The small business guide to building customer loyalty

Customer matters

18 January 2017

With Tesco sales in 2018 and online giant Amazon the fifth biggest retailer in the country, small retailers need to be more innovative than ever in the battle to entice customers away from big brands.

So with customer loyalty becoming more important than ever before, how can small retailers compete? It all comes down to the 80/20 rule. Also known as the Pareto principle, the idea is that 80% of your sales come from just 20% of your customers. With that in mind, utilising the unique selling points of your small business could be vital to keeping this segment of your customer base happy.


Customer loyalty for small businesses explained

According to the Harvard Business Review, loyalty is about emotion first and behaviour second. Loyalty can be split into two categories:

  1. Earned loyalty:when the customer goes out of their way to shop with you because you align with their values, offer exceptional service and (most importantly) they like your products.
  2. Bought loyalty:equally important, this is when customers return because you reward them for doing so.

So how do small retailers go about using emotion to cultivate customer loyalty in a market where big brands dominate?

In this guide, we’ll look at the methods you could adopt to turn customers into brand advocates by exploring different types of loyalty, which retailers are leading the pack, and how you could take influence from some of their tactics to set your small retail business apart. 


Develop a brand identity

Why it works

Your brand identity is how customers see your business. It's reflected in all the visual elements of your business like your company’s name, logo, tagline and marketing materials. Brand identity is even reflected in the way you and your employees interact with customers.

On a practical level, a strong brand identity can:

  • Make you stand out by highlighting what makes you different from your competitors.
  • Add value by conveying quality, expertise and consistency in what you do.
  • Connect with customers by broadcasting an idea, personality and way of doing business that people identify with.

Who’s doing it well

Founded in 1998 by three college friends who initially struggled to find any investors, Innocent Drinks is now one of the Europe’s largest smoothie and juice brands, with annual sales of more than £350m. Innocent’s products are usually much more expensive than the competition, which  just goes to show how important it is to have a strong brand identity. Customers identify with Innocent’s unique story, quirky packaging and their distinctive tongue-and cheek tone of voice. 

How your SME can do it

Having a strong brand identity is so important for small businesses. When customers think about your product or service, you want your brand to be the first thing to pop into their head.

 To start building a brand identity, you’ll need to think about:

·         Design: The colours, fonts and imagery you’ll use to represent your brand. This could be marketing materials like posters, business cards and social media posts, or the look and feel of your shop or office space.

·         Tone of voice: The way you address your customers in writing and in person is really important. Your tone of voice should be professional, easy-to-understand and reflect your brand’s personality.

·         Customer journey: Consider how you engage with customers, how they purchase from you and the aftersales experience. The customer journey relates to how your customers find, engage with and use your business, in the physical and digital world.

·         Content and sharing: Blogs, social media and events are all effective ways to engage with your customers and capture their interest.


Get your small business online

Why it works

In March 2020, online sales accounted for 22.3% of all retail sales in the UK. With a strong online presence, small businesses can increase their product range and geographical reach.

Who’s doing it well

Digital banks are successfully disrupting the market by making it easy for people to manage their money online. GlobalData research shows that 28% of UK respondents are now willing to use a digital-only bank.

Monzo is one of the leading digital banks in the UK; owing its success in part to its online functionality and innovation. Taking the elements of banking that customers don’t like – having to visit branches with long queues and complicated processes – Monzo customers can do everything from the user-friendly app.

How your SME can do it

A website is one of the most powerful digital marketing tools and you don't need advanced tech skills to create one! With website builders like WordPress and GoDaddy, you can use their free templates to build your own professional website with just a few clicks.  

Social media can be another great way to have an online presence.  It’s one of the most cost-efficient advertising tools and you can use many of the platforms for free and pay a small amount to promote and target your posts. Social media is also the perfect opportunity to connect with customers and deal with any queries or complaints quickly and directly.


Become part of the community

Why it works

Building an emotional connection with your customers is perhaps the most important step in creating brand loyalty. That means aligning yourself with shoppers’ values. This is easy for niche businesses like the cruelty-free cosmetic company Lush, whose vocal opposition to animal testing makes it a popular choice for eco-conscious consumers. But for small local businesses, perhaps the best way to align with everyone's values is to think about community.

People tend to have pre-established emotional connection to their neighbourhoods – the parks, schools and local high street all being important aspects of their identity. A survey carried out by myHermes found that almost 55% of UK consumers shop with local, independent retailers once a week or more frequently. By positioning your store as the heart of the community, people who are passionate purveyors of their local high street could be more likely to form an emotional connection with your store. 

Who's doing it well?

Did you know that the Big Four supermarkets – Waitrose, Tesco, Sainsbury's and Asda – all have community champions who fundraise for local charities? The companies promote this through in-store votes on which charity should get the biggest chunk of money, using plastic tokens given to customers at the till. Customers are encouraged to return to the store to support their favourite local cause, and the money donated also has a positive impact in the area. 

