Brand Loyalty Explained: What It Is and How to Build It

May 21, 2024
15
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brand loyalty
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Your competitors have much to offer, making it increasingly difficult to attract customers' attention. Understanding and building brand loyalty is more crucial than ever. It not only ensures repeat business but also transforms customers into vocal advocates for your company. This enables you to differentiate yourself from competitors and capture a substantial portion of the market.

Today's consumers seek more than just a good deal. They desire a brand they can trust and share values with. So, if you want to retain your customers and increase profits, keep reading. In this article, we'll explore the concept of brand loyalty and discuss why it is important for your business. 

What is Brand Loyalty?

Brand loyalty is when customers repeatedly buy from a particular brand, driven by their belief in its superior quality and service, regardless of competitors’ attempts to attract them, and it is not dependent on price. 

When faced with numerous brand options while shopping, people often lean towards purchasing from a brand they've had a positive experience with in the past. For example, if you previously owned a BMW and were pleased with its speed, design, and driving experience, you might favor choosing BMW again when purchasing a new vehicle, despite the availability of other brands like Mercedes, Lexus, or Tesla. Similarly, people consistently choose Lexus for its reliability, comfort, and luxury. This illustrates a common behavior where everyone has brands to which they are loyal. 

Brand loyalty is largely based on how customers perceive your brand, its actions, and its values. Customers consistently choose the same product because they see it as superior to the alternatives. But this type of loyalty takes time to develop and the brand is only as good as its goods and services. If the product quality and service falls so does the loyalty. 

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What are the Characteristics of Brand Loyalty?  

Brand loyalty is a key objective for companies aiming to build a loyal customer base. It is a cornerstone of effective marketing driving repeat purchases and forging strong connections between consumers and brands. To understand its impact, we explore key characteristics, each playing a pivotal role in strengthening the bond between a brand and its customers. 

01. Emotional Connection

Emotionally connected customers are often synonymous with loyal customers. They serve as brand advocates, going above and beyond mere recommendations. The emotional bond can originate from a variety of factors, such as the brand’s values, its customer service, marketing and the way its products or services impact consumer emotions. 

Take Patagonia for example. Beyond making a great product, the world’s most trusted outdoor clothing company reuses and repairs its items to preserve a clean environment. Patagonia aligns closely with its customers by advocating for environmental sustainability, reflecting shared values that deeply resonate with its community. 

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02. Positive word-of-mouth

As we've mentioned before, brand-loyal customers do more than just recommend your business - they advocate for it. Recommendations from friends, family, or even influencers are often more trusted by people. This trust-based marketing is highly effective. It not only elevates your brand awareness but also boosts trust and credibility, improves customer retention and loyalty, and reduces marketing costs.

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03. Openness to price increases

We live in a world marked by constant change, where nothing is guaranteed. Factors like inflation, political instability, natural disasters, and supply chain disruptions can all lead to fluctuating prices. There are also situations where your competitors might offer lower prices. In such times, brand loyalty becomes invaluable. Loyal customers trust your brand and are often willing to pay more, providing a measure of stability amid these challenges. They do this because your products are of better quality, you provide better customer service, and they feel an emotional connection to your business. 

04. Competitive immunity 

Brand loyalty is what distinguishes you from countless competitors in the market. Since your customers believe you offer higher quality products or services and share their values, they connect with you on a deeper level. After many positive experiences with your company, they will consistently choose you over other competitors in the market. It's hard to compete with a business that always puts customers first and goes above and beyond to satisfy them. 

05. Repeat Purchases

Loyalty in marketing plays a big role. It makes customers loyal. When customers consistently choose you over competitors, recommend your business to others, share your values, and are emotionally engaged, they demonstrate their loyalty to your brand. These customers are most likely to return and contribute to an increase in repeat purchases. They contribute to nearly half of the average store’s revenue. 

Now that we've examined the key characteristics of brand loyalty, let's delve into the importance of brand loyalty and its impact on business success.

