What is Customer Engagement, and Why is it Important?

September 5, 2017
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It feels like every other article I write refers to the idea of “customer engagement”, and when you look around the web you quickly notice 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 their brand experience.

customer engagement hard to define

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 hope to answer these questions for you once and for all, and since there’s no time like the present, let’s get to it!  

 

What is the Definition of Customer Engagement?

Like most definitions, different people describe “customer engagement” as different things.  I understand that probably doesn’t give you a lot of confidence in my writing this article, but just 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 greenberg quote

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 wikipedia quote

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 peterson quote

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.

customer engagement effort and value

That being said, there is one aspect that I disagree with Eric on.  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, I’ve come up with what I think is the most accurate definition of customer engagement:

customer engagement mceachern quote

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 Should You Care About Customer Engagement?

Customer engagement is a huge concern for a lot of businesses.  If you spend any time on business blogs or attend conferences, you probably already deduced this but in case you haven’t, a 2014 study by McKinsey & Company can confirm it.  This study, 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? While a link between a customer’s satisfaction and profit has existed for quite some time, the hard data around customer engagement is still in the works.

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. 

customer engagement profits rely on 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.

customer engagement numbers and 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.

So let’s take a look!

 

Does Customer Engagement Influence Customer Loyalty?

In a word, yes!  Aimee Lucas of the Temkin Group claims that “customer engagement is highly correlated to customer loyalty.”

As I alluded to above, 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.  

customer engagement loyal customer definition

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 their preferred brand.

customer engagement psychology CTA

 

How Do You Calculate eCommerce Customer Engagement?

We originally embarked on this journey to figure out how to effectively calculate customer engagement and now with the connection between engagement and loyalty established, it’s time to put it all together.   

This calculation starts with identifying all of the ways your customers can measurably engage with your brand.  This could include (but isn’t limited to) the following:

  • Customer account logins
  • Purchases
  • Social shares
  • Net promoter score
  • Page views per visit
  • Number of visits per year
  • Email open rate
  • Submitting user generated content
  • …and so on

Pretty overwhelming, right?  Gathering dozens of these metrics and trying to evaluate overall customer engagement is pretty difficult, but don’t worry - I have another solution!

customer engagement combine one metric

Instead of looking at all of these components of customer engagement, the best approach is to combine them all into a single metric. This will give you a single, easy to understand measurement to show you relative changes in customer engagement.

There are a number of different ways to do this, but my favorite is definitely Eric T. Peterson’s. His method is really useful because most of you reading this will already have the component metrics required. Furthermore, if you can’t gather a certain component metric, you can simply remove that component and his metric will still be usable.  

customer engagement calculator

To summarize, a customer’s engagement score is the sum of their:

  • Click-depth index (Ci)
  • Recency Index (Ri)
  • Duration Index (Di)
  • Brand Index (Bi)
  • Feedback Index (Fi)
  • Interaction Index (Ii)
  • Loyalty Index (Li)
  • Subscription Index (Si)

While this model doesn’t use purchase data, it’s still a highly effective way to calculate and monitor how engaged your customers are with your brand.

I won’t get into the full intricacies of how to calculate this because Peterson’s already written a really fantastic article on how to use the formula to understand your brand’s customer engagement.  And don’t worry if you don’t recognize all of the terms listed above - Peterson does a great job of describing them all in his article.

 

 

Putting Your Customer Engagement Rate to Work

The final piece of the customer engagement is what to do with it.  Being able to define it, understand why it’s important, and calculate it mean nothing if we can’t actually apply it.  

customer engagement recommendations

With that in mind, I’ve come up with six practical recommendations for how you can incorporate this important metric into your day-to-day business strategy:

  1. Determine which forms of customer engagement you have data for right now.  Depending on your business, some of the engagement styles we talked about earlier might not apply.  Critically assess your business and choose the methods that affect your business.

  2. Build your own, custom metric-based engagement formula in a similar fashion to how Eric Peterson describes his own calculation.  Remember, you don’t need to use all of the metrics listed to successfully calculate your engagement rate.

  3. Include your customer engagement score on the list of other key performance indicators you currently report on.  This will help incorporate it into your day-to-day data analytics and help inform the rest of your data.

  4. Correlate your customer engagement to your business profits using regression and cohort analysis.  Regularly compare the two metrics until you can see a correlation, even if this correlation is delayed.  Cohort analysis is very important to this process, so make sure you understand how each of your customer groups are interacting with your brand!

  5. Continue to iterate and fine tune your metric until it is reasonably correlated to profit.  This process is what will give you the best idea of how your brand’s customer engagement informs your overall profit.

  6. Use your results to justify investing in customer engagement.  When you can see how engagement is directly correlated to your profit, you’ll be better equipped to create happy, loyal, engaged customers who are profitable.

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.

I think that just about covers it, don’t you?

customer engagement rewards right for you CTA