Crucial Distinction Between Loyalty And Retention

‘Loyalty’ and ‘retention’ are often used interchangeably undermining their key strengths. One is about customers wanting to stay with your brand and the other is about customers having to stay with your brand. The marketing objectives are therefore very different.
Definition Customer Loyalty
Customer loyalty measures something more than satisfaction — it measures whether someone is willing to put their name on the line and recommend your product or service to others or if they are willing to stick with your product/service in spite of an occasional poor experience.
It is the function of 3 specific customer behaviours:
- Customers continue to buy from your company.
- Share of Wallet. Customers buy more from you rather than your competitors over time.
- Customers promote your company to the network
Viewed in this context, loyalty is driven by the customer and clearly customer experience is key — the customer has to want to stay with your company.
Definition Customer Retention
Customer retention refers to the activities and actions companies and organizations take to reduce the number of customer defections. The process may be used to retain or ‘lock in’ customers so that they repurchase and/or don’t purchase from your competitors. In other words, the customer has to stay with your company.
The Difference between Loyalty and Retention
Retention is a measure of whether an existing customer continues to do business with you. Loyalty measures a customer’s predisposition to select a business entity as a preference, and indicates a certain resistance to competitors. Loyalty is a behavioral disposition that suggests that a customer will consistently respond favorably toward a brand/company, and also suggests the willingness to engage. This distinction is important. A customer who continues to do business with you may be retained, but not necessarily loyal.
The point of loyalty marketing programs is to grow the habits of a customer. To recognize the right behaviors and focus on the customer becoming more loyal results in a higher value customer for the business and higher value experience for the customer.
Retention marketing has to do with education, evaluation, and fit. It’s about the value the customer sees in the service. So many companies go wrong in using price reductions for retention. If the value is not established, it results in a temporary solution.
Why Loyalty is More Important than Retention
In this economy, customer retention is a great objective. But customer loyalty is even better. Why? Retention programs are often built on a financial transaction. Problem is, your value add to the customer is now about lower prices. Competitors can start to pick away your clientele simply by offering a better deal.
Much better is the day when you have loyal customers. The emotional bond you connect with the customers is not going to be broken when your competitors offers a bigger discount to your customers.
Doing Both
Companies should have both loyalty and retention campaigns working closely together as part of their marketing mix. Without these campaigns, businesses miss critical communication points that could result in bigger returns and long lasting relationships.
The goal of customer retention programs is to help companies retain as many customers as possible, often through customer loyalty and brand loyalty initiatives. Although it is unrealistic to say that every customer has the potential to be profitable and long-term, moving to a retention led strategy that eventually fosters loyalty is vital to your bottom line.