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Why is Brand Loyalty Important?

The main reason brand loyalty is important is that it significantly boosts profitability. It should come as no surprise, as loyal customers frequently return to make additional purchases. This repeat business is crucial because it provides a steady stream of revenue without the additional costs associated with acquiring new customers. A business with an established loyal customer base can afford to invest less in marketing and advertising. This is because these customers are already familiar with the benefits of the brand’s products and services. 

Brand-loyal customers typically spend up to 67% more than new ones

Their feedback is crucial because it can help you enhance your offerings and foster their ongoing commitment. They also expand your customer base through trusted word-of-mouth recommendations, providing free advertising. A loyal customer base not only stabilizes revenue but also supports sustainable growth, keeping you competitive. This underlines the importance of cultivating brand loyalty for long-term business success. 

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Brand Loyalty and Numbers

Establishing and maintaining brand loyalty can be a key driver of long-term success for business. That’s why so many business leaders pay attention to it. Here are some intriguing statistics that further emphasize this point:

  • According to an Econsultancy report, 82% of businesses believe that keeping customers is less expensive than acquiring new ones. 

Although acquisition marketing is important, focusing on customer retention is more practical since relationships with existing customers have already been built.  Customer retention marketing strategies help you save money on expensive advertising. 

  • By decreasing your customer churn rate by just 5% you could enhance your profitability by 25-95%

Even a small reduction in customer churn can lead to a substantial increase in profitability. 

  • Microsoft reported a notable statistic highlighting the connection between loyalty and long-term benefits: A company’s customer lifetime value grows by 5% for every $7 increase in brand loyalty. 
  • Loyal shoppers provide 65% of a business’s revenue. 

Ignoring loyalty-based marketing is a bad idea since current customers generate 65% of a company’s revenue. 

  • According to 74% of consumers, the main reason for staying loyal to a brand is product quality.

Since so many people consider product quality as the main reason they stick with a company, it makes sense to focus on this aspect to keep customers coming back for more. 

  • 80% of consumers have moved to a new brand following a poor customer experience.

Working on delivering a top-notch customer service experience results in enhanced consumer loyalty and retention, more long-term financial profits, and a better business reputation. 

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The Psychology Behind Brand Loyalty

One of the main reasons why customers choose one product over another and develop brand loyalty is closely related to the emotional aspect of people.

Consumers tend to remain loyal to brands that they feel connected to and with which they have established strong relationships.

Neuroscientists have discovered that damage to the brain area responsible for generating emotions prevents people from making decisions. Emotions significantly influence buying habits and overall decision-making processes.

According to Gerald Zaltman, a Harvard Business School professor, 95% of purchases are made subconsciously. Having devoted decades to exploring consumer behavior, he shares his insights in the book, “How Customers Think: Essential Insights into the Mind of the Market.”

For instance, Gerald Zaltman's research shows that although many consumers claim to compare brands and prices, observations often reveal that they do not explore other options before choosing their preferred brand. As customers develop loyalty to a brand, they form an emotional bond, consistently choosing it over competitors' offerings.

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What Types of Brand Loyalty Are There?

Brand loyalty refers to the extent to which customers consistently choose to buy products from the same brand over those made by other companies. 

Brand loyalty can be divided into three types: 

  1. Hard-core brand loyalty is when customers purchase from a particular brand all the time. 

This implies that customers have had a great experience with the product, adore its quality, and feel a sense of pride in using it. 

Sony is often the top choice for hardcore brand loyalists in the TV market. Sony TVs consistently deliver superior picture quality, boast a premium look and feel, and offer top-notch software. This dedication to quality is a key factor driving many customers to be loyal to Sony when purchasing a TV.

  1. Split-customer brand loyalty is when customers exhibit loyalty to two or three brands.

Despite the potential for them to become hardcore loyal to your product, it isn't easy to convert them into hardcore loyalists since split loyal customers are aware of other options. 

