3 Key Factors for Measuring Customer Loyalty
A loyal customer is invaluable to any business. They are likely to continue to use your business and engage with it. Perhaps they are more likely to refer you to their family or friends. However they display loyalty, it is important to recognise these customers and push to keep them using your business. A means of recognising loyal customers is through measuring customer loyalty – so how can you do this? These three key factors will assist in measuring customer loyalty to ensure you recognise your loyal customers and drive them to more business engagement.
1. NET PROMOTER SCORES (NPS)
This measurement evaluates how likely a customer would be to refer your business to someone else. The process required is simply asking a customer the question:
‘How likely are you to recommend us to someone you know?’
Customers then respond on a scale of 1 to 10.
This is a useful tool for measuring customer loyalty as you can divide responders into three specific groups:
i). Detractors (disloyal): Customers that give a score of 6 or less are ‘detractors’. These customers are highly unlikely to recommend your business to others. They are also less likely to engage with your business again. These customers would have little loyalty to your business.
ii). Passives (ambiguous): Customers that answered between 7 or 8 are ‘passives’. These customers will most likely be content with your business but not elated. They will not actively look for other businesses providing the same product, but they are not exactly loyal. If they come into contact with a competitor offering a better value service, they are likely to leave you.
iii). Promoters: If a customer answers 9-10, then they will be a ‘promoter’. These customers are loyal. An example might be those who camp out in front of a shop to get the latest product. They are brand-loyal and will continually use your business. They are also likely to recommend you to others.
2. CUSTOMER ENGAGEMENT
This measurement is a useful predictor of customer loyalty. Customer engagement figures indicate the positive interactions a customer has had with your business. This emotional attachment indicates loyalty and protects your business from the influences of competition. For online businesses, it is easy to view customer engagement figures using various available software to measure site activity time, user actions, and site visit frequency. Tracking these figures can give a good indication of customer loyalty.
3. CUSTOMER LOYALTY INDEX (CLI)
The customer loyalty index is a standardised measurement that helps evaluate loyalty over a period of time. It is similar to the NPS but also takes repurchasing and up-selling into account. As a result, it provides a better image of overall loyalty.
The CLI uses a questionnaire-style format. It incorporates three questions with a 6-point answer scale. On the scale, 1 equals ‘Definitely Yes’ and 6 means ‘Definitely No’. The three questions asked are as follows:
a). How likely are you to recommend us to someone?
1 2 3 4 5 6
b). How likely are you to use our business again?
1 2 3 4 5 6
c). How likely are you to try out our other products and services?
1 2 3 4 5 6
The overall answer is the mean average of the three responses. This can then be compared to the chart below to align with customer loyalty.
Average Number Customer Loyalty 1 100% 2 80% 3 60% 4 40% 5 20% 6 0%