Why Customer Loyalty is Important for Your Retail Business (+ 8 Ways to Strengthen It)

Customer loyalty

When customers are loyal to your business, 86% will recommend you to friends and family, 66% will write a positive review, and 46% will remain loyal despite a poor experience.

Customer loyalty fuels word-of-mouth marketing, user-generated content, and customer retention—not to mention increased sales and revenue.

Read on to discover more about customer loyalty and other ways your business can benefit from it.

What is customer loyalty?

Customer loyalty describes the positive relationship you have with your customers. It measures how dependable and consistent your customers are. 

Given the dense competition of today's retail industry, customer loyalty can set your retail business apart. Retailers also see shorter sales cycles, meaning that loyal customers return for more purchases more frequently.

Why is customer loyalty important?

Customer loyalty is essential for several reasons.

Increase revenue and profits 

It's more expensive to acquire new customers than it is to keep those who know and love you. Customer loyalty not only helps your business drive new sales but also increases profits as marketing costs drop.

Additionally, customer loyalty contributes to increased average order value (AOV), meaning that loyal customers make larger, more frequent purchases over time. This also boosts your customer lifetime value (CLTV).

Improve brand reputation and advocacy

Word-of-mouth marketing is the most potent form of promotion. Loyal customers not only love purchasing from your store, they also love telling their friends and family about it.

When you cultivate customer loyalty, you build a fan base.

Stronger customer loyalty contributes to brand discoverability and reach—the higher your customer loyalty, the more likely they will promote or refer your business to their friends and relatives, resulting in a hike in sales.

Eric Mills, owner and CEO of Pro Support Accessories, has significantly scaled his business through word-of-mouth: "Since implementing [customer loyalty] methods, sales have gone up by 80%, and most of it comes from customers recommending or buying our products over and over again."

Gather valuable feedback and expand your customer base

When customers become loyal to your business, they want to see it thrive. Cultivating a loyal customer base allows you access to valuable customer feedback and ideas that help you grow. 

Customer loyalty programs also allow you to tap into your customers' networks through recommendations. Collecting referrals enables you to track new converts and loyal customers and partner with loyal customers for user-generated content.

"One of the ways building customer loyalty has benefited our business is through partnerships," says Gary Renshaw, Director at Modelers Central.

"We’ve partnered with well-known hobbyists who are loyal customers to create our own products and educational materials, which has really set us apart from the competition and helped us to expand into the international market."

Modeler's Central

Types of loyal customers

Customers can be loyal to your business in different ways.

Price-loyal 

Price-loyal customers shop with you because you offer the best prices, and respond best to discounts and sales. These customers aren't swayed by quality or convenience, and they'll likely move on if you raise prices. 

Convenience-loyal

Convenience-loyal customers shop with you due to ease of use, e.g., a convenient location or fast shipping. They aren't as sensitive to pricing as price-loyal customers, and are often willing to pay more for the ease. 

Brand-loyal

Brand-loyalcustomers shop with you because they believe in your brand and/or brand values. Regardless of product quality or price, these customers will prefer your brand to competitors. 

Program-loyal

Program-loyal customers shop with you solely to benefit from your loyalty program. They maximize your benefits and use all the perks and discounts available to them. 

How do you measure customer loyalty?

The following metrics can help you keep a closer eye on how—and why—your customer loyalty is increasing.

1. Net promoter score (NPS)

Your NPS helps you understand the likelihood of a customer referring your services to others. To measure customer loyalty via NPS, ask: How likely are you to recommend our brand to your friends and family?

PRO TIP: Use Customer.guru to collect NPS data in your Shopify store.

2. Customer loyalty index (CLI)

The CLI is a standardized measure of customer loyalty over time. It considers NPS, upselling, and repeat purchases. CLI is different from NPS in that it measures customer intention versus actual behavior.

To track your CLI, add these questions to your NPS survey: 

  • How likely are you to buy from us again in the future?
  • How likely are you to try our other products?

3. Customer effort score (CES)

Your CES measures the effort required of your customers to solve an issue or purchase/return a product. Customers tend to be more loyal to products and services that are easier to use.

To measure your CES, ask: "On a scale of ‘very easy’ to ‘very difficult,' how easy was it to [insert action]?" 

4. Repeat customer rate

Your repeat customer rate measures how many customers are willing to make a second purchase from you and helps you estimate how likely they are to buy from you in the future.

Calculate your repeat customer rate with this formula:

Repeat Customer Rate = # of Customers That Purchased More Than Once / # Unique Customers

Repeat customer rate

The health of your store depends on customers returning and doing more business. Your repeat customer rate should be one of your primary KPIs to boost customer loyalty.

