The Loyalty Loop
The Psychology Behind Customer Loyalty
5-6 minute read
TLDR version: Loyalty functions like a habit loop. Once a company consistently meets a customer’s needs, that customer instinctively returns without doing much, if any, research when the same need arises again. The most successful companies in the world achieve high retention and loyalty because they reliably fulfil the majority of their customers’ needs.
Sustained loyalty is a balance, where the goals of the customer and the business are entwined to create a happy medium, where both parties experience consistent value.
What Makes Us Buy?
Understanding the initial drivers behind a customer's decision to engage with your product or service is crucial for fostering long term loyalty. Every purchase stems from one of two fundamental motivations:
Solve a Problem
Customers often seek solutions to functional issues. This could be anything from needing faster transportation, more efficient tools, or a way to streamline complex tasks. These purchases are about practical utility centered around cause and effect.
Satisfy an Emotion
Beyond utility, many purchases are driven by emotional desires. Whether it's the pursuit of status, a sense of belonging, increased confidence, or pure joy. Products that resonate emotionally forge deeper connections and scratch an itch that we want to buy.
When a product or service successfully addresses both functional and emotional needs, it significantly increases the likelihood of not just a sale, but also sustained customer loyalty.
3 main reasons your customers buy from you
You may have the world's best product that can solve all of their problems, but they won’t purchase unless they can be convinced that you can provide value with little to no risk. The more that a company is able to remove doubt, disappointment or friction within our lives, the more we see them as the default choice. Familiarity becomes safety (I know what I'm going to get), and safety becomes loyalty (repeat returns).
Certainty of an outcome
This is going to solve my problem.
Certainty of effect
This should have immediate impact in the areas i expect.
Certainty of experience
This will be an easy and smooth process.
If these 3 conditions are met, it will create a repeat customer. That repeat return activity is a behavioural habit loop, which is disguised as brand preference, a form of habit which is deeply tied to loyalty. Habits are formed in the buyers journey, and if the post-purchase experience delivers on expectations, it can create a loyalty loop.
What is a Loyalty Loop?
Aside from being an incredible newsletter (shameless plug), The Loyalty Loop was first presented by McKinsey in 2009 as the moment a customer instinctively returns to a brand, bypassing the traditional buyer's journey of consideration and evaluation. It's a psychological shortcut, a 'mental fast lane' formed when trust, value, and reward align. Instead of searching for alternatives, the customer thinks, 'I'll just buy from them again.' This habitual return is the essence of brand loyalty.
Once a habit is formed, it follows a predictable looping pattern until something changes that breaks the loop.
The Habit loop
Charles Duhigg built on existing behavioral research in his book The Power of Habit, presenting routines as simplified behavioral mechanics. Loyalty is about delivering enough value that your brand becomes the default option when customers face a need.
If your company becomes the go-to solution in a customer’s routine, the barrier to retention is much lower, thanks to the trust established by that initial purchase.
Redbull- The energy company
They occasionally sell drinks
RedBull is a prime example of a company that has mastered habitual loyalty, but not by selling drinks, but by selling energy. Most people who have have drank a redbull, likely haven't enjoyed it initially, but they drink it for the effect that it provides.
RedBull cleverly positions its entire brand and marketing around high octane, intensive energy activities to emphasise energy without the need to highlight anything about the taste.
With so many energy drinks on the market, RedBull has cemented itself as the go-to solution by the first name when customers think of energy drinks.
What causes customers to change?
#1 - Price
It's often argued in sales that price is only an issue in the absence of value. This is often not the argument that customers want to hear when they hear that the price for services are going up. When knockoffs and cheaper services are on offer, businesses have to find ways to stand out in order to have loyal customers.
Products or services that constantly develop or provide exceptional value are questioned less when their prices are raised.
If companies are consistently providing value, then customers are less inclined to go through the buyers journey to establish a new replacement. If the switching cost or the switching experience has too high of a barrier, most customers are inclined to stay with their existing solution.
Related: The EU Data act recently has been enforced to decrease the efforts of switching to other providers. Read more here.
#2 - Essential vs discretionary
When was the last time that you changed out your milk or shampoo?
Essential items are afforded the most brand loyalty as they are the most frequently consumed and were the first solution that solved the initial problem. If your favourite brand gets the job done and constantly delivers on value, why bother switching?
However, for larger and less frequent purchases, shoppers are more interested in exploring alternative options and the additional features on offer. The more similar those products are at solving the initial problem, price then becomes the final factor.
Do you create habits?
Have a look over your existing onboarding and post-purchase structure and see how you engage with your customers.
Pro tip: Don't send customers a discount instantly in a follow up email. That sets the tone that you're willing to discount your services and builds the expectation for reduced prices for every purchase moving forward.
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Customer loyalty isn't voodoo magic, it's a simple equation that can keep customers coming back time and time again. In The Loyalty Loop, we'll send you a monthly guide about how you can retain your customers longer, get them paying more, and actionable tips to improve loyalty.
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