We talk a lot about customer loyalty here at IC Group; how to build it and how to keep it. Customer loyalty is undoubtedly a necessary part of any business’ success, but what is the true value of those loyal customers?
We will try to answer that for you today; first, by examining how customer loyalty is measured, and second, by presenting quantitative evidence that ascribes value to customer loyalty.
How it’s Measured
To get started, you should know that our favorite way to build customer loyalty is through loyalty programs, naturally. The goal of loyalty programs is to encourage members to buy multiple products on an ongoing basis over a long period of time. In the loyalty industry, we use the term ‘customer lifetime value’ (CLV) or ‘share of wallet’ to determine how much of a customer’s total purchase power a brand is getting over their lifetime. Loyalty programs can increase CLV and help brands gain a larger share of wallet.
Over the years, we have been able to measure this through Neilson or IRI panel studies, which combine the loyalty data with sales data. Without disclosing who the brands are, we wanted to share with you some of the statistics we’ve been able to generate on how a loyalty program affects true customer loyalty and CLV.
By the Numbers
The first one, Program A we will call it, compares a loyalty program member to a non-loyalty program member.
Loyal customers spent 95% more dollars throughout the year.
They spent 23% more dollars per shopping trip.
They purchased 81% more volume of product per trip.
Members purchased 26% faster than non-members.
So, you can see how these stats demonstrate that the members spent more, purchased more per trip, and did so faster. These are exactly the kind of behavioral changes we expect to see when operating a loyalty program for our clients.
Now the second one, Program B we will call it, is even better. The reason why is because we were able to measure individuals before and after becoming loyalty members. These stats demonstrate a significant change in behavior, as influenced by enrollment in the loyalty program.
After a year of membership in the loyalty program, we were able to determine that these individuals who had previously been a part of the CRM program increased their annual spend by almost a third.
The loyalty members purchased 28% more dollars of product on an annual basis.
When you extrapolate that over 3, 4, 5 million members, you end up with hundreds of millions of dollars in additional revenue. Specifically, more than a thousand dollars per loyalty member over a year.
What Does it all Mean?
These two examples are able to provide comparisons between ‘loyalty members vs non-loyalty members’ and ‘before vs after becoming a loyalty member’, with both examples demonstrating significant behavioral changes. We may have the quantitative evidence to answer the question of “How Valuable is a Loyal Customer?” but it is difficult to account for the endless qualitative benefits a loyal customer can provide.
So, what’s the real answer? Loyal customers are INVALUABLE.
If you want more of them, we can help.
I’m Director of Client Success at IC Group, and a loyalty program strategist.