💡 PRO TIP: Want to see what percentage of your sales come from returning customers over any time period? View the First-time vs. returning customer sales report in Shopify admin to see the number of orders and gross revenue your business generates from repeat purchases online and in-store.

5. Purchase frequency

Purchase frequency measures how often customers make repeat purchases—an important KPI to track as repeat purchases are often the most significant contributor to annual revenue. In fact, a 2018 study found that purchase frequency is the most effective driver of retail growth. 

Using the same time frame as your repeat customer rate, calculate your purchase frequency with this formula:

Purchase Frequency = # of Orders Placed / # Unique Customers

6. Average order value (AOV)

AOV tracks the average value of each customer's order and helps you identify your highest-value customers. 

Calculate your AOV with this formula:

Calculate your AOV with this formula: AOV = Total Sales / Order Count

💡 PRO TIP: View the Sales by customer name report in Shopify admin to see customers’ average order value, total orders, how often they buy from you, and more.

How to build customer loyalty

Try some of these expert-recommended tactics to better cultivate customer loyalty for your retail business.

1. Offer stellar customer service

Exceptional customer service is paramount to building customer loyalty. All things equal—price, convenience, etc.—phenomenal customer service can bring shoppers back time and time again. 

Customer service includes everything from the first interaction with your business, to the quality of your products, to how your team answers questions asked after purchase. By addressing questions, fixing problems, and genuinely trying to help your customers, you not only delight them but also secure a long-lasting, loyal customer. 

In fact, over 50% of consumers say customer service is what keeps them loyal to their favorite brands.

2. Create customer feedback loops

Customer feedback is not only a benefit of customer loyalty; it's also a method of building it (hence, the loop).

Encourage customers to provide feedback—both positive and negative. When customers feel heard, valued, and respected, they're more likely to hold your company in high esteem, despite a poor experience.

In turn, asking for feedback from your customers can make them feel valued and, therefore, encourage them to remain loyal. Use customer satisfaction surveys to learn how customers feel about your services and how you can improve. Capitalize on social media, checking customer reviews and mentions of your business.

Customer feedback loops don't just engender customer loyalty; they also make your job as a retailer much easier. "It's easy to fall into the trap of thinking that you know everything about your industry and the space that you're in," says Kettle & Fire VP of Marketing Jack Meredith.

“Like, I think we all want to be like the Steve Jobs of consumer goods and be able to predict everything. But at the same time, having that feedback loop just makes things ten times easier.”

3. Segment customers and personalize experiences

Customers want to feel seen, and you can make this happen by segmenting your customer base and personalizing their experiences.

Most retailers like to drive loyalty through mass discounts and incentives. Jeremy Ullrich, co-founder of Shopify store Lash Fridays, approaches this differently:

"Using Segments by Tresl, we've been able to analyze which products drive greater purchase frequency and which customer segments drive purchase frequency. This feeds into our customer prospecting—we now know which customer demographic will purchase the most and which of our product offerings are likely to funnel them into a greater number of purchases."

This approach has allowed the Lash Fridays team to increase its average customer purchase frequency by 20%. The takeaway? "Focus your energy and efforts on attracting the right sort of customer and the loyalty and retention will flow from there," says Jeremy.

Subscription models can also help create personalized customer experiences. Shopify customer Hiya Health promotes customer loyalty through its subscription service. 

"To stand out from the competition, we send you a refillable glass bottle—and we’re willing to absorb the cost because we hope to make up any revenue on the backend from customers that stick with us," says co-founder Darren Litt.

"We offer customers an easy way to cancel or get a refund. That way, there’s no reason not to give us a chance. At Hiya, we even have a picky eater guarantee, so you can easily cancel in the first month if the child doesn't like the vitamin. We also delight our customers with stickers so a child can personalize a vitamin bottle and make it their very own."

Hiya website

Lastly, personalize your customer experience through your marketing—email, SMS, and even handwritten postcards around the holidays or after a purchase. Even a post-purchase phone call to ask "How was your experience?" can set your business apart in today's world.

4. Provide consistent customer experiences

One of the biggest contributors to building customer loyalty is consistency. When your customers interact with your brand, they expect a consistent experience. If your brand experience is different every time, customers will struggle to build a relationship. 

Consistent customer experiences delight customers, build customer loyalty, and improve overall retention rates. They also give customers a reason to stick with you when competitors come knocking.

Take Apple, for example. Customers go to tremendous efforts to demonstrate their loyalty, such as standing in long lines for product sales and arguing vehemently in favor of Apple products. 

"Brands like [Apple] succeed because they understand how to use exclusive experiences like product unveilings, sales, launches to entice customers," says Will Cannon, CEO of Signaturely.

"It's crucial to consider the customer experience as more than just utilizing your product—it's also how they feel throughout the whole engagement with your company."

5. Treat employees right

Employees are the face of your business, and taking care of the folks who represent your brand to your customers is key to building customer loyalty. Physical retailers should encourage associates to greet customers with a positive attitude and make them feel welcome.

Moreover, employee loyalty is just as valuable as customer loyalty. Loyal employees tell others about your business, help your business grow, and make or break the customer experience.

6. Promote shared values

Consumers have more options than ever before. Differentiating your product by price or quality alone may not appeal as strongly as it used to. One surefire way to attract and retain customers is through shared values.

Brand awareness is not enough anymore. You have to stand for something…people need to know more than what you sell. When shoppers have a better idea of what you stand for, that builds loyalty today.

Jared Pobre is the co-founder of Caldera + Lab, a luxury skincare brand for men. His team fosters loyalty by inviting customers to join a journey toward a more sustainable lifestyle. "Our content about our best-in-nature ingredients and sustainable business practices show customers that the products they purchase from us are not just good for their skin but are also made in a way that reduces our carbon footprint," he says.

Jared and his team are currently using AI to optimize product quantities personalized to each customer's needs, ensuring customers won't waste any of their purchased skincare and further reducing the company’s footprint. 

Caldera Lab mision

"By taking our customers on our mission to help create a clean and healthy world for generations to come, we're strengthening our bond and building loyalty through the authenticity of our mission," says Jared.

"We validate the success of our customer retention strategy by measuring the monthly growth rate of revenue from our existing customers. As long as this number continues to climb, we know our efforts are working."

Jean Gregoire, CEO of Lovebox, has found the same benefit in sharing his company's values: "Our goal is to help our customers find happiness by caring for their loved ones. This value sets us apart and has kept our customers loyal," he says. "If you’re honest with your customers and continually improve your product, then they’ll be happy to continue doing business with you."

7. Build a community

Customer communities are a win-win for both your business and your customers. A dedicated forum of conversation allows you to share important information and ask for customer feedback. Frequent connection with your customers keeps you top-of-mind and makes them feel important and wanted—increasing customer loyalty.

One of the easiest ways to build customer loyalty is to make it easy to do business with you. I call this customer proximity—whoever is closest to the customer wins. This means staying connected to [customers] on social media, via email newsletters and SMS notifications, and even by hosting exclusive virtual events. The more you can surround the customer, the more loyalty you can develop.

iHeartRaves founder and CEO Brian Lim accredits the recent success of his Shopify store to his customer community: "We've found that customer loyalty is critical, especially during COVID-19. We're in a challenging position because we sell fashion items to attendees of music festivals, and these events are being canceled or postponed all around the country."

iHearRaves #RaveFromHome

"We had to find a different way to connect with our customers, so we created a #RaveFromHome series to keep the festival spirit alive for our wonderful community," he says. "Every Friday, we deliver tips for raving at home and ways to pass the time in style. We include curated Spotify playlists with some of our favorite feel-good dance music, as well as some shopping deals and discounts. In turn, customers tag us in their living room dance parties, at-home photo shoots, dance moves, and light art skills." 

8. Build a customer loyalty program

A successful customer loyalty program can strongly influence your audience's shopping patterns, encouraging them to shop with you over competitors or return more frequently for rewards. Building a customer loyalty program is one of the best and arguably cheapest ways to reward customer loyalty.

Katrina Bell, Founder of The Copper Bell, has significantly grown her Shopify store through her loyalty program. 

"By tracking my returning customer rate—31% in Q1, 39% in Q2, and 60% in Q3— I know people are happy and coming back to my website," she says. "I first used general discount codes to encourage people to make repeat purchases but have really personalized this [program] with Smile. This loyalty app gives bigger rewards for more money spent, so my VIPs are getting bigger discounts than other customers."

The Copper Bell loyalty program

Katrina's customer loyalty efforts go beyond offering a discount program; her customers also engage with her brand on social media. She works to keep a consistent brand voice throughout her website, social presence, and email marketing channels to drive familiarity and trust with her customers. 

You can implement a loyalty program through email coupons, free shipping, or rewards points. Consider offering a mobile app for your program—69% of consumers agree that they're more likely to participate in a loyalty program if a mobile app is available.

However, KPMG found that "points and rewards were less likely to earn loyalty than corporate transparency and honesty." Remember that a well-thought-out loyalty program can't make up for poor customer experience or service.

Types of customer loyalty programs

Consider the following types of customer loyalty programs for your retail business.

Point-based loyalty program

A point-based loyalty program rewards points based on customer purchases or actions (such as recommending friends or sharing on social). Customers can then redeem their points for free products, discounts, and other perks.

Examples of this type of loyalty program include Starbucks® Rewards and Blumetopia by skincare brand Blume.

