What is Customer Loyalty? Part 1

July 6, 2012

what is customer loyalty

What is customer loyalty? A more difficult question than you might think actually. It’s a slippery subject. Hard to get your arms around. In the Monday’s kickstart post, Conley talks about intangibles. Loyalty is a difficult subject, because it’s intangible we try to measure and that’s inherently difficult. This month’s series will offer a few of my thoughts on the topic.

First, let’s talk about what customer loyalty is not.

Loyalty is not repeat business.

There are a lot of reasons why people might continue to purchase from you that have nothing to do with loyalty. For example, it’s convenient, it’s what they’ve always done, it’s too much of a hassle to find someone else or your price is better. Loyal customers will continue to buy from you, yes. But all repeat business is not rooted in loyalty. So, simply looking at the amount of repeat business you generate will not provide you with an indication of how loyal your customer base is.

Loyalty is not participation in a program.

Calling frequent purchase programs (punch cards, points, etc.) offering incentives for repeat business “loyalty programs” is a misnomer. If designed correctly, they may encourage loyalty. But, usually their purpose and/or results are something slightly different. They’re a way for businesses to collect information from participants with the purpose of offering them incentives based on likes and preferences. They purchase this right with offering you a discount or free item after a certain number of purchases. It’s very cheap marketing research.

They can also be a way to encourage repeat business, remind someone of your store when they see your tag on your keychain or (if actually used) a tool to allow communication with a customer base. If you run one of these programs, don’t be lulled into thinking that registration in your program or use of your cards indicates loyalty. I’m not loyal to CVS, (who has one of the largest programs in the US) even though I use their card when I happen to be in the store. I don’t go out of my way to choose their store and have no feelings of loyalty toward them. I’m not saying these programs don’t work, or aren’t valuable. I know plenty of people who use an airline or hotel chain exclusively because of a buyers program–dollars that easily could be spent with a competitor without the buyers program. I am saying that having a rewards program does not necessarily make your customers loyal or indicate their level of loyalty.

Customer loyalty is not satisfaction.

When someone enters into a transaction with you, they agree to pay you for an item or a service. If that item or service is satisfactory, then they are simply that–satisfied. Expectations have been met.

…research has shown that there is no direct (straight line) correlation between customer satisfaction and customer loyalty and only customers showing “top box” scores close to 100% are likely to remain loyal…60 to 80% of customers who defected had said on a survey just before defecting that they were satisfied or very satisfied (Peter Gilbert guest post).

Simply satisfying someone’s expectations is not enough to create loyalty.

In review, customer loyalty is not

  • repeat purchasing behavior
  • participation in a rewards program
  • customer satisfaction

It’s very easy to fall into the trap of believing one of these three things is customer loyalty, especially because much of our conversations around loyalty center around measuring these things. However, I’d encourage you to take a deeper look. These three things are all desirable, but they aren’t necessarily indicators of customer loyalty.

If you’re left with a nagging question, In part 2 of this series, I’ll answer, “Then, what is customer loyalty?”

 

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