How a Customer Loyalty Score (CLS) and Customer Loyalty Index (CLI) can help generate better customer engagement
Marketeers are long accustomed to using multiple scoring mechanics to rate customer engagement, advocacy and loyalty.
By: Melanie Parker
More traditional scoring metrics could include:
Net Promoter Score (NPS)
- This is a customer satisfaction metric that measures the degree to which people would recommend your company to others. NPS can be used to identify detractors and promoters so you can adapt your communication strategy to suit their needs.
Customer Retention Rate
- This is the measure of how long a customer remains with your company.
Customer Effort Score
- This measures actual experience rather than emotional delight. It is the measure of how much effort a customer has to undertake to solve a problem with your company.
Negative Churn
- There is always going to be natural churn in any business. By measuring negative churn you are assessing how many members have started increasing their spend or purchasing additional services.
Whilst all of these scores hold some value, each one only looks at a single metric so on their own they don’t give you the full picture.
We believe that it is far more valuable to create a scoring system which will work for your business, which will track customer retention, brand engagement, customer loyalty, advocacy and which then can provide the ability to segment your customer base.
Generating a Customer Loyalty Baseline
Before you even being implementing your loyalty programme, you should have devised a measurement plan which all your stakeholders have had a chance to evaluate and refine.
Before your programme commences you should use the data that you currently have available to evaluate your existing customer base. To do this you could use the scoring mechanics mentioned above, as well as analysing each customers transactional spend, the customer lifetime value and their engagement with your brand. You can also overlay an emotional metric for how aligned the customer is to your brand; define some structure as to how to score this and get your sales teams, account managers or customer service team to input their thoughts.
Segmenting Your Customers
Once you have your customer loyalty scoring baseline you can start to segment your customers. A simple way to do this is to split your customers into four quadrants by value and potential:
- High Value, Low Potential
- This group are high value customers but are already giving you the majority of their spend so there is little potential to get more value out of them. This isn’t to say that they couldn’t provide more value in other ways, like referrals, reviews, feedback and testimonials.
- High Value, High Potential
- This group is already high value but there is also potential to earn more from them. They are likely to be spending with your competitors as well. This group should already understand the benefits of working with you so you can start to target them specifically with offers that encourage them to spend more.
- Low Value, High Potential
- This customer group are not really spending with you but they have high potential. You need to be investing time and effort into developing personalised campaigns and metrics designed to grow each account.
- Low Value, Low Potential
- This customer group is currently low value but also low potential so they shouldn’t be considered as a target for your loyalty campaign. Often this is the group that is a drain on resources and demands more than they provide back.
You can choose your own segments relevant to your business. Once you have segmented your customers you will start to see what behaviours you have identified as those you value.
Changing Behaviours Through Loyalty
A loyalty programme is designed to change behaviours and in order to assess your return on investment (ROI) you need to identify the behaviours of your top performing customers. These may not be the customers who spend the most.
Your key customers should be the ones who would promote your business, purchase the right products and services, use word of mouth referrals, provide reviews and testimonials, have a positive impact on the business and have clearly aligned values.
From the customer segmentation work you have completed you can start to model out your top customers and agree what behaviours you want others to emulate and what return those behaviours will bring to the company.
Once you have identified the return you can agree what you are willing to spend (both in time and money) to reward customers for changing behaviours.
Creating a Customer Loyalty Scoring System
Now that you have your behaviours you can start to put a value or points against each one. This will need to be personalised to your business but if you would like to understand how to achieve this, you can request an instant How To Guide below. Once you have scored each behaviour you can build an overall score for each customer.
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Using the Customer Loyalty Index to Generate Loyal Customers
Once you have calculated a score for each customer you can start to use that score to segment customers further and track when a customer might be in danger of becoming lapsed or inactive. As a side note, a loyalty programme will never be a substitute for product and service excellence; you must ensure that the fundamentals in your offering are right before you start looking at loyalty.
Loyalty is a form of marketing that should:
- Encourage repeat purchases
- Grow revenue from all customers
- Increase average order values
- Aid customer retention
- Build a more personal and emotional customer relationship
- Win new customers
- Improve customer lifetime value
- Reward and encourage promoters and brand advocacy
- Help to win back detractors and lapsing customers
- Support your business values in delivering excellence
In all of these activities you can use your scoring to further personalise the communications, the campaigns and the earning and reward metrics to make sure that they are relevant to the customer. Not only do they need to be relevant, but they need to be presented at the right time to seize the opportunities.
As soon as a customer loyalty score starts to decline you should act — and your programme should have the tools available to enable that personalisation.
You can also use these insights to inform your customer service personnel or account managers. In a B2B environment where they hold the relationship, they should be able to understand what the customer might be experiencing or feeling to cause this decline and therefore having the insights provided quickly means that they have the ability to act fast.
Creating a simple-to-understand, clear scoring system (CLI) which provides you with the right information to measure your return on investment is crucial to getting loyalty right.
Loyalty can’t stand still; it constantly needs to evolve with your customers’ changing needs as well as those of the business. To keep up with the evolvement you need to make sure that you have the tools and analysis on hand to inform future strategies.
Generating a Return on Investment
Loyalty programmes can continue for years with you mistakenly believing that they are working because customers are earning and redeeming; but if you are not rewarding the right behaviours for the right customers, then you are giving away money that you don’t need to.
Loyalty done right will secure future revenue with more customers, reduce your customer churn and provide greater return for your marketing spend.
Key Takeaways:
1) Define what good customer behaviour looks like for your business
2) Segment your customers and score them based on the behaviours outlined above
3) Use this scoring to create a customer loyalty index for your business
4) Use this scoring to provide personalised, relevant communications and campaigns at the right time to the right customer
5) Continue to measure the CLI over time to analyse shifts and trends
Melanie Parker is a Director at Stream Loyalty, a UK-based Loyalty Service Provider with clients in England, New Zealand, Australia, France, Spain, Italy, Germany, Switzerland, Canada and the US. She is a Certified Loyalty Marketing Professional and frequent contributor to The Wise Marketer.
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