Why Loyalty and Retention are Not Synonyms

There is a reasonable amount of confusion about loyalty and retention, but the two are not the same. Loyalty is personal and emotional for your customer, while retention is how your company measures its ability to retain customers over time. One is external to your business; the other is internal.

What’s the big difference?
Customer loyalty is the emotional relationship a customer has with your brand. That connection is what drives repeat purchases – which is measured as retention. Loyalty is a primary reason why a customer would stay with you rather than switch to a competitor. It takes years to build, yet it’s easy to destroy.

A company’s profit and growth are driven by loyalty, which is a direct result of customer satisfaction. Keep people happy, and you’re much more likely to keep them as customers. Responding to feedback quickly and effectively is a key step in becoming customer-centric.

Retention is the percentage of customers who stay with you at renewal or purchase time. While retention is an important metric to track, focusing solely on this financial measurement leaves behind the human factor. You lose the ability to become customer-centric.

What do the top brands focus on?
If your organization wants to become customer-centric, you need a strategy for building customer loyalty. This is one of the primary goals for launching a Voice-of-the-Customer (VoC) program. A good VoC initiative will capture what your customers are saying. A great one will take the next step and allow you to respond to your customers quickly. This will build more loyalty than most reward programs.

Your VoC program should go hand-in-hand with building a superior customer experience. This will allow you to deliver upon your brand promise and bring value to your customers.

What’s the challenge with loyalty programs?
Loyalty programs are one method for bringing value to your customers. However, to be successful, they need to deliver upon your brand promise and build positive customer experiences. A great loyalty program can often cover potential losses during tougher times because loyal customers will remain customers.

However, far too many companies focus on loyalty program promotions, which are expensive and don’t create a customer experience that drives true loyalty. Most are purely financial or transactional. Shifting your focus away from running promotions and specials to creating customer experiences that drive the loyalty you want will deliver the retention you need.

For example, it’s very common for business travelers to be loyal to one brand of hotels or airline. They typically become loyal to a brand over time, through trial. The brands that won had the best customer experience and service. This is how the emotional connection was made.

How do you measure loyalty?
Loyalty metrics depend upon your business, your product, and your customer base. It’s typically not a single metric. You need to decide as a business how you will benchmark and track loyalty.

  • Net Promoter Score is among one of the most used metrics for customer loyalty.
  • Brand Engagement is another score, such as website visitors, organic reviews (not paid), and social media engagement (again, organic, not paid).
  • Product Usage metrics are also a way to measure loyalty. If your product is used daily, people are engaged and probably not likely to change.
  • Renewal Rate or Retention is a metric of loyalty. If you have loyal customers, they are more likely to renew over and over again.
Are happy customers loyal customers?
In a word, yes. Deloitte report shared that customers who enjoy positive experiences are likely to remain customers for five years longer than customers who had negative experiences.

To build loyalty, set a business goal of building a loyal customer base by focusing on delivering quality products or services. Nothing kills customer satisfaction faster than bad quality.

Empower your customer-facing employees so they can provide superior individual customer experiences and build a personal connection between your brand and your customers. Companies like Disney and Starbucks do this extremely well.

The most undervalued aspect of building customer loyalty is keeping your employees happy and engaged. If a customer talks to a happy employee, it rubs off. The same applies in reverse.

Convenience is also underrated. If you make it inconvenient to do business with you, people will go where it’s easier. For many restaurant chains, this means being everywhere. For many businesses, this means being available when people have questions.

You have to build loyalty in small steps, which takes time. Start by listening to your customers on how you can improve their experience. Then use those signals to identify the steps to take to move towards building loyal customers.

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