Customer loyalty enables businesses to recover faster

A resurgence of the epidemic in some countries where it was previously under control.

September 29, 2020 – Businesses with more loyal customers are adapting to the pandemic better and are well placed for the recovery, according to Visa's latest data. Leveraging anonymized global transaction data across millions of merchants accepting Visa cards, we found that merchants who had a greater share of sales coming from repeat customers prior to the pandemic recovered faster on average once the lock-downs were lifted. Businesses that depend on attracting new customers to maintain revenue growth are more exposed to the downturn.

This big data-driven measure of customer churn helps underscore that loyalty matters to the bottom line. Globally, businesses in the top quartile by customer loyalty were 9 percentage points more likely to remain open and experienced 17 percentage points higher sales transaction growth relative to their peers ranked in the bottom quartile through the end of August.

Highlights

  • Repeat customers account for a greater share of sales in certain merchant categories
  • Brands can help boost customer retention and merchant performance
  • COVID-19 Economic Impact Index
  • Regional recovery updates
  • Cross-border travel
  • A resurgence of COVID-19 is putting pressure on businesses again

Repeat customers provide a solid basis for recovery

From Sydney to Johannesburg, consumers frequent a narrower set of businesses when shopping for groceries but a wider set when eating out or traveling. Customer loyalty, (measured by the share of sales generated by repeat customers) tends to be higher in everyday spend categories such as quick-service restaurants (QSR) and lower in more discretionary categories such as electronics retailers.

The degree to which businesses are able to maintain a sticky customer base can also vary widely within the same industry. Across 35 markets studied, for instance, Finnish consumers were most loyal to their grocers, while Vietnamese shoppers were the least. Differences in customer loyalty matter; other studies have found firms with more loyal customers have better revenue growth, and are more profitable.

More loyal customers speed the recovery across merchant types

During the current pandemic, the benefits of having a more loyal customer base have become readily apparent, especially in the food service industry. Quick services restaurants (QSRs) in the top quartile of customer loyalty (e.g. having the highest share of sales from repeat customers) outpaced those in the bottom quartile in terms of year-over-year (YoY) card transaction growth by as much as 44 percentage points.

QSRs are not the only category where higher customer loyalty leads to better revenue outcomes. Across all categories, merchants with high customer loyalty had a 17 percentage point advantage over those in the lowest tier of customer loyalty. Even in lodging—one of the worst-hit categories—firms with more loyal customers recovered about 5 percentage points faster. The wider gap in QSRs as opposed to other merchant categories could be linked to the additional challenges faced by restaurants due to public health mandates and more people working from home.

Power of brands – the case of restaurants

Customer loyalty clearly drives the franchise value of businesses, so what attributes can help predict a merchant’s success in securing such loyalty? The power of a global brand, for one. In a sample of all restaurants that managed to remain open in August, well over half of multinational brands had high customer loyalty scores in 2019, compared to just one in four for their local-brand counterparts.

Economic research suggests that consumers' propensity to visit new retailers increases with income as they spread their spending away from chain stores towards more boutique shops and independent restaurants. As household incomes recover from the pandemic, businesses that have invested in building their brands and customer loyalty will be better positioned to capture returning consumers.

Restaurants by brand and customer loyalty*
(Percent of total still operational in August 2020)

Bar chart comparing open restaurants in August 2020 by brand and customer loyalty. See image description.

A bar chart comparing restaurants still open in August 2020 by their brand and customer loyalty scores in a 2019 study. Most global brands (64%) that managed to stay open in August had high customer loyalty scores, while the majority of the non-global brands had only a medium (53%) or low level (22%) of customer loyalty.

*A merchant brand is classified global if it had non-trivial domestic sales transaction activity on Visa cards in at least three different countries in 2019. A merchant’s customer base loyalty is measured using a metric that replicates the churn index first described in the Baker, Baugh and Sammon National Bureau of Economic Research (NBER) study that measures the persistence in the share of annual revenues generated by the merchant’s repeat customers from the previous year. A merchant is classified as high customer loyalty if it is within the bottom quartile by its churn score among the firms within the same country and segment. Analysis covers 35 representative countries across the world where Visa has significant presence.

Sources: Visa Business and Economic Insights, VisaNet, Baker, Baugh and Sammon (NBER study).

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