Customer engagement drives loyalty and the effective use of Web 2.0 drives customer engagement.

If you're like most marketers, you'll agree that loyalty pays. The statistics that a brand should focus on its most loyal customers are compelling:

• An increase of customer loyalty of 1 percent is equivalent to a 10 percent cost reduction (source: Bain & Co.)
• The probability of selling to a new prospect is only 5 percent to 20 percent while the probability of selling to an existing customer is 60 percent to 70 percent (source: Marketing Metrics)
• Customer loyalty accounts for 38 percent of margin, 40 percent of revenue growth and 38 percent of shareholder value (source: Accenture Research).

Despite these findings, a just released report by Strativity Group found that although respondents declare that customer loyalty strategies are more important than they were three years ago, a full 60 percent of senior executives claim they do not deserve their customers' loyalty! "Respondents honestly admitted that they are selling commodities and that their core value proposition does not merit customer loyalty," says Lior Arussy, company founder.

What should these executives be doing to deserve the loyalty of their customers?

Customer engagement drives loyalty, and effective (and judicious) use of Web 2.0 drives customer engagement. Marketers that embrace these technologies and integrate the new brand/customer dynamic into their strategies will engender the loyalty of the customers. And as Web 2.0 and social networking tools and technologies move even further into the mainstream, marketers that don't go down this road may be left behind, doomed to compete based solely on price.

Here are the four new laws of customer loyalty in today's Web 2.0 world: 

Loyalty Law #1: Drive community participation
Loyalty Law #2: Don't just talk to customers … listen. 
Loyalty Law #3: Meet customers' expectation of honesty.  
Loyalty Law #4: Reward your best users

Next: Loyalty Law #1: Drive community participation