Difference between retention and loyalty
Posted by marketingfrontier on October 12, 2006
I am struck often by the number of clients that confuse customer retention with customer loyalty. As I often say, what gets measured is what matters, and if retention is the primary measurement, then loyalty is likely to get short shrift.
Now, I do not want to cast aspersions on companies that do measure retention, since that metric, in and of itself, is often overlooked. