Friday, April 9, 2010

Loyalty Versus Retention - Is There a Difference?

I noticed that the Irish Direct Marketing Association is hosting a conference on Loyalty and Retention. According to the news release there are a number of companies in Ireland that are trying to differentiate between customer loyalty and customer retention. The aim of the conference is to deliver clarity for the attendees on the difference between the two relationships, particularly with respect to marketing strategies.

This dilemma hasn't crossed the desk of The Customer Institute before, but it does raise an interesting question; namely, is there really a difference between customer loyalty and customer retention. Clearly there is no obvious answer, otherwise, there would be no need for a conference to discuss the issue.

With great hesitation, the following perspectives are offered without the imprimatur of academic certainty. It appears at first glance that customer loyalty has a greater reach than customer retention since many of those who support the concept of customer loyalty imply that the loyal customer brings word-of-mouth support of the company, its products and its services to other potential customers. On the other hand, customer retention appears to imply the customer will return (is being retained) but with no implied word-of-mouth component.

A simple definition of loyalty is "faithful to one's allegiance." The word retention comes from the root "retain" which is defined as "to keep possession of." These two definitions imply a very stark difference. Whereas loyalty seems to suggest that the connection comes from the customer, retention seems to come from the company. A customer becomes loyal for one or more reasons and chooses to return. On the other hand a customer is "retained" by the company. The retention can be in many forms without the need for physical restraint. The retention can come from special offers or preferential treatment.

The implications that can be drawn from these simple definitions are:
1. Customer loyalty comes from the customer and companies need to provide programs that build relationships with their customers (either heart or mind) that inspires them to return.
2. Customer retention comes from the company and is built on retaining a customer without the need for a change of heart or mind (becomes loyal). Retention then comes from providing incentives for the customer to return (is restrained from leaving) in the face of competitive actions.

The bottom line is the difference between loyalty and retention is much more complicated than this brief discussion and needs more study. The Customer Institute will continue to pursue these topics with the objective of discovering research that will provide quantitative understanding of these concepts with respect to customers.

52 comments:

Rags Srinivasan said...

Yes there is difference. But isn't that addressed by attitudinal vs. behavioral loyalty?
Retention can manifest itself as behavioral loyalty even though the customer may no attitudinal loyalty.
-rags
http://slidesha.re/b9YPvW

Edward04 said...

I have researched loyalty over the past 15 years and its a funny beast. The word itself is misleading. Loyalty suggests a human value, from human to human. Being loyal to a brand is different - it means you have extremely high repeat purchase rates, and proabably high positive attitudinal scores too. But if a truly new offering came along, would you potentially shift? Yes, you might, if the offering is right. Which makes it different from human loyalty. So I guess I would suggest word such as brand attachment rather than loyalty would be more accurate.

Dr. B said...

Rags,
Your comment has merit. Attitudinal does have an emotional content and behavioral does not require it. I am not yet willing to stop with these definitions. I would like to see some valid experimental evidence before drawing any firm conclusions.

Edward04 makes a good point as the levels of loyalty. By his response I believe he is examining loyalty in terms of its degree. His point is well taken - but that is the another topic to be considered at a later date

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Crumpliot said...

Rags, Your comment has merit. Attitudinal does have an emotional content and behavioral does not require it. I am not yet willing to stop with these definitions. I would like to see some valid experimental evidence before drawing any firm conclusions. Edward04 makes a good point as the levels of loyalty. By his response I believe he is examining loyalty in terms of its degree. His point is well taken - but that is the another topic to be considered at a later date

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