Tiered loyalty program

A tiered loyalty program is similar to a point-based loyalty program, but customers receive different rewards based on their tier. Typically, higher tiers or levels are rewarded based on how much customers spend, thus incentivizing customers to spend more.

Examples of this type of loyalty program include Sephora Beauty Insider and e.l.f.'s Beauty Squad.

e.l.f. Beauty Squad

Paid loyalty program

A paid loyalty program offers customers paid access to certain loyalty rewards and bonuses. Instead of rewarding points or perks for every purchase, these programs offer rewards for a flat or subscription fee. Studies show that paid loyalty program members have stronger brand affinity and spend more.

Examples of this type of loyalty program include Amazon Prime and Costco.

Value-based loyalty program

A value-based loyalty program encourages customers to make purchases that benefit a third party instead of themselves. For every dollar spent or purchase made, these brands often donate products to a cause or charity. These loyalty programs accentuate brand value to build loyalty and revenue.

Examples of this type of loyalty program include TOMS and Bombas.

Bombas loyalty program

Gamification

A gamification loyalty program leverages games and challenges to engage and reward customers. 

Through quizzes, tests, and games, customers can win badges, prizes, and other rewards to redeem at your store. Gamification is also commonly-used to capture customer data like email addresses and product preferences.

An example of this type of loyalty program is Duolingo.

📌 GET STARTED: Want to launch a loyalty program that turns first-time shoppers into lifelong customers? Choose from the loyalty apps that work with Shopify POS in the Shopify app store to start rewarding customers for the purchases they make online and in your stores.

Examples of customer loyalty programs

Below are a few examples of customer loyalty programs that keep customers coming back.

Starbucks

As much as I can, I support local coffee shops here in Chicago. Yet, I find myself returning time and time again to Starbucks because its loyalty program is hard to beat. Using the app, every purchase I make rewards me with a certain number of stars that I can then redeem for future drink purchases. 

In the Starbucks® Rewards app, users can redeem stars for larger purchases like coffee mugs or ground coffee—a bonus around the holidays.

Starbucks rewards program

Starbucks' customer loyalty program is successful because it's easy. Within one app, users can scan their loyalty cards, reload their balances, pre-order drinks and food, and find nearby locations.

Sephora

Sephora is well-known for its customer loyalty program, Sephora Beauty Insider. The program has over 25 million members, who account for nearly 80% of the company’s annual sales.

Sephora products aren't cheap, which makes the Beauty Insider program that much more valuable. Members can redeem rewards points for gift cards and discounts, offsetting purchase prices without devaluing the products. Also, the more members spend, the more they save; all members get a free birthday reward, but big spenders get access to exclusive gifts and events.

Sephora rewards program

Sephora's customer loyalty program is successful because it's flexible. Beauty Insider members have their pick of the cosmetics litter, making it that much more fun and easy to participate. 

Amazon

Amazon's loyalty program—Amazon Prime—is a prime example of a paid customer loyalty program. Instead of retroactively rewarding customers based on what they spend, Amazon Prime rewards paid members with perks like two-day shipping, Prime Video, Prime Day sales, and more.

Originally designed in 2005 to reduce abandoned cart rates, Prime is now a massive revenue driver for Amazon—Prime members spend more than twice as much as non-members.

Amazon Prime membership

Amazon's customer loyalty program is successful because it's all-inclusive. For one easy monthly fee, customers reap the benefits of this retail powerhouse and more.

Customer loyalty trends

Learn more about the trending strategies that contribute to customer loyalty.

Experiential retail

Experiential retail is all about creating memorable and shareable shopping experiences with the idea of building a community around your brand. Consumers have more shopping options than ever; experiential retail can help you stand out.

Whether it's opening a showroom for your e-commerce store (like Allbirds) or holding special events in-store (like Lululemon), going above and beyond for your retail experience helps build loyalty among your customers.

Seamless shopping experiences

Seamless shopping experiences also contribute to customer loyalty. The easier it is to shop with you, the more likely a customer is to return. 

These shopping experiences include:

By offering your customers multiple ways to safely and easily browse, shop, and engage with your brand, you provide the means to build a relationship with your brand—the foundation of customer loyalty.

Build your customer loyalty program

Investing in customer loyalty affords your business reliable, long-term customers who make frequent purchases and share your business with their friends and family—every retailer's dream. Use the expert-recommended tactics and strategies above to cultivate customer loyalty within your own business. Your customers and bottom line will thank you. 

Turn one-time customers into lifetime fans

Only Shopify comes with customer profiles that sync in-store and online order history, lifetime spend, and more. Add loyalty apps to Shopify POS, launch tailored marketing campaigns, and start rewarding customers for shopping with you—at your stores, online, and anywhere in-between.

Start your free trial
Topics: