Customer loyalty is arguably the most important metric every business should be measuring on a regular basis.
Loyal customers are the backbone of every fast-growing business. You’ve probably heard that it costs 5x more to acquire a new customer than to retain an existing one – and that loyal customers spend 67% more than new customers.
But how do you build a business where loyal customers are the rule, not the exception?
That’s what we’ll cover here. We’ll start by understanding what customer loyalty is, then we’ll discuss some interesting stats that show just how critical repeat customers are to your business. Finally, we’ll look at 3 simple things you can implement in your business right now to start increasing customer loyalty and repeat purchases.
What Is Customer Loyalty?
Customer loyalty is a customer’s readiness to do business with a brand multiple times. It’s the result of repeated positive customer experiences which results in the birth of a brand advocate.
The true meaning of loyalty is well understood, and it’s a quality that many of us share. After all, you more than likely exhibit loyal behavior toward your friends, family or even your suppliers. Just as you support and remain loyal to key individuals in your life, as a business owner, you’ll want to build that same level of allegiance with your customers.
To put it simply, customer loyalty is both an attitude and behavior. When you build loyal customers, they will favor your brand over others.
Whether they’re overly satisfied with a service you provide or stand behind your company’s core values, customer loyalty encourages consumers to consistently support your business, even in a highly competitive market.
Why Should You Care About Customer Loyalty?
It’s fairly clear that loyal customers generally equate to greater sales and, in turn, growth. But is exceptional customer service really worth the time, money and effort? Although the answer may seem obvious to some, it’s a question many business owners struggle with.
Sure, there can be costs associated with exceptional customer service, but when done effectively, the rewards will far outweigh the costs. This is especially true for small businesses, so be mindful of your approach and your customer’s overall experience when dealing with your company.
To put the importance of customer loyalty into perspective, let’s take a quick look at few startling numbers and facts:
- According to a 2011 American Express survey, 78 percent of consumers did not complete a transaction based on a poor customer service experience. Within the same survey, it was stated that 70 percent of Americans are willing to spend an average of 13 percent more with companies who do provide exceptional customer service.
- Approximately one out of 26 unhappy customers will complain, so a lack of feedback doesn’t necessarily mean great customer service. More importantly, 91 percent of unhappy customers who don’t complain simply leave and go elsewhere.
- Incredibly, 97 percent of global consumers stated that customer service is important when choosing which brands they choose to buy from and show loyalty to.
- Perhaps one of the most important stats for small business owners is the following: 80 percent of companies believe they offer “superior” customer service, while only 8 percent of their customers believe that.
As a small business owner, this may seem daunting – but it can actually be used to your advantage. When it comes to a competitive edge, such as lower prices or free shipping, the big-box stores will generally beat out small businesses. Don’t get discouraged, however, as customer service is often a weak area within these larger companies.
Within the American Express survey mentioned above, it was stated that 80 percent of Americans agree that small businesses offer better customer service in comparison to larger companies. This means that the general population sees the true value in smaller companies who place greater emphasis on the satisfaction and happiness of their customers.
You need to know where your strengths lie and what’s important for long-term growth. In summary, if you provide and promote your outstanding customer service, customer loyalty will follow.
So, how do you get started and how can you keep your customers loyal?
How Do You Build and Maintain Customer Loyalty?
Although the concept of customer loyalty appears to be fairly black and white, it’s not that simple. Just because you build a company that offers a great product doesn’t mean that customers will instantly flock to you.
Of course, in many ways, reaching your target customers is a marketing play, but that’s simply the tip of the iceberg. You can pour all the money in the world in to attracting customers, but once you have them, how will you ensure they’ll keep buying?
Let’s say for example that you launch a large marketing campaign, attracting customers to purchase your latest product. You were confident in what you were offering, but a percentage of your customers weren’t happy. In this situation, it’s up to you to rectify any issues that came up.
If you simply ignore these customers and choose the immediate profit you made, you could actually miss out on multiple future orders, costing you more money over the long-term. Not only will you have spent money to attract these customers (who will now likely never come back), but you will have missed out on an opportunity to really wow them by taking ownership of the problem and making it right.
When you address a customer’s concerns and make them feel as though they’re valued, you may be able to persuade them to come back. Just look at this way – after communicating and acknowledging their concern, you might refund the customer for their order and then provide them with a 20 percent coupon for their next purchase.
What costs you a now could result in a customer who purchases from you multiple times in the future while referring their friends to your business too. This perceived generosity helps build trust and, in reality, will often lead to more sales and more positive word-of-mouth. Coupons also encourage consumers to spend more too.
In fact, according to the firm BIA/Kelsey, small businesses estimate that in the next 12 months, 17.7 percent of their total revenue will come from customer acquisition promotions, including coupons. What’s even more interesting is that up to 77 percent of buyers say that when redeeming a coupon, they spend between $10 to $50 more than they anticipated. 17 percent also spend an extra $50 or more.
Here are some key tips in order to achieve customer loyalty:
1. Encourage Positive Relationships
Perhaps one of the most obvious places businesses fail is their ability to build positive relationships with their customer base. As a small business owner, think about the people you personally do business with and why.
Now ask yourself as a consumer, would you buy from YOUR company? Do you go above and beyond to make your customers feel like they’re important and that their business is valued?
As you focus on building relationships, small changes can make a big impact.
Start with the following tips:
- Tell your story early and often – As humans, we remember stories. Your “About” page should tell the story of why you started your company, how you’ve grown it, what’s important to you and what your vision is moving forward. Not only should you publish your story on your web site, you should also talk about it with customers, partners and the media if you do any P.R.
- Utilize email marketing – Let’s face it, small business owners don’t generally have a massive budget when it comes to marketing and advertising. That’s where email marketing can deliver huge returns. Email is STILL a great way to start and nurture relationships with your customers, but don’t just send updates on your products. Give them a look inside your company. Share customer interviews and case studies. Write blog posts and record short videos that will help your customers.
- Incentivize your first-time customers –Repeat customers spend 67 percent more than new customers, so it (literally) pays to spend time thinking about how you can turn your one-time customers into repeat purchasers. Coupon codes work well, but so does suggesting additional products that compliment what they previously purchased. For example, if someone bought a bracelet from you why not email them 7 days later to tell them about the matching earrings you’ve got in stock? Throw in a 20 percent off coupon and you’ll find many first-time customers become repeat purchasers quickly.
2. Provide Unbeatable Support
Surveys and research have shown that customers are sick of poor customer service. In a way, it’s sad that bad customer service has become the norm. But for business owners like you, it can act as a beneficial selling point.
It’s a cycle that can’t be ignored: the better support you provide, the more likely customers are to come back and support you. Pretty simple, right?
To ensure you’re meeting the needs of your customers, you’ll want to:
- Find out more about their expectations – seek feedback whenever possible, especially within 7 days after placing an order.
- Follow-up whenever you receive feedback, whether it’s positive or negative. If you can, personally respond to all feedback. Even a small “thanks for sharing” email goes a long way.
- If you receive a complaint, confirm the validity of the issue at-hand and then provide an effective solution within 24 hours. Always make a “wrong” a “right” ASAP.
3. Give More Than Your Customers Expect
“Under promise and over deliver” is the phrase that comes to mind here. For example, if you offer free 3 day shipping, upgrade their order to overnight express if they spend more than $100 with you (AKA, if you can afford the increased shipping cost).
Little strategies like this go a long way in driving word of mouth and repeat purchases. As a personal aside, I’ve been purchasing my vitamins online from the same small business for over 5 years because they’ve employed this exact strategy – they state 3 day delivery but the package always turns up at my door the next morning.
The Impact of Company Culture on Customer Loyalty
Hopefully you now have a good understanding of the benefits loyal customers can bring, as well as an idea of the approach you might want to take to increase customer loyalty in your business.
At the end of the day, creating loyal customer really does begin and end with the kind of culture you create in your company – as well as the kind of people you hire.
If you create a culture around empathy, being helpful, honest and reliable, then you’ll attract customer service folks who resonate with those values and act appropriately towards your customers.
On the other hand, if your entire focus is on “growth at all costs” and you as the business owner are willing to sacrifice loyal customers for short-term revenue, then your employees will pick up on that and act accordingly towards your customers.
If you’re not sure where to start with it comes to creating loyal customers, why not create a Net Promoter Score survey using Fieldboom.
You can ask your customers how likely they are to recommend your business to their friends and also additional feedback that creates opportunities 1) for follow up and 2) to improve loyalty.
Make sure you take a look at our customer loyalty infographic. We’ve compiled the 20 best stats that prove, without a doubt, doubling down on your customer loyalty efforts pays.
Strategic Ways to Increase Customer Loyalty
Upsells, cross-sells, and downsells are staples of marketing that benefit both customers and business owners – especially when it comes to customer loyalty.
These techniques allow customers to get as much value as they possibly can from a company’s products or services.
They also allow marketers and salesmen multiple opportunities to make their customers aware of such value, as well as multiple opportunities to make more sales.
But, as with all things marketing, for your upselling, cross-selling, and downselling initiatives to be effective, they must be done right.
In this article, we’ll discuss the best practices for implementing these tactics, and provide examples of how some of the top companies in the world use upsells, downsells, and cross-sells to increase conversions and drive customer loyalty.
But, before we dive in, let’s be clear on the differences between upsells, cross-sells, and downsells.
Upsells, Cross-Sells, and Downsells: What Are They?
While each of these terms relate to one another in a number of ways, they’re quite different in their goals and the way in which they’re implemented.
What is an Upsell?
An upsell occurs when a salesperson offers a customer a more advanced (or, more accurately, a less basic) product than what they’re currently planning on purchasing.
Perhaps the most widely-known example of an upsell is McDonald’s old “supersize” ask: for only a little more money, McDonald’s used to provide larger serving sizes of drinks and fries (the practice has since been discontinued for various reason).
A more advanced example would be when a company offers “VIP service,” “Platinum membership,” or anything of the like. In this instance, customers will receive additional services on top of the basic offer a company provides – for an increased fee, of course.
What is a Cross-Sell?
Cross-sells are sometimes confused with upsells, but they belong to a category of their own. A cross-sell is when a company offers a supplemental product or service to a customer who plans on making – or has already made – a purchase.
To use another famous example from the fast food industry, a cross-sell occurs every time a cashier asks “Would you like fries with that?” The fries don’t improve the burger that the customer has already stated they want; but they do add to the overall fast food meal.
Another example of a cross-sell is often seen in stores selling video game systems. As it can be assumed that a person buying a new system will end up purchasing games for it, some stores offer bundle packages that cut right to the chase, allowing customers to make both purchases at the same time (often for a discounted price).
What is a Downsell?
A downsell is when a salesperson offers a lesser (and likely more affordable) product or service when a prospect appears hesitant to make a purchase.
Downsells happen all the time at car dealerships. While they naturally will want to show off the best cars on the lot first, they usually end up showing the more affordable cars once they realize the high-end vehicles are out of a prospect’s price range.
Downsells exist online, too. Some websites, when a visitor shows signs of bouncing, will offer a discount through an exit popup. By offering their products or services for a lower rate, these companies increase the chances that a visitor will convert into a paying customer.
When Should You Use Upsells, Cross-Sells, and Downsells to Increase Customer Loyalty?
We glossed over some of the more common moments in which these techniques are used, but let’s break down all that goes into determining when you should use upsells, cross-sells, and downsells.
Upsells are best used when:
- The individual is on the cusp of making a purchase
- You (the salesperson) know as much as you possibly can about this customer and their persona
- The individual doesn’t know exactly what they want – but you do, and you’re able to explain how a higher-priced or more advanced product or service will be of more value to them.
Cross-sells should be used when:
- A customer is at the point of sale
- You know exactly what they’re aiming to accomplish by making this purchase
- You have a supplemental product or service to offer that will enhance the customer’s experience and help them reach their goals
Downsells work when:
- A product or service is out of the prospect’s price range
- The customer is hesitant to make a commitment (such as to monthly payments or to a time-consuming service)
- The customer is ready to walk away
When implemented at the right moment, upsells, cross-sells, and downsells can turn hesitant prospects into paying customers, and can turn paying customers into loyal fanatics of your brand.
The Benefits of Using Upsells, Cross-Sells, and Downsells for Customer Loyalty
Generally speaking, the use of upsells, cross-sells, and downsells has two major benefits to a company’s bottom line:
- Increased conversion rate
- Increased customer retention, loyalty, and overall satisfaction
Using these techniques also helps your customers gain deeper awareness of the products and services your company provides, and allows you to focus on developing and exhibiting empathy for each one of your customers. This, in turn, inherently leads to the previously-mentioned positive effects on your company’s bottom line.
Increased Conversion Rate
Upselling, cross-selling, and downselling can positively affect your conversion rates in a number of ways.
First, let’s talk about product recommendations in general. According to research analyst Sucharita Mulpuru, the simple act of making recommendations for further purchases to customers can account for anywhere from 10-30% of overall ecommerce revenue. Over a decade ago, Amazon stated that upselling and cross-selling were responsible for 35% of the company’s revenue.
To be sure, this number is largely atypical. However, it’s generally accepted that upsells make up anywhere from 2-4% of a company’s overall sales numbers, and cross-sales represent up to around 2% of such (usually around .5-1%).
As downselling is more of an “on the fly” technique and is harder to track (i.e., salespeople aren’t likely to log instances in which they made a smaller sale in lieu of a customer turning away a larger sale), actual statistics regarding downsales are hard to pin down. However, it stands to reason that providing a more convenient or affordable option to prospects inherently nudges them closer toward making a purchase.
Customer Loyalty & Customer Retention
All three of these actions also go a long way toward increasing customer retention rates and improving customer loyalty, as well.
As we’ve discussed before, customer loyalty is critical. Existing customers are 50% more likely to try new products, and spend 31% more than new customers. Furthermore, a 5% increase in customer retention can lead to an increase in future profits of 25%-95%.
In other words, upselling and cross-selling is inherently effective and beneficial to a company, as customers who have already made a purchase are more easily sold on other complementary products.
Additionally, each of these tactics goes a long way toward providing your customer with an overall positive experience:
- Upselling provides an opportunity for your customers to see the absolute best of what you have to offer
- Cross-selling allows you to show that you’ve put yourself in your customer’s shoes in terms of how they’ll use your product or service (and any supplemental products you offer)
- Downselling shows that you’re interested in meeting their needs and helping them achieve their goals, not selling them something they don’t want or can’t afford
Before we go any further:
Yes, these tactics can be implemented in sneaky and underhanded ways in order to make a quick sale. But that’s all that will happen: you’ll make a quick sale, and lose a customer for life.
When these tactics are implemented with the customer’s needs in mind, it makes a company more likeable and trustworthy. And, as the infographic linked to above mentions first and foremost, likability and trustworthiness are essential for creating a foundation of loyal customers.
Principles for Upselling, Cross-Selling, and Downselling
As we’ve mentioned, upselling, cross-selling, and downselling aren’t necessarily a sure thing.
If implemented incorrectly, these tactics can alienate customers and lead them to break ties with your company for good (and possibly to share their negative experience with their friends and family members).
The following section will describe the fundamental tenets to live by when upselling, cross-selling, and downselling to your customers, provide actionable advice for how to live up to these tenets, and discuss real-world examples of how companies have successfully implemented these principles.
Know Your Customers and Their Needs
This piece of advice probably isn’t news to you as a marketer or salesperson; it’s generally accepted as fact that knowing and understanding your customers is essential if you want to have any hope of catering to their needs.
But let’s take a look at this principle as it applies to upsells, cross-sells, and downsells.
First of all, in each case, you want to determine what you can offer your customer or prospect that will help them reach their goals.
The main thing to keep in mind here is your offer should be unique to each individual customer (or at least to their persona). As we discussed earlier, this will show them that your first order of business is to help them succeed – not to make a sale.
On the other hand, providing a blanket upsell, cross-sell, or downsell will make it clear you just want to offload product and make a quick buck, regardless of whether or not your offer actually helps your customer.
To further solidify in your prospects and customers the notion that you truly care about them, you should be prepared to explain exactly how an upgrade or supplemental product (or even a downgrade) will be of value to them.
From the example above, one thing is clear: the people at Dollar Shave Club know their customers. This, inherently, shows they understand the value of upselling and downselling: customers who want a more intimate shaving experience have the option of choosing “The Executive,” while those looking for a quick, easy, and cheap shave can go with “The Humble Twin.”
As an upsell, it’s easy to imagine someone visiting DollarShaveClub.com looking for a cost-effective razor, noticing multiple options, and deciding to spend an extra $5-8 a month on an upgrade.
As a downsell… well, you can’t get much more “down” than asking for a measly $1 a month in exchange for your product. But, with over two million members paying $1 per month, the company is guaranteed to generate $24 million a year in revenue – even if every customer chooses the cheapest subscription option.
But I digress.
Back to the point, each of the three offers in the screenshot above are tailored to a specific persona. When it comes to upselling and downselling, there’s an ever-so-slight difference between simply providing a variety of options and providing a variety of targeted options based on your customers’ wants, needs, and goals.
Quick note: We’ll dig into the best way to provide options when upselling, downselling, and cross-selling in a bit.
Knowing your customer and understanding their goals is also essential when attempting to make a cross-sale.
You know that each of your numerous customers are unique in some way or another. You understand that each of them will use your products or services in their own unique ways. So why would you take a one-size-fits-all approach when it comes to cross-selling?
Obviously, you shouldn’t.
Let’s consider a simple situation in which two very different customers purchase the same product: a Blu-Ray/DVD player. One is a middle-aged woman with two toddler-aged children in tow; the other, a college-aged guy wearing a shirt he got at the local brewery.
Which customer would be more likely to be cross-sold on a bundle of sing-along DVDs? Which would you try to sell the Godfather trilogy to?
We’ve said it before, but it bears repeating:
The products or services you attempt to include when cross-selling should always complement the customer experience for that specific customer. Keep your customer’s goals in mind and they’ll be more than happy to spend a little extra to make their life a little easier.
Don’t Push or Force It
We’ve mentioned throughout this article that upselling and cross-selling tactics are only to be used when an individual has already made a purchase or when you’re 99.9% certain they’ll be following through with a purchase in mere moments.
But, you still run the risk of losing a sale – either the one at hand or potential sales in the future – if you’re too pushy with your upselling and cross-selling suggestions.
Have you ever experienced the following scenario?
You step up to the cashier, who rings up your bill and asks you if you’d like to become a “VIP rewards member.” You politely decline, only for the cashier to ask “Are you sure? You get a discount on blah, blah, blah, and it’ll only cost you…”
If it has, you know that by the time the cashier starts explaining the benefits of the VIP program, the customer is already thinking about how great it’ll be to pay their bill and get the heck out of there.
Reason being: the cashier was too pushy. First of all, the customer already declined the offer. Second of all, by asking “Are you sure?” the cashier makes the assumption that the customer doesn’t know what he wants. (Another thing worth noting in this case: the cashier waited until after the customer declined the offer to explain the benefits of the VIP program.)
You can also come off as being too pushy by insinuating that a customer’s decision to purchase one product or service over another is wrong, stupid, or crazy.
