Sometimes we think a customer who continues to do business with us is a loyal customer. A loyal customer is not only one who keeps returning but also tells others about their positive experiences with your company. Sometimes, what appear to be loyal customers are simply “retained” customers. To illustrate, let me discuss my current bank. I will likely stay with my current bank. I have loans with them, both business and personal. I have several credit cards and, of course, checking accounts. So they count me as a loyal customer I suspect, I am more a “retained” customer. Why? It is too difficult, time-consuming and costly to switch.
Am I a loyal customer? No. I haven’t recommended this bank to anyone. I have actually taken some of my business elsewhere primarily because of a desire to not have all of my business with one bank. Frankly, I don’t think the available alternatives would be much better.
My story illustrates the difference between a retained customer versus one who is loyal. To illustrate this difference a bit more, below are several other environments where there is customer retention to a degree but not necessarily customer loyalty. Why do customers stay with you without becoming loyal?
- No Good Alternatives: Customers who come back may do so because they feel they have no choice. Think internet service providers. They are all about the same so why change. Same is true for me and my banking relationship.
- Products or Services are Just Good Enough: Rational needs (e.g., job was done correctly, product met expectations, etc.) are satisfied but broader emotional needs are not (see Human Sigma by Fleming and Asplund. They present excellent research on the differences between emotionally and rationally satisfied customers).
- Contract Lock-ins: Car dealers are great at this. You buy a new car and they sell you on the “extended maintenance plan.” You buy it because it often offers some significant reductions in maintenance costs. You come to find out that the service is not what you thought it would be. Retained but not loyal!
Creating customer loyalty and retention both matter and you can have retention but not necessarily loyalty. To create both customer loyalty and retention, having the following is essential:
- Create a demonstrably better experience for your customers. This includes both product and service.
- Marketing to create retention and loyalty are essential. If you have those extended support contracts, make certain the service you offer is positively noteworthy.
- Don’t ever assume a “retained” customer will stay with you. Look for ways to create that loyalty that ensures they stay and gets them to talking positively about your products and services.
Customer loyalty and retention both matter. A focus on retention, which is important, only gets you part of the way there. Focusing on both customer loyalty and retention creates a far greater payoff in your marketing.