Retention marketers know there is a difference between customer loyalty and retention. Without a proper understanding of the two concepts, it’s not possible to retain valued customers and grow wallet share. Consider: A business that keeps customers at all costs is not effectively managing its resources. It’s more cost effective—and more profitable—to use the concepts of loyalty and retention to ensure that customers are so delighted with current product and service offerings that they’ll stay loyal and buy more. That also means it’s better business to identify customers who aren’t a good fit and be willing to cut the cord.
Loyalty Means Growth
Loyal customers conduct themselves in a way that produces positive outcomes for themselves and the business. They stay loyal to a preferred brand despite, for example, price breaks or promotions that competitors offer. Businesses looking to bolster loyalty of turn to formal loyalty programs designed to encourage specific behaviors, such as achieving certain spending levels. Loyalty programs designed well will encourage habits that benefit the customer and business.
When Retention Means Decline
Retention is commonly thought of as the process of keeping a customer. Loyalty programs are one element of retention efforts that aim to not only keep customers, but also increase their value. Retention efforts that aim to keep customers who aren’t a good fit—e.g., they have a high cost to serve, they only buy on special—are likely to waste money on customers who will leave as soon as a competitor presents a better offer. Instead of focusing on price promotions and specials, companies should focus their retention efforts on the customer experience, such as providing education through content, outstanding customer service, and insider-only access to special events.
Why Use Both
Businesses will see the best outcomes from combining loyalty programs with other retention campaigns. Doing so helps to ensure that customers keep coming back—and have plenty of reasons to do so. Implementing a mix of loyalty and other retention-focused campaigns will also help to make sure that you’re build long-lasting relationships with the right customers: those who will provide the greatest returns, versus those with a high cost to serve.