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Worth Your While: Explaining the Value of Customer Loyalty
Every marketing budget is torn between attracting new customers and keeping existing ones coming back again. Both are important jobs but it’s the people who are loyal to your brand that have the highest customer lifetime value; they’re worth more. So how can we explain the value of a loyal customer? And how can you maximise your return on investment (ROI) when you commit budget to customer retention? Let’s explore the value of customer loyalty.
Three ways existing customers outspend new customers
According to Invesp CEO and best-selling author Khalid Saleh, existing customers are:
- More likely to buy: The likelihood of selling to an existing customer is between 60-70% vs just 5-20% for a new customer
- More likely to try: Existing customers are 50% more likely than new customers to try new products
- More likely to splurge: Existing customers are 31% more likely to spend more than new customers
So why do they spend more?
How customer loyalty works (and when it doesn’t)
Loyal customers buy from you using what Nobel prize-winning economic scientist Daniel Kahneman calls System 1 thinking. This mode of thought is fast, automatic, frequent, emotional, stereotypic and unconscious. It’s easier on our brains than System 2 thinking, which is slow, effortful, infrequent, logical, calculating and conscious.
So, the aim for marketers is to establish their brand in the virtuous circle of the customer’s System 1 mindset. Here, habit and autopilot drive frequency of purchase and can increase overall spend. The end result? A higher customer lifetime value.
But not everyone gets this right.
Here are three common loyalty and retention pitfalls for you to avoid: