Friday, June 27, 2014
Is Customer Loyalty the Same as Retention?
Tobin Lehman of New North poses an interesting question. He looks at both loyalty and retention and sees two very different pictures. It is worth noting since both concepts are important but play very different roles with respect to customers.
Loyalty looks at building a relationship between a business and its customers. For this reason, loyalty is a proactive program that seeks to say, as Mr. Lehman puts it, "scratch my back, I'll scratch yours." The point is that a loyalty program should be designed to reward customer behaviors that are in line with the company’s products and services. The administration of these rewards essentially builds those customer actions into habits that encourage the customer to return.
On the other hand, retention is about customer preservation. Once a customer becomes disillusioned with a company they will seek other sources for the products and services provided. Many companies will offer customers who are the brink of departure discounts to salve the wounds that created the desire to depart and look for greener pastures. Customer preservation comes from customer education. Customers often see alternative sources when they lose sight of the value proposition that the company is offering. The primary objective of customer retention should be education of the customers.
The bottom line is that both loyalty and retention are equally important concepts that every business needs to manage. A strong loyalty program can bring in and create new customers. A strong retention program will keep those customers. The question that every company needs to ask is how well am I my managing both loyalty and retention.