Although the terms “customer loyalty” and “customer retention” are often used interchangeably, they actually refer to two different things. Customer loyalty refers to customers who have decided to continue to do business with a brand as a preference over that brand's competitors, i.e., they are loyal to the brand. An example would be a person that prefers McDonalds over Burger King, Wendy's and Checkers.
Customer retention, on the other hand, is simply a measure of whether or not a customer intends to continue to do business with a brand. That may be because the brand's products are cheaper, they are located closer than other brands, or they are more convenient. It does not mean that if all things were equal, they would continue to do business with the brand. Such a customer may have been retained by the brand, but the customer may not be loyal to the brand in the long term. This article will look at the drivers of customer loyalty and retention, and what can be done to improve both.
What Drives Customer Loyalty?
There are many factors that contribute to customer loyalty, including a positive emotional connection, an exceptional, consistent experience across all of a brand’s channels, and continual improvement in a brand’s products and services.
"To connect and resonate emotionally, brands must know who their customers are and what type of journey they are on. In an ideal state, emotional design anticipates and then accommodates user needs," said Mike Davidson, executive creative director of Capgemini DCX North America, a B2B and B2C digital transformation solution provider.
As an example, he reflected on how a popular consumer goods company wanted to merge their two sites and enhance customer engagement with a broader lifestyle content strategy. "The first step was understanding the customer journeys. These journeys included a variety of motivations across gift buying, identifying beauty goals, shopping for baby, etc. It's important to understand all moments where the customer is in their journey. Thoughtfully placed navigation guides solved that task; oftentimes, simply asking customers what they need can go a long way to both helping and understanding customers. And asking questions gives brands an opportunity to capture customer data,” he said.
According to Davidson, emotions drive customers to make purchasing decisions, and as such, a customer experience program should be designed around emotion. “Harvard Business School professor Gerald Zaltman said that 95% of purchasing decisions are made by emotions,” he said. “A successful loyalty program connects with customers through emotional design.”
Related Article: Are Your Customer Experiences Driving Customer Loyalty?
Customer Loyalty Versus Customer Retention
There are many obvious advantages to having loyal customers, versus just retaining those customers. Loyal customers become brand advocates, and they are more likely to tell their friends and relatives why they should be using a brand’s products or services over another brand. They are likely to make social media posts espousing the brand and its benefits. They are also going to have a greater lifetime value than customers that are simply buying from a brand out of convenience, rather than loyalty. Loyal customers actually prefer a brand’s products and services, and they are not likely to abandon a brand because another brand is more convenient or even more economical.
A customer that has been retained may move on to another brand because the other brand was cheaper, the location of the brand was closer, or it was simply more convenient (i.e. they didn’t have to carry a case of Pepsi from the back of the store, because there were cases of Coke at the front of the store). Two things continually come up when it comes to turning retention into loyalty: emotional satisfaction, and alignment with a brand’s values.
Create a Feeling of Emotional Satisfaction
Emotional satisfaction occurs when a customer has made a purchase, and is left feeling that they made the right decision by buying a product or service from a brand. They may have done additional research after their purchase, or they may have delved into the reasons why they prefer a brand’s products or services over a competitor’s products or services. They may have compared prices and came to the conclusion that their money was well spent by buying from the brand, and that they received something of value by doing business with the brand. This sense of emotional satisfaction is likely to encourage such customers to continue to do business with the brand, rather than switch over to the brand’s competitors.
Alignment With Values
Alignment with a brand’s values is extremely important to consumers today, many of whom realize that a brand’s corporate social responsibilities do not end at the factory door or storefront. Consumers expect brands to speak out on social and political issues. In the last year, many brands took a public position on voting rights, the murder of George Floyd, the social and economic impacts of the pandemic, and the storming of the U.S. Capitol by supporters of the former president. Those that stayed silent have paid the price by having many of their customers desert them. Those customers preferred to support those brands that took a stand for the values that they personally identify with.
A survey of 1,000 Americans that was released in July of 2020 by Mitto, a provider of omnichannel communication solutions, revealed that customers support companies that take a stand on their values. 73% of those polled indicated that it's important that a brand's Black Lives Matter-related statements are not only empathetic but are followed by measurable action. More importantly, 53% of participants said they are unlikely to buy from a brand if they have a negative perception of its communications during the BLM movement.
Additionally, a November 2020 Ipsos’ survey on brand truth indicated that customers expect tech companies to support small businesses through economic recovery, and 48% of participants said that they are more likely to trust companies that have sustainability/social responsibility programs. The 2020 Edelman Trust Barometer revealed that 70% of participants said that trusting a brand is more important today than ever — and it was the same among different age groups, genders, and income levels. The report also showed that 74% of those polled said a brand’s impact on society is one of the reasons why brand trust has become more important.
Mike Wittenstein, founder and managing partner at Storyminers, a customer experience strategy company, said that it’s human nature to prefer to be around people that share one's values. "In general, people like to do business with people (and companies) that share their values. For a few years now, there’s been talk of 'Glass Box Brands.' This refers to the idea that people (B2C and B2B) select the brands that serve them in part by how they treat people on the inside," Wittenstein said.
The concept of brand culture and values extends to every industry. "In the fashion and grocery worlds, we're seeing a move toward fair trade,” Wittenstein said. “Among quick-service restaurants (the fast food sector), customers are responding positively to companies that use some of their sales income to better educate their employees. Chick-fil-A in Atlanta is well known for sending thousands of kids to college and bringing some back to corporate. Others have similar programs."
Other factors that enhance brand trust are transparency and open communication. When a brand admits its mistakes, shows that it is a customer-centric, people-first business and that it takes care of its employees, customers recognize that the brand’s values are aligned with its actions.
Having a visible social media presence where customers can feel comfortable leaving feedback or customer service inquiries allows customers to see that a brand cares about their feelings and responds to their concerns in an appropriate and timely manner. A social presence provides customers with a glimpse of who the brand is, its personality, and how it relates to its customers. Customers that trust the brands they do business with are more likely to be loyal to those brands.
Finally, brands must locate any pain points in the customer journey, and work to eradicate them as soon as possible. Social listening is a great way for brands to remain in touch with what their customers like and don’t like about a brand, and what they think about the brand’s competitors. It’s also an excellent way to determine the places where a brand and its products and services need improvement.
A positive emotional connection, an exceptional, consistent experience across all of a brand’s channels, and continual improvements in a brand’s products and services are all drivers of customer loyalty. By crafting positive emotional experiences, and building trust through the alignment of a brand’s values with the customer’s own values, brands can turn retained customers into loyal customers and brand advocates.