Loyalty Index - Meaning & Definition

Published in Marketing and Strategy Terms by MBA Skool Team

What is Loyalty Index?

Customer Loyalty Index is a tool to measure, calculate and evaluate customer loyalty. In order to understand the where to focus the efforts to improve customer loyalty, companies need to measure it. Thus to improve a function or result, an index known as loyalty index is followed to analyse the constraints in customer loyalty.

Loyalty can be measured by using the customer loyalty index by analysing the consumer behaviour, positive references and repetitive purchases. It is important to maintain and strengthen the relationship as acquiring new customer is more costly than retaining them. Thus Loyalty Index is a standardized tool which helps to track customer loyalty over a period of time.

Customer Loyalty can be evaluated by:

1. How much a product or service is being recommended to others: Extraordinary confidence makes the customer recommend the product to others. Thus it amplifies the value of the company.

2. Customer Retention: Future purchase of the product. Even the customer uses other products of the same brand.

Loyalty Index Advantages

1. Customer loyalty can be tracked overtime due to standardization.

2. Comparison to competitive products helps in benchmarking against the industry standards.

3. Finds weakness of the brand. Identifies focus areas to improve brand loyalty and key grievances of customers.

4. Helps to identify the cost which customers are ready to incur in order to gain the product and services.

5. Customer preferences and insights about market trends.

6. Right offer to the right customer at the right time can be facilitated.

7. New product success can be predicted by the market sentiments.

8. Right products can be delivered by innovation and market research.

Methodology of Loyalty Index

Objectives and scope of the Survey should be well defined.

14 question framework should be used for the survey questionnaire

Online survey can be conducted

Loyalty metric-Predictive loyalty Index can be used

Root cause analysis in order to identify the gaps.

Hence, this concludes the definition of Loyalty Index along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

Browse the definition and meaning of more similar terms. The Management Dictionary covers over 1800 business concepts from 5 categories.

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