Let’s revisit the Dollar Shave Club example from above. Imagine if, instead of presenting each offer objectively and letting the customer decide which is best for them, the webpage copy read something like “Sure, you can go for the cheap $1 subscription…but you’d be crazy to miss out on everything The Executive has to offer!”
Not only would nobody purchase the $1 subscription for fear of being labeled “crazy” – essentially rendering the offer useless – but also, many potential customers would likely be insulted by such insinuation – and might actually turn away from the company’s other offers completely.
Whether upselling or downselling, there’s potential for a salesperson to unwittingly come off as being too pushy and trying to force a sale. Of course, this can be ever-apparent when going for a cross-sale, as well.
Along with the now-obvious point that the product or service you’re attempting to cross-sell needs to be relevant to your customer’s individual needs, there’s one other thing you need to keep in mind:
The 25% Rule.
This “rule” states that the item you’re attempting to add onto your customer’s order as a cross-sell should never cost more than 25% of their initial purchase.
For example, imagine you’re at your local sporting goods store looking for a good pair of running sneakers. Which additional item would a salesperson have a better chance of selling to you: a pair of Underarmour sport socks, or a Fitbit Charge wristband?
Note: The answer to this question might be different if the customer has explicitly stated they’re trying to dedicate themselves to becoming more fit – and stated that they have money to spend – but let’s just assume the customer came to the store to buy running shoes and not much more.
In this example, your customer will be fairly likely to take on the relatively small cost of new socks, knowing that the slight increase in money spent will go a long way toward improving their comfort and mindset the next time they hit the gym.
On the other hand, the mere suggestion that a customer just up and decide to spend $100-$200 more than they planned could cause them to walk away without purchasing anything at all.
Simply put: when it comes to upselling, downselling, and cross-selling, show your customer their options – but respect and accept the decision they make.
Limit Your Customers’ Options
Speaking of giving your customer options, it’s important that you don’t provide too many choices when it comes to upsells, downsells, and cross-sells.
You may have heard of the paradox of choice, or analysis paralysis. The idea is that, when confronted with too many choices, most people will become overwhelmed and end up not making any choice at all.
While it might seem helpful to provide a variety of pathways for your customer to take, it’s actually more beneficial to narrow their choices and make the decision easier for them.
Take a look at the following ad:
Now check out this one:
The first ad is likely to send most customers into overload. There’s just too much going on for a prospective customer to feel confident that the decision they end up making will be the right one. (And, forgetting about upsells, downsells, and cross-sells for a moment, it’s clear to the customer the point of this ad is to sell, sell, sell.)
On the other hand, the Spotify ad provides two simple options: sign up for a free or paid-for premium subscription. The people at Spotify know most people are casual music fans who don’t necessarily need high-quality audio and are content with sitting through a few ads if it means listening to free music. But they also know that, for those who live and breathe music, £10 a month is a pretty easy upsell.
For a prime example of how limiting choices while upselling or cross-selling can be effective, let’s go back to Amazon.
I imagine there are hundreds of Game of Thrones-related products available on Amazon right now. But, rather than list all the possible products a person looking to purchase the Song of Ice and Fire pentalogy might find valuable, Amazon lists only two; each of which directly supplement a deep dive into the world of Westeros.
By providing a narrow field of options when attempting to upsell, downsell, or cross-sell a prospective customer, you prove that you understand exactly what they’re looking to accomplish – but you ultimately leave the decision up to them.
If you aren’t using upselling, downselling, and cross-selling tactics, you’re not just missing out on additional revenue, but you’re also missing out on opportunities to help your customers achieve their goals.
While generating additional revenue is obviously important, it’s even more so to increase instances in which you provide value to your customers. In doing so, you all but ensure they’ll return to you the next time they’re in need of the services you provide.
As we’ve said throughout this article, the first step toward being able to effectively generate sales through upselling, downselling, and cross-selling is by getting to know your customer.