For example, a split loyal soda drinker may prefer the unique taste of Dr Pepper, the classic flavor of Coca-Cola, and the refreshing options from Pepsi, choosing each depending on their mood.

  1. Shifting-customer brand loyalty is when customers switch from one brand to another.

These customers will switch their loyalty to another brand if they aren't satisfied with their current product, customer service, or for other reasons. 

If a consumer previously subscribed to HBO for shows like Game of Thrones and Westworld but then switches to Netflix due to its extensive collection of sci-fi, superhero, and fantasy content such as Stranger Things, The Witcher, Daredevil, The Punisher and its underrated catalog of foreign shows, this reflects a shift in brand loyalty from HBO to Netflix.  

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Customer Loyalty vs Brand Loyalty 

These two terms are not synonymous, though people often use them interchangeably. However, they both serve similar purposes: increasing revenue and repeat purchases.

What’s the main difference between brand loyalty and customer loyalty? 

The main difference is pricing. 

Customer loyalty is centered on spending while the latter centers on a customer’s perceptions and feelings towards your brand. 

When customers are loyal to a brand, price becomes less important. They opt for that specific brand due to their perception that its products or services are superior in quality and reliable. Furthermore, they perceive the company as innovative and feel that it shares their values.

Customer loyalty can be established through competitive pricing or more attractive discounts and rewards programs. 

Customer loyalty is crucial for small businesses like grocery stores, car repair shops, coffee shops, and service providers. 

While brand loyalty is often associated with larger companies or businesses that distribute their products online. 

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Best Examples of Brand Loyalty

Brand loyalty is a strong indicator of a company’s success and its ability to resonate with consumers. Below, we explore the best brand loyalty examples. Here are three exemplary brands that have mastered the art of cultivating and maintaining a loyal customer base. 

01. LEGO Brand Loyalty 

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LEGO, the famous Danish toy manufacturer founded in 1932, is globally recognized for its strong commitment to customer service and brand image, capturing the hearts of children and adults globally.

Why does LEGO have the most brand-loyal customers?

  1. Quality 

LEGO is known for its high-quality toys, which are meticulously designed to ensure durability and safety, making them favorites among children and collectors alike. In recent years, LEGO has committed to sustainability by incorporating recycled and renewable materials into their products.

  1. ESG efforts 

They've built a strong emotional connection with consumers through durable products, shared values, and responsive feedback. Committed to a sustainable future, the company plans to invest $1.4 billion in carbon emission reduction by 2025, with a focus on improving energy efficiency, adopting renewable energy in their operations, and using recycled and renewable resources, despite earning just over $2 billion in 2022 profits. Their sincere efforts aim to ensure a healthier planet for future generations. 

  1. Exceptional Customer Service

Lego has partnered with Medallia to tackle customer issues by sending a post-delivery questionnaire, specifically focusing on problems like late or damaged packages, and addressing each complaint individually. 

“Had we not looked for feedback, we would’ve never solved this problem. 80% of our dissatisfied customers didn’t reach out to us.”

Peggy Conley, Director of Consumer Insights at Lego Group

  1. Customer engagement

In 2008, they launched the LEGO Ideas platform, transforming its loyal customers into a collaborative online community. Through this initiative, fans submit and vote on new designs, directly participating in product creation. This strategy not only boosts customer loyalty and engagement but also makes them feel valued, significantly contributing to the community’s success.

02. Amazon Brand Loyalty

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Amazon is the world's largest online retailer and a prominent technology provider specializing in ecommerce, digital streaming, cloud computing, and artificial intelligence. 

It is typically the first company people think of when it comes to online shopping, having greatly transformed the landscape over the past 20 years. Now, it is the top choice for consumers, who can find and buy just about anything from the comfort of their homes. 

Why Does Amazon have the most brand-loyal customers? 

  1. Online Shopping Convenience

Amazon is highly interactive, offering a vast range of products including books, clothing, electronics, and even cars. People can often find better deals on products online compared to traditional brick-and-mortar stores. Moreover, most products have reviews and ratings available, which help shoppers make informed decisions about their purchases.

  1. Amazon’s Perks 

People are loyal to Amazon largely due to its Amazon Prime membership, as evidenced by an impressive 89% of Amazon customers showing brand loyalty. This program includes fast, free delivery on a wide range of items, exclusive access to sales and discounts, and additional perks such as priority access to streaming entertainment, including TV shows like "Fallout" and "The Power," among others, and special rates on groceries. 

Furthermore, after one year, 93% of Prime members renew their membership, demonstrating its value. Amazon continuously innovates and launches new products and services to keep customers interested in the brand. 

03. Sephora 

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Sephora is a global beauty products retailer based in France and is another great example of brand loyalty. Sephora is integrating personalization into everything from its reward program to its online shopping experience. It is one of the main reasons why the company has such a massive following. 

Why Does Sephora Have the Most Brand-Loyal Customers? 

  1. Diverse Product Selection 

Sephora carries a wide range of luxury European beauty brands, offering makeup, haircare, and skincare products, as well as celebrity lines such as Rare Beauty by Selena Gomez and Fenty Beauty by Rihanna, in addition to its own Sephora Collection.

  1. Loyalty Program 

Sephora’s Beauty Insider loyalty program is loved by many and is among the top loyalty programs in the US. The number of loyal customers speaks volumes about its popularity, boasting over 34 million beauty fans. The company is combining gamified experiences (Beauty Insider Challenges) with traditional rewards, aiming to increase repeat business and maintain brand loyalty. 

  1. Social Media Engagement 

Sephora, a leader in omnichannel retail, engages effortlessly with its audience on social media. By featuring fan-shared looks on their Instagram, the brand encourages users to include the #Sephora hashtag in their posts to be featured on the brand's page. It has a strong online presence on YouTube, too. 

  1. Innovation in Retail Sector

Sephora has long led retail innovation, being an early adopter of in-store technology like its Sephora Virtual Artist app, which lets customers virtually try and share various makeup products.

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How to Build Brand Loyalty?

In a highly competitive market, understanding how to develop brand loyalty is a key to success. It can be the key to reaching your revenue goals and distinguishing yourself from competitors, or falling short. 

Without further ado, let’s get started: 

  1. Improve your Customer Service 
“Focus on making your customers happy, and your competition will be a distant memory.”

Ositadinma Uwam, Founder at Pi HQ and Member of RevGenius

Poor customer service undoubtedly drives customers away. After examining leading examples of brand loyalty, it’s clear that great customer service is essential for distinguishing your business from competitors and fostering repeat purchases. Effective customer service not only resolves issues but also builds trust and deepens customer relationships as customers develop loyalty.

To improve your customer service, ensure you implement user-friendly systems for gathering feedback and managing complaints. Moreover, if your customers are active on social media, responding promptly to their comments can significantly strengthen brand loyalty. Consistently and thoughtfully engaging with customers demonstrates your commitment to valuing their input and continuously improving their experience. 

  1. Provide Incentives

If you want to increase the number of repeat customers and build brand loyalty, introducing a well-thought-out loyalty program is the best way to do it. By offering discounts, store credits, free shipping, or free products, you can incentivize customers to keep buying from you.

Starbucks exemplifies this approach with the Starbucks Rewards program, which gamifies the shopping experience through a convenient app, making customers eager to earn perks. 

Exclusive discounts for loyalty members can persuade customers to choose a higher-priced brand over cheaper alternatives. What’s more, paid loyalty programs encourage customers to remain loyal to brands. 59% of customers are more likely to choose a brand that offers a paid loyalty membership.

  1. Establish a Brand Community

In today's digital landscape, companies have access to a diverse array of tools that enable them to cultivate stronger relationships with their customers and foster connections among them. These digital spaces can be perfect places for customers to ask questions, provide feedback, share ideas and love for the brand with each other. These communities exist both online and offline, through events and meetups. 