How your SME can do it

You don't need the multi-million pound turnover of a huge supermarket to help out in your local community. If you do have some spare money, consider sponsoring the local school football team's uniforms. It could help you get the name of your shop out there and build loyalty by showing that you care about youth activities and sports in your local area.

Hosting weekly events in your store also positions you at the heart of the community and identifies your venue as a meeting point for neighbours to gather. It's also an opportunity to promote your products. For example, if you run a book shop, host a book group once a month, or if you run a gift shop you could organise an event where people can meet the artists.


Give your customers what they want

Why it works

Another way you could stay ahead of the competition is by using the feedback you receive in-store, online and via social media platforms to improve the products and services you offer. Not only could this show that you value your customers’ opinions, but also that you’re committed to making your product (which your shoppers are spending their hard-earned money on) the best it can be.

Who's doing it well?

Computer manufacturer Dell decided to utilise customer feedback via their Idea Storm website. This dedicated space gives customers the chance to suggest changes and updates to include in future models. As well as helping the company to develop their product into something their loyal customers really want, Idea Storm gives people the feeling that they're being listened to. It also creates a sense of anticipation about new and improved versions of their product before they are released. 

How your SME can do it

Social media is a great, free way of reaching out to customers and building a community feel online. Why not use social media to gauge customer opinion, or incorporate the feedback process into your community-building by inviting customers to exclusive events geared towards hearing their opinions? For example, clothing retailers could invite select customers along for a pre-season viewing or use their social media channels to ask shoppers which designs they'd most like to see in store. Similarly, grocers could offer samples of new produce from local farms and allow customers to vote on which ones they want to see on the shelves.


Deliver a memorable experience

Why it works

If customers actively look forward to coming into your store they'll be more likely to pop in, rather than order online. The basis of a good in-store experience is excellent customer service, short waiting times and (where possible) no out-of-stock products. But some retailers go above and beyond to really surprise and delight their customers. 

Who's doing it well?

Topshop's flagship store on Oxford Street has a range of interactive exhibits that offer shoppers experiences that they just can’t get when purchasing online. Recently they held an event in conjunction with Netflix to celebrate the release of Stranger Things 2, with themed rooms taking cues from the television series and a range of exclusive merchandise on sale. Pop-up specialist displays change frequently, so customers always have new reasons to go back to enjoy shopping experiences with added value. 

How your SME can do it

Keep it simple. Focus on your customer's five senses and how your premises can stimulate what they experience while they shop. Light background music has been shown to have a positive effect on the buying process, with customers likely to spend more money on impulse purchases when pleasant music was playing in store. The tempo can help set the pace as they wander around the shop, too. 

If you want customers to spend longer in your store, you could offer something to drink. This can be something simple, such as a glass of lemon water. They'll feel more relaxed and welcome, and are likely to stay until their glass is empty. Running a restaurant? Put on exclusive tasting nights where your most loyal customers can try out dishes from your new menu.

Whatever your plan of attack, make sure that these changes go above and beyond the typical shopping experience they expect.

Personalisation is key  - Consider the ways you can add more personal touches to the way you do business. Something as simple as sending a birthday card or a personalised email can help customers to build an emotional bond with your business and encourage them to return.  

Be transparent – Being transparent in business leads to trust, and customers buy from companies they trust. A  study published in Forbes found that 94% of consumers would be loyal to a transparent brand. In this Digital Age, customers want better communication and for companies to be honest when things don’t go to plan. If businesses don’t do this, customers will simply go to another business who does.


Give back to your best customers

Why it works

Loyalty is a two-way street and faithful shoppers need to be recognised. Coming back to the Pareto principle, rewarding the 20% of your best customers for their dedication to your business could help turn customers into brand advocates. If they have reward points to spend with you, why would they shop anywhere else?

Who's doing it well?

Cafés and restaurants lead the pack on loyalty schemes. Nando's have the Nando's Card, which gives frequent eaters bigger and better rewards the more they return. Starbucks Rewards goes one step further by personalising the rewards – customers are given discounts on their favourite orders as well as exclusive early access to new products. A free coffee here and there makes little difference to Starbucks' bottom line, but has a huge impact on customer satisfaction. 

How your SME can do it

Give your customers a reason to come back by using a similar loyalty scheme. Offer them a gift if they come in on their birthday, money-off vouchers on new products or free treats when they achieve a certain number of stamps on their card. 

Food is the way to the heart, so offer your shoppers snacks and drinks while involving them in a prize draw, or reward your most loyal repeat customers with one free food basket of your best produce. Ask your customers for their consent to use their email addresses in competitions and other marketing newsletters or emails – a good way to re-engage your most loyal customers in the future while securing information for remarketing.


Today’s consumers are savvier than ever before and many won’t hesitate to switch to other brands to get the best deal. That’s why establishing and maintaining customer loyalty should be a paramount concern of small businesses in their battle to woo shoppers away from larger rivals.


Protect the hard work you've put in to make your business stand out

Whether you’re based at home, online or on the high street, setting your business apart from your competition is crucial. With AXA’s tailorable contents insurance for retailers, you can focus on standing out from the crowd, knowing you’ve got the cover you need.