What is Customer Engagement, and Why is it Important?

September 7, 2018
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Editor’s Note: This post was originally published in September 5, 2017 and was updated for accuracy and comprehensiveness on September 6, 2018.

 

It feels like every other article I write refers to the idea of “customer engagement,” and I’m not the only one.  Cyberspace is littered with generic advice on how to drive “omnichannel customer engagement” or squeeze more “meaningful customer engagement” out of your brand experience.

Customer engagement is a term that can be difficult to define and even harder to calculate.

With so many people talking about it, you’d think there’d be more hard facts to point to.  

However, while everyone has heard of it and acknowledges that it’s important, there doesn’t seem to be very many articles that are actually useful or actionable.  In fact, a lot of these posts just bring up more questions, including: 

  • What exactly is customer engagement?
  • Why should we even care about this buzzword?
  • How can you actually measure it right now?

Today’s the day that I answer these questions for you once and for all.

 

Defining customer engagement

Like most definitions, people describe “customer engagement” differently.  I understand that probably doesn’t give you a lot of confidence in my writing this article, but hear me out.  By looking at a bunch of different definitions, we’ll actually get a better understanding of all of the intricacies wrapped up in the term.

Here are a couple of my favorite definitions.

"Customer engagement is the ongoing interactions between company and customer, offered by the company, chosen by the customer."
Paul Greenberg (for HubSpot)

What I like about this definition is that it includes the customer choosing to interact with the brand. This is a significant differentiator that indicates a certain level of emotional investment.  

This is why promos promising the chance to win a free iPad with no purchase required shouldn’t count towards engagement.  At the very least, these promotion-inspired interactions should count as a lesser form of engagement since without the promo, many customers wouldn’t voluntarily engage.

"Customer engagement is the engagement of customers with one another, with a company or a brand."
Wikipedia

While I find most of this quote to be too generic, there is one element that I like: including customers engaging with each other. Most definitions of customer only include the customer interacting with the company, but this is only one side of the story!

A customer doesn’t necessarily need to engage with just the brand in order to be an engaged customer. If customers are engaging with each other, it should count towards a brand’s customer engagement as long as the topic of their engagement is focused around the brand.

"Customer engagement is an estimate of the degree and depth of visitor interaction against a clearly defined set of goals."
Eric Peterson (How Do You Calculate Engagement? Part II)

I particularly like Eric’s definition because it alludes to the fact that engagement can have a magnitude. In layman’s terms, certain engagements are more involved than others. While both a Tweet and a video testimonial are forms of engagement, the video testimonial is certainly a sign of higher engagement because of the effort needed to create it.

Certain forms of customer engagement require more effort than others, making them more valuable.

That being said, based on everything I know about customer and brand relationships, I don’t think there needs to be a “clearly defined set of goals” in order to have customer engagement - it’s happening whether you set goals or not.

With these three favorite definitions in front of us, we can began to piece together our own understanding of what it means for customers to be engaged.  Combining each of these ideas, Smile has come up with what I think is the most accurate definition of customer engagement:

"Customer engagement is the degree and depth of brand-focused interactions a customer chooses to perform."
The Smile Team

I think this definition does the best job of covering all the bases. Note that I don’t specify engagement as being with the brand specifically.  Instead, this interpretation leaves it open to be with other customers, the brand itself, or anything else you can think of.

Now that we’re on the same page for what customer engagement is, we can begin to dissect what it means and, more importantly, the impact it has on your business.

 

Why you should care about customer engagement

Customer engagement is a huge concern for any business.  A 2014 study by McKinsey & Company, titled “The Digital Tipping Point”, stated that C-level business executives rate customer engagement as the top strategic priority for all business initiatives.

customer engagement mckinsey data

Based on their data, we can see that customer engagement is clearly a priority for decision makers in an organization, but why?

 

There are some other studies that try to take McKinsey & Company’s results a step further. Hall and Partners’ “Engager” model, for example, shows that up to 2/3 of a brand’s profits may rely on effective customer engagement. 

Up to 2/3 of a beand's profits might rely on effective customer engagement.

Ray Wang of Constellation Research also took a stab at it, claiming that they “…see companies who have improved engagement increase cross-sell by 22%, drive up-sell revenue from 13% to 51%, and also increase order sizes from 5% to 85%.”

With these stats at hand, we can begin to see a direct correlation between a business’ profitability and their customer engagement, and understandably so!  If customers are interested in what your brand is doing, they’ll be more likely to engage with you in the form of purchases. Therefore, all of these studies seem to check out.

A successful business relies on both hard numbers and customer engagement.

However, this isn’t where the benefits of customer engagement end.  The success of your business is based on more than just numbers - it also strongly relies on your customer’s loyalty, and as a retention specialist I think it’s only natural for me to wonder how engagement and loyalty go together.

 

How customer engagement impacts customer loyalty

Aimee Lucas of the Temkin Group claims that “customer engagement is highly correlated to customer loyalty.” 

This is extremely intuitive.  It stands to reason that customers who are more engaged with a brand should be more loyal.  Loyal customers can be defined as those who choose to continue engaging with a particular brand, regardless of the competition. These customers choose to continue engaging with you because of how your brand makes them feel and how they feel as a result of engaging with you.

Loyal customers choose to engage with a particular brand, regardless of the competition.

This engagement is often defined by a number of different actions, including purchases, social sharing, and referrals. Through word of mouth marketing and repeat purchase behavior, these customers are vocal brand advocates who look forward to any opportunity to interact with your brand.

Each of these actions indicate that a customer wants to be a member of your brand community. As a result, focusing on how to deepen the relationships you have with those customers is critical to your ongoing growth and success.

community building guide icon
A dynamic brand community is the best way to keep your best customers engaged.
Learn how to build a community with rewards that inspires strong customer loyalty with our free guide.

How to calculate customer engagement

Measuring your customer engagement is intrinsically tied to the strength of your brand community. As a result, there are a number of metrics you can keep an eye on to see how healthy your brand’s customer engagement is:

  • Guest checkout rates — the fewer guest checkouts you have, the more customers are creating an account at your store and joining your community
  • Purchase frequency — a higher purchase frequency means customers are returning and engaging with your store more often
  • Average order value — an increase in average order value indicates that customers are developing emotional connections with your brand and are choosing to stay loyal as a result
  • Customer lifetime value — the emotional connections customers build with your community will translate into a higher financial commitment over time
  • Churn and retention rates — the lower your customer churn rate, the more committed customers are to staying engaged with your brand community

If you’re looking for more info on any of these metrics, we’ve dedicated an entire post to them!

When you include these customer engagement metrics in your list of other key performance indicators, you make it an important piece of your brand’s day-to-day analytics. These metrics will then help inform the rest of your data and give you the insight you need to continue to iterate and fine tune your community experience.

I hope that you now have a better idea of what customer engagement is and the significant impact it can have on your business.  With this information at your disposal, you’re equipped to define a business strategy that will bring you and your store long-term success and an increase in customer engagement.

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Easily boost customer engagement with a strong brand community.
Investing in your brand community allows you to give back to your most loyal customers. Find out how to easily improve your own with our free guide.