Apple fans sleep outside stores to buy a new iPhone. Starbucks fans ignore every coffee shop without the famous green sign. And Tesla fans pay a deposit and wait months for a car they’ve never driven.
So, how do brands achieve this? They understand the difference between customer loyalty and customer retention – and how to leverage both.
Every business owner dreams of having devoted fans, but building a loyal following doesn’t happen by accident. It requires consistent, strategic work and a willingness to adapt to customers’ needs.
In this article, we’ll break down the differences between customer loyalty and retention, and help you determine where your business should focus.
Defining customer retention
Customer retention refers to a company’s ability to keep existing customers engaged over time, encouraging repeat purchases and long-term loyalty. It’s not just about keeping them from leaving – it’s about continuously adding value so they choose to stay.
The less ‘churn’ of customers, the better. A low churn tells you that customers are happy with your service/product and they’re not going elsewhere for an alternative.
Why customer retention matters
Research shows that acquiring a new customer can be 5-25 times more expensive than retaining an existing one. Companies spend a lot of money marketing and onboarding new customers, so it’s important to have a healthy customer retention rate. Studies from sources like Harvard Business Review highlight that industries with strong retention strategies often see higher profitability and long-term success.
A poor customer retention rate can be worrying. It suggests customers don’t get enough value from your offering to stay or return to your business.
Important customer retention metrics include:
- Customer retention rate: The percentage of customers who stay with your business for a specific time period.
- Customer churn rate: The percentage of customers who leave your business over a specific time period.
- Repeat purchase rate (RPR): The percentage of customers who make multiple purchases over a specific time period.
- Customer lifetime value (CLV): The total revenue a company expects from a customer throughout their entire relationship.
Customer retention strategies
Before thinking too profoundly about customer loyalty vs customer retention strategies, you must first uncover why customers leave. Customer feedback is crucial at this stage. Knowing why customers leave makes it easier to apply the most suitable customer retention strategies to keep customers around.
Here are seven common customer retention strategies:
Use the power of empathy
Customers don’t want to feel like just another name on the database. They want to feel important. If they don’t, they’ll look for a company that values their business.
Use the power of empathy to connect with customers so they feel good about using your service again.
Optimize products/services
People look to companies to fulfill a need or desire, but time will tell how satisfied they are. This is especially true in the Software as a Service (SaaS) space.
Customers can take months to adjust to new software. And many will cancel their subscriptions if they don’t enjoy it.
So, refining products and services to be more convenient and enjoyable can improve customer retention.
Reward loyalty
Customers like being rewarded. Giving them a discount or gift shows that you value them. It taps into the power of reciprocity.
People appreciate gifts and feel obliged to keep doing business with you.
Personalize the customer experience
Personalization enhances the customer experience and can improve ROI by 10-30%. Assess every customer touchpoint and look for ways to customize it further.
Provide a 5-star customer service experience
Nothing sours the customer experience like poor service. 96% of customers will leave after poor service.
On the other hand, a Salesforce study found that positive customer service is so powerful that 75% of consumers will do business with a company again, even after they make a mistake. A 24/7 answering service ensures every caller has an outstanding customer experience.
Help customers succeed
Content marketing and education centers help customers learn and grow. Knowing your customer personas inside out helps you create valuable educational resources that lower churn as you help them achieve their goals.
Your customers will appreciate additional resources on top of the products and services they’re paying for.
Sharing brand values
One way to attract and retain customers is to share your brand values. For instance, giving a small percentage of profits to charity may be appreciated by your customer base and persuade them to stay with you.
It’s important to note that sharing your brand values could also cause customers to leave if they don’t share the same values.
Defining customer loyalty
Customer loyalty measures a customer’s emotional and psychological attachment to your company. Loyal customers generate repeat business, refer you to new customers, and help you build your reputation.
Customer loyalty metrics include:
- Net Promoter Score (NPS): NPS asks customers, “On a scale of 0 to 10, how likely are you to recommend our company/product/experience to a friend or colleague?” After customers vote, businesses place them into one of three categories: Detractors, Passives, and Promoters.
- Referral rate: This is the percentage of people who refer your business to other people.
- Social media engagement: Social media analysis helps you understand your customer’s attitudes and emotions towards your brand.
- Customer Engagement Score (CES): This score looks at multiple customer touchpoints (app usage, emails opened, etc.) and assesses how customers typically engage with your brand.
- Customer Satisfaction (CSAT): A CSAT asks customers to rate their satisfaction with interactions/products/services by asking, “How satisfied were you with your recent purchase?”
- Company reviews: Look at company review websites such as Trustpilot, Yelp, and niche ones in your industry to see what customers say about you.
- Repeat purchase rate (RPR): Again, RPR is how many customers buy from you more than once over a specific period.
- Time between purchases: This is the average time between one purchase and another.
Customer loyalty strategies
There is a lot of overlap between customer loyalty and customer retention strategies. But customer loyalty is ultimately about building a strong emotional connection to your brand.
Top brands use strategies like:
Loyalty programs
84% of consumers are more likely to stick with a brand that offers a loyalty program.
An example of this is the Starbucks app.
Starbucks encourages loyalty with complimentary coffee, birthday treats, the ability to place orders via the app (which adds convenience), and other exclusive perks. Every purchase brings you closer to a reward to strengthen brand loyalty.
VIP access/experiences
Exclusive experiences create a buzz that people want to be part of. The North Face has an XPLR Pass membership programme that offers early access to:
- Product releases
- Member-only events
- Meet The North Face athletes
These kinds of rewards invite customer loyalty as these are experiences that few can rival.
Build community
Peloton has become a household name in recent years due to its online fitness community. You can interact with instructors and other attendees through live chat during classes.
Leaving Peloton would mean more than giving up the product. Customers would have to say goodbye to the thriving community, too. They don’t want to lose this, which helps Peloton create customer loyalty.
Exceptional customer service
80% of customers say that a company’s customer experience is as important as its products/services.
A live answering service is a great way to answer calls 24/7, so customers always get the help they need from a friendly, real person. Your customers will never reach a voicemail machine, bot, or AI assistant. Book a quick call to find out more.
What are the key differences between customer loyalty and customer retention?
While customer loyalty and retention go hand in hand, business owners should be aware of the key differences.
Short-term vs. long-term focus
Your customer loyalty vs. customer retention focus will shift as your company evolves.
Customer retention is usually the first step for new companies. The goal is to reduce customer churn and review success metrics to ensure you’re satisfying customers with your products and services. Building customer loyalty isn’t realistic if you have a poor customer retention rate.
Customer loyalty is more long-term focused.
Customers build an emotional connection with your brand after multiple weeks, months, or years of service. This leads to brand advocacy. Loyalty builds through multiple brand interactions until your brand becomes their go-to choice.
Transactional vs. emotional engagement
Great marketers know that “wanting” a product is more powerful than “needing” one.
For example, someone who needs a watch for work will likely buy one of the first ones they find. They’re unlikely to spend large amounts of money on the watch and may never buy from the brand again.
However, people who want a watch are more emotionally invested.
They’ll visit jewelry stores, read about the brand, and then make a purchase. They could pay hundreds or thousands of dollars for a watch when they can find a perfectly good watch for less than $100. That’s the advantage of emotional engagement.
The world’s most successful brands do more than sell products. They sell stories, experiences, and identities.
Look at Apple. Apple is a computer company at its core, but calling it this feels incredibly reductive. Many of their customers upgrade to the latest iPhone without hesitation. Why? Because Apple has built a strong ecosystem where devices work seamlessly together, creating a sense of exclusivity and convenience. This brand loyalty keeps customers coming back, showcasing the power of effective customer retention.
How customer retention and loyalty work together
Customer retention doesn’t always mean customers love your products/services; it could be a logical decision. Customers are getting value, but they won’t think twice before switching if a better option appears.
However, if people have an emotional attachment to a company, they’re likely to stay loyal even if a superior offer appears. This is often seen with tech products. People buy a smartphone from their favorite brand even if a rival’s phone has superior product specs.
The first step in assessing customer loyalty vs. customer retention is achieving a high customer retention rate. The second step is improving the customer experience to build customer loyalty.
Should business owners prioritize customer loyalty or retention?
There isn’t a one-size-fits-all answer, as both are important.
It depends on your business model and stage of growth. SaaS companies are notorious for trying to optimize everything, especially customer retention rates.
SaaS companies need steady revenue because they pay high salaries. Due to intense competition, customer acquisition also tends to be extremely high. That’s why SaaS companies typically focus on customer retention before investing heavily in customer loyalty.
Luxury retail brands focus more on customer loyalty. They achieve this by offering exceptional products and experiences that customers wish to repeat. Because luxury products have high-profit margins, they don’t need to sell as many items as other retailers.
Luxury brands also understand that return buyers spend more than first-time buyers.
Balancing customer retention and customer loyalty
There is plenty of crossover between customer retention and loyalty. Companies must find the right balance between meeting customers’ immediate needs and creating a fantastic customer experience.
Businesses should:
- Demonstrate value quickly. Whether you’re a coffee shop or software company, strive to make a positive first impression to build momentum. Add personalization, convenience, and keep refining your product/service.
- Provide exceptional customer service. Prioritize customers’ experiences to make them feel valued. When customers see you care about them, they’re more likely to stay invested and loyal to your business.
- Collect customer feedback. Pay attention to how customers react to your products and services. Not all customers will leave negative reviews or complain. Most will just move on and take their business elsewhere. Regularly checking feedback will help reveal opportunities for improvement.
- Action feedback. Asking for feedback is one thing; listening and acting on it is another. Be proactive with any feedback you receive and use it to improve your products and services.
- Create memorable experiences. The Magic Castle Hotel is an LA motel with outstanding reviews. It’s become known for incredible customer service and its “popsicle hotline”—a poolside telephone that takes orders for free popsicles. Although the motel may not have the best product in the area, it creates a memorable experience for its guests.
How an answering service can improve customer loyalty and retention
Investing time in customer loyalty vs. customer retention is wasteful if your customer service disappoints. An answering service can give you that competitive advantage.
Firstly, personalized customer support. Answering services adjust to your brand experience. Receptionists will follow your brand scripts and protocols so every caller gets the desired experience. You can also set up custom protocols for VIP customers, ensuring you provide exceptional customer loyalty.
Next, smooth conflict resolution. When things go wrong, being unable to speak to someone only worsens the situation. Making it easy for customers to talk helps resolve the problem quickly.
Finally, make a human connection 24/7. There are alternatives to 24/7 customer service, but research shows they’re not very popular. Four out of five people prefer speaking with a human when calling a company. An answering service helps you make a real connection whenever a customer calls you. Each phone call strengthens your customer experience.
Want to see these strategies in action? Book a free consultation with our team!