The LEGO brand excels at engaging with its user communities, notably through the Lego Ambassador Network, which connects LEGO community admins and top content creators globally to exchange ideas, gather feedback, and promote events.

  1. Hire Brand Ambassadors or Influencers

Besides having brand-loyal customers who freely promote their products on social media, companies also engage ambassadors or influencers for their brands. Brand ambassadors and influencers can dramatically increase brand loyalty by offering genuine endorsements and creating relatable content that resonates with their audience. Their ability to engage with audiences on a personal level helps foster trust and establish a loyal customer base that identifies with the brand's values and message.

  1. Invest into Social Responsibility

Being a socially responsible company can significantly enhance brand loyalty. First, it aligns the brand with the values of consumers who prioritize environmental preservation efforts, ethical labor practices, and gender equity, creating a strong emotional connection. Gen Z and Millennial consumers call for sustainability in retail. These socially conscious consumers are more likely to be with brands that share their beliefs and values. Social responsibility can improve a company's public image, making it more attractive not only to consumers but also to potential employees and investors. 

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How Can Brand Loyalty Be Lost?

Gaining loyalty is no easy task. It is cultivated by consistently providing positive experiences. Failing to do so can result in losing your customers. So, why do consumers lose brand loyalty? Here are 3 reasons:

Failing to adapt to trends

Loyalty diminishes when brands cannot keep their customers engaged or meet their evolving expectations. In a fast-changing market, brands that do not innovate or align with current trends risk being overshadowed by competitors who are more attentive to consumer needs.

Sustainability is a relatively new trend. As demonstrated by LEGO, Patagonia, sustainability is another key reason why customers are loyal to these brands. Failing to align your values with those of your customers can lead to revenue loss, a poor brand image, and diminished customer trust.

More than half of consumers, 51% stated they would continue shopping at stores that demonstrate sustainable or ethical behaviors, illustrating a strong relationship between sustainability and customer loyalty. 

Ignoring customer feedback

Failing to listen to your customers and address their concerns can harm your brand’s reputation and increase costs. Finding a new customer is less cost-effective than retaining a current one.

When you pay attention to customer feedback, you essentially create opportunities to enhance the customer experience and increase satisfaction. This practice not only boosts customer loyalty but also helps you refine your products and services. It also contributes significantly to lower customer churn rates. By monitoring social media conversations enables you to swiftly identify and address customer concerns, as well as gain valuable insights into their needs and preferences.

Companies lacking effective feedback mechanisms might find it challenging to efficiently record, monitor, and resolve customer complaints promptly. Businesses that cultivate a strong customer-centric culture are the ones that succeed. 

Low customer engagement

Customers also lose loyalty when they do not feel engaged or connected to the brand. This happens for several reasons: 

  • They don’t see enough value in your offerings. If customers feel that your products or services no longer offer value or meet their expectations, they may turn to competitors. 
  • Lack of communication. Without regular updates and engagement, customers might feel neglected, reducing their loyalty.
  • Irrelevant or low-value loyalty programs. Loyalty programs that fail to align with customer interests or provide meaningful rewards can deter customer engagement.

To prevent this from happening, you need to constantly refine your offerings, maintain a strong brand identity, and offer loyalty programs that are relevant and engaging to your customers. Consider incorporating gamified or green loyalty programs. Additionally, you can communicate with your customers through various channels and platforms, such as social media, email, or directly within the loyalty programs.

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Conclusion 

While achieving brand loyalty isn’t easy, it is undeniably worth the investment of effort, time, and money. The advantages it offers in the long term are substantial, providing brands with a stable customer base and predictable revenue streams. However, it is crucial to remember that brand loyalty, once earned, can be easily lost if not meticulously maintained. Brands must stay attuned to evolving market trends and constantly communicate with their customers to remain competitive and relevant. Emotion is an important factor in this process. By engaging customers on an emotional level, brands not only preserve the loyalty they have cultivated but also enhance their reputation and competitive edge in a dynamic marketplace.

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