Kristina: Many brands equate customer loyalty with purchase frequency but you disagree. Why?
Nicole Amsler, VP of Marketing, Formation: Loyalty isn't just about the purchase, it's about the relationship a brand builds with its customers. Through building these relationships, brands get to know their customers and can therefore create relevant offers that increase purchase frequency over the lifetime of that customer. However, if brands only rely on discount offers to drive purchases, they will only increase purchase frequency in the short term, thus losing out on the lifetime value of having loyal customers. The brand will need to constantly focus on expensive strategies to attract new customers and be forced to continue to offer discounts to drive purchases. If they focus on building loyalty through personalizing the customer experience, customers will stick around and their lifetime value will grow.
Kristina: If brands shouldn't base customer loyalty on purchase frequency, what is a better metric?
Nicole: Engagement and brand advocacy are better indicators of loyalty. Loyalty is both about customers coming back to a business again and again over time, but also about their willingness to advocate for a brand. Someone who makes a purchase four times in one month isn't necessarily more loyal than someone who makes a purchase four times per year if that frequent shopper might shop elsewhere the next time should another brand offer a better deal.
Kristina: What does a truly loyal customer look like?
Nicole: While truly loyal customers are more likely to continue doing business with a company, they also often report feeling as though they have a relationship with the brand. Apple buyers are a great example of this. It wouldn't matter if another brand made a superior product, truly loyal Apple customers will continue to purchase from Apple, and advocate for the company and its products, due to the relationship they have with the brand.
Kristina: How can merchants and brands determine if their loyalty program is actually building loyalty?
Nicole: A key way to determine the efficacy of a loyalty program is through continuous testing and iteration. Brands should constantly analyze how their customers respond to promotions and fine tune and personalize offers at an individual level based on this information. This allows brands to more effectively determine which offers and experiences are most effective at encouraging engagement, new behaviors and long-term loyalty. This also increases customer lifetime value and creates a more relevant and personalized experience for customers.
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