How (and Why) to Measure Customer Loyalty

You know it costs less to keep a customer you already have than to acquire a new one and that keeping their loyalty involves many factors: personal relationships, product quality, customer service, price, and other brand values.

All this makes Customer Loyalty complicated and hard to quantify. So many business people measure customer satisfaction using surveys and make the mistake of thinking good satisfaction scores mean customer loyalty.

In fact, we’ve found that customer satisfaction scores have little or no correlation with future purchase behavior. Customer satisfaction is transaction-based and product-focused. It measures something that has happened in the past. Loyalty, however, is relationship-based, focused on the overall customer experience and is predictive of how a customer will behave in the future. It’s easy to measure a transaction. Measuring a relationship has been difficult if not impossible. Yet the most reliable predictor of how your customer will behave is the strength of that relationship and the secret to measuring it lies in customers’ past behavior.

Loyalty Builders has developed new, proprietary mathematical models to measure loyalty with greater reliability than traditional methods, providing that transaction data is available.

What kind of transaction data? Invoices, orders; or other customer interaction data. The more you have the better.

Loyalty Builders' methodology examines the entire available history of a customer’s purchase behavior and interaction with your firm. It enables you to rank customers by loyalty score, and segment them into groups based on their behavior as customers.

These rankings reveal trends, uncover purchase patterns, and help predict customer’s future purchases. They also help forecast your company’s revenue. Loyalty Builders’ reports will identify the customers whose loyalty is slipping and customers whose loyalty is growing, knowledge that can help suggest the most effective way to serve the customer who shows up in your showroom, at your website, or your call center.