. In competitive markets, exceptional service might be the differentiator.
Brand Ambassadors
Companies employ spokespeople known as brand ambassadors with a strong online presence and deep product knowledge. They convey authenticity and professionalism, helping to build loyal customer relationships. Effective brand ambassadors can gather valuable customer and competitor insights for useful business enhancements.
Loyalty Programs
Rewarding existing customers encourages brand loyalty. Loyalty programs are crucial, especially for premium-priced brands, as they offer exclusive discounts and perks, incentivizing customers to choose the pricier options over less expensive alternatives.
Building an Online Community
Creating a digital community helps in forming deeper connections with customers. As e-commerce grows, interacting on social media platforms through Q&As, live streams, and behind-the-scenes glimpses fosters stronger customer relationships and helps convert social interactions into purchases.
Examples of Brand-Loyalty Leaders
Apple
Apple leaped ahead with brand loyalty, boasting a remarkable 92% loyalty score in 2021. Known for revolutionary technology and state-of-the-art design, Apple’s success is amplified by its exemplary customer service, making it the world’s most valuable brand.
Nike
Nike is a global sportswear leader, driven by its industry-leading membership program. The program enhances brand loyalty through access to exclusive benefits, a sense of community, personalized recommendations, and seamless omnichannel experiences.
Important Statistics on Brand Loyalty and Profitability
The correlation between brand loyalty and profitability is well documented:
Customer Retention
Increasing customer retention rates by 5% can increase profits by at least 25% and up to 95%, as highlighted by Harvard Business School in 2020.
Customer Lifetime Value (CLV)
A 7% increase in brand loyalty can potentially increase the customer lifetime value (CLV) of each client by 85%, according to Microsoft.
Customer Service
A staggering 83% of customers would switch brands after a bad customer service experience.
Consistent Quality
74% of consumers say consistent product quality is the main reason for sticking with a brand.
Corporate Social Responsibility (CSR)
About 25% of Gen-Z and Millennial consumers are inclined to spend more on brands that are strong in corporate social responsibility (CSR) issues.
The Link Between Brand Loyalty, Customer Capitalism, and Shareholder Primacy
Addressing customer value and loyalty fosters long-term profitability. However, traditional financial disclosure and corporate accounting practices often overlook customer metrics crucial for sustainable growth. Insight from both the “customer capitalism” and “shareholder primacy” perspectives drives strategies where prioritizing customers can potentially yield greater shareholder value.
Why Brand Loyalty Matters
Brand loyalty significantly impacts profitability: repeat customers make up the bulk of revenue in most businesses and purchase 90% more frequently than new customers.
Difference Between Brand Loyalty and Customer Loyalty
Brand loyalty hinges on perception (quality and experience). Customer loyalty is money-based (prices and discounts), requiring regular promotions to maintain the best deal status.
Who Are Brand Ambassadors?
Brand ambassadors serve as the public face of your products, nurturing relationships with an established online presence and deep expertise in product knowledge.
Types of Brand Loyalty
Customers’ loyalty can be categorized into three types:
- Heart loyalty: Based on non-tangible benefits like community or environmental impact.
- Head loyalty: Driven by analytical, rational choices.
- Hand loyalty: Unconscious purchasing habits without consideration for external factors such as price.
Identifying Brand Loyalty
Signs of strong brand loyalty include sold-out products, pre-order backlogs, high repeat purchase rates, and increased customer lifetime value.
Final Thoughts
Brand loyalty drives marketing success by retaining customers across product lines. Companies that excel in inspiring brand loyalty invest their capital more wisely in product and service improvements rather than solely focusing on acquiring new customers.
Related Terms: customer satisfaction, customer service, brand ambassadors, customer retention, corporate social responsibility.
References
- Harvard Business Review. “Are You Undervaluing Your Customers?”
- Annex Cloud. “This Year’s Most Important Customer Loyalty Statistics”.
- Rosetta Consulting. “Customer Engagement from the Consumer’s Perspective”.
- Entrepreneur. “5 Ways to Build Highly Valuable Brand Loyalty”.
- Forbes. “E-Commerce Sales Grew 50% to $870 Billion During The Pandemic”.
- JoinReach. “The Evolution of Customer Loyalty Programs.”
- SellCell. “Cell Phone Brand Loyalty Survey 2021”.
- LoyaltyLion. “Scale Success Story: Nike Loyalty Scheme”.
- Harvard Business School. “The Economics of E-Loyalty”.
- Microsoft. “Four Keys to Boosting Customer Lifetime Value”.
- Forbes. “You’re Terminated: Why Customers Stop Doing Business with You”.
- KPMG. “How Do Customers Define Loyalty?”
- Forbes. “Cultivating Loyalty Is More Challenging Than Ever: Here’s What Customers Want and Brands Should Know”.
- Businessweek. “Peter Drucker: The Man Who Invented Management”.
- Forbes. “Peter Drucker On Marketing”.
- The New York Times. “Shareholder Value Is No Longer Everything, Top C.E.O.s Say”.
