What is Customer Loyalty Ladder and how to use it to Target Customers?

In today’s competitive market, businesses strive to climb the “Customer Loyalty Ladder”. This concept is more than just a marketing strategy; it’s a journey towards creating a community of loyal customers. By nurturing customer relationships and focusing on brand loyalty, businesses can enhance their growth dramatically.

There are two facts about customer acquisition and customer retention most commonly referred to in the marketing world.

• It takes at least 30 times as much marketing budget to attract a new customer via traditional forms of advertising as to re-attract a repeat customer.
• Most business owners spend less than 5% of their marketing budget on their existing customers but they spend 95% of their marketing budget trying to find new customers.

Even though the current society has continuously developed during the last twenty years with the customer being at the center of attention in the business sector, most of the companies still do not acknowledge their power. In order to help them understand the value of the customer’s loyalty as well as the relevant processes in gaining their loyalty, researchers have come up with the concept of the customer loyalty ladder, also known as the branding ladder.

What is Customer Loyalty Ladder?

The Customer Loyalty Ladder is a marketing concept that illustrates the progression of a customer’s relationship with a company, from first-time buyers to loyal, repeat customers. It comprises various stages – Suspect, Prospect, Customer, Client, and advocate each reflecting the increasing degree of customer loyalty towards the brand.

Let’s understand this with an example of a coffee shop:

• A suspect is someone who drinks coffee but has never visited this particular café. They’re a potential customer, but at this point, they have no connection to this shop.
• A prospect is someone who has visited the shop, maybe because they were in the area or a friend brought them. They have experienced the café, but they have not yet formed a pattern of choosing to come here regularly.
• Once that prospect makes repeat purchases, they become a customer. They’ve consciously chosen to return and enjoy the shop’s offerings. At this stage, things like customer feedback and effective customer service efforts are crucial to move them up the ladder.
• A client is a regular customer. They visit the café frequently, choose it over competitors, and may even start participating in a loyalty program. They feel a connection with the café and consider it as their regular spot.
• The final rung on the ladder is the advocate. They love the café so much that they actively recommend it to others, effectively becoming a marketer for the business. They have a strong emotional connection to the brand and are truly loyal customers.

Five Stages of Customer Loyalty Ladder

Basically, the customer loyalty ladder involves five main stages based on the customer’s interest in the company or the product.

1) The suspect

The first customer loyalty ladder includes anyone who reads or hears an ad, takes a look into a brochure, or encounters some other type of promotion. Basically, anyone who has seen an advertisement or has been in touch with the company.

2) The prospect

This category involves the people who actually pay attention to the promotion provided by a company. They are the second and possibly, from a sales point of view, the most important customer loyalty ladder because these prospects later on become customers.

3) The customers

They are the actual customers, meaning the persons who actually make a purchase from the respective company, either a product or a service.

4) The client

This is a more developed segment than the previous one, as it represents a customer who buys for the second time. This can be achieved only when the service given by the company is as per the customers’ expectations.

5) The advocate

It represents a customer who gives unpaid advertising for the products or services of a company. Word-of-mouth marketing is mainly done through advocates of the company.

Why is Customer Loyalty Ladder Important?

The Customer Loyalty Ladder is an essential tool for developing a loyal customer base and fostering customer loyalty. It provides a framework to understand the customer journey and the stages through which a potential customer can become an advocate.

• Helps in identifying potential customers
• Useful in creating effective loyalty programs
• Increases customer lifetime value
• Assists in converting customers into advocates
• Enables the business to gain extremely loyal customers

How do Five Stages of Customer Loyalty Ladder Work?

Between these five categories of segments, there are several actions that help the business to acquire customer loyalty. Between the customer loyalty ladder of the suspect and the third stage of the customer, a business has to be able to put its efforts into reaching the market and converting suspects into customers.

While the customer segment implies the making of the actual sale, between the customer and the advocate a business has to be able to develop the relationship with the already existing customer. Thus, even the customer loyalty ladder can be divided into two stages. The stage 1 to 3 are customer acquisition and the stage 4 to 5 are customer retention and actually develop the customer loyalty.

The error that most companies make is that they invest more in attracting new customers in the first stage, rather than keeping the already existing customers satisfied and happy. A good marketing company should invest at least 30% of its marketing budget in keeping the customers and clients happy. Therefore, the purpose of the described concept is to help businesses to invest in developing satisfied customers.

In order to be able to do this, businesses need to be able to identify and analyze which customers belong to which stage of the customer loyalty ladder. Likewise, they need to understand the fact that their best customer is the most recently satisfied one, as well as, the best word-of-mouth advertising comes from the same source (the most satisfied customer). Finally, businesses have to acquire the skills which allow them to act in a way that moves people up the ladder.

The most important rule in succeeding in climbing the customer loyalty ladder consists of exceeding customer expectations. This can be realized by increasing the quality of service, an action which can increase both customer loyalty as well as employee retention.

FAQs

How to Measure Customer Loyalty?

Customer loyalty can be measured by analyzing customer behavior, such as the frequency of purchases, amount spent per purchase and website visits. Additionally, customer feedback on product or service should also be taken into consideration when measuring customer loyalty. Surveys are a great way to get direct feedback from customers about their overall experience with your company.

What is Increased Customer Lifetime Value?

Increased Customer Lifetime Value is the amount of profit that a customer generates over their lifetime with your company. This can be calculated by taking into account the number of times customers purchase from you, as well as any referrals they have generated. A higher customer lifetime value indicates improved business performance and increased profitability.

How to create experiences to convert customers into brand advocates?

Creating experiences to convert customers into brand advocates requires businesses to develop a deep understanding of their target audience and their needs. This can be done by gathering insights about customer preferences, collecting feedback and using this data to inform strategy decisions. Additionally, providing incentives such as discounts or rewards can go a long way in inspiring loyalty from customers. Finally, creating an engaging user experience that provides an easy way for customers to interact with your brand is integral to fostering customer loyalty.

How do you create a Customer Loyalty Ladder?

Creating a customer loyalty ladder requires businesses to identify key milestones in the customer journey that signify an increase in loyalty and engagement. To construct the ladder, businesses should design “levels” of rewards based on these milestones. Each level should offer increasingly valuable rewards and incentives to foster customer loyalty, such as exclusive offers or discounts. Additionally, businesses can use gamification elements such as badges or points to acknowledge customer loyalty and increase engagement. By offering incentive-based rewards, businesses can foster increased customer lifetime value while also creating experiences that convert customers into brand advocates.

What are the types of loyalty?

Loyalty building strategies refer to three types of loyalty like behavioral loyalty, attitudinal loyalty, and latent loyalty. Behavioral loyalty is measured by customer behaviour such as repeat purchases or brand advocacy. Attitudinal loyalty refers to the emotional connection customers feel towards a product or service and their likelihood of recommending it to others. Finally, latent loyalty is the level of customer retention and long-term engagement.

Liked this post? Check out the complete series on Customer Management