Customer Retention vs Customer Loyalty: What’s the Difference?

The main difference between customer loyalty and customer retention is that customer retention is a way of measuring whether an existing client continues to use your products or services. A retained customer is not guaranteed to use you again. They may use you again, or they might not. They are a retained customer only because they have not gone to someone else to do business yet. Customer loyalty refers to establishing longer relationships. Their loyalty goes beyond spending money. Loyal customers will provide quality referrals and positive word-of-mouth reviews. Loyal customers will swear by your services and serve as supporter for your business. While they share some similarities, retention and loyalty cannot be used interchangeably when describing customers.

Both customer loyalty and customer retention are key parts of a business’ strategy. Being able to measure and affect both of them is a crucial part of succeeding in any market. It’s important to understand how they’re distinctly different.

Customer Retention

Any business action you take that is designed to generate repeat business can be deemed part of a customer retention strategy.  High levels of customer retention give your business a better opportunity to grow stably. A business might look to see how many customers are cancelling monthly billing plans to help them measure retention.

You need to make sure that you’re taking client feedback and using it to your advantage wherever possible. This will help you discover how different aspects of your business can be improved. It also serves as a way of finding out from the customer if your attempts to retain them are effective and if so, why.

Customer Loyalty

A loyal customer is loyal to you and your brand, they are generally not influenced by availability of like services or pricing. A loyal customer does not care about the cost as long as they get the same quality service they are accustomed to. Loyal customers are more willing to refer you to their family and friends, they are not open to hearing from competing companies, and they are more understanding when issues occur and trust you to fix them.

How do you know if you have Loyal Customers?

One of the most common ways to find out if your customers are loyal is to ask them! Send out a satisfaction survey like below and give them an opportunity to tell you what you did right or could have done better. You can use the NPS (Net promoter score) metric to determine if they are loyal customers or customers that are retained. The NPS is a widely used market research metric that normally uses a single survey question asking customers to rate the likelihood that they would recommend your company, product, or a service to a friend or family member.  The one question surveys will provide you with a better idea of who your loyal customers on based on the scale of 1-10. It may seem like a good thing if the majority of people that rate you give you a 7/8, but the survey is really telling you that those customers are neither unhappy nor thrilled with your services.

Customer Satisfaction Survey

The difference between customer retention and customer loyalty lies right here.

The NPS shows that customers ranking your company a 0/6 are the “distractors” or threats to your company. They are not very satisfied with your services, and you may need to reach out proactively to prevent them from damaging your brand to others.  The customers that rank your company a 7/8 are the “passives” and they can be convinced to use another competitor if approached.  The people that rate you a 9/10 are your “promoters,” and they will be your most loyal customers. Your promoters will serve as supporters for your business without you having to ask.

Constructive criticism can be difficult to hear, but for a business, you can use the people that gave you a 0/6 to your advantage as this information can make a big difference to your bottom line. What could you have done better to help serve them? You may never be able to get a customer to go from a 0 to 10, but by acknowledging the feedback and using it to your advantage, it could help you take a customer who ranks you a 7/8 and move them up into the promoter category.

A customer that sticks by your business through positive and less-than-positive experiences is a truly loyal customer or “promoter”. The same can be said about customers who recommend you to their friends and send you referrals.

Bottom line: By distinguishing retention from loyalty, you can begin to understand the customer experiences, interfaces, opinions, and attitudes that impact loyalty. Be sure you distinguishing your loyal customers from your retained customers and tap into your network loyal customers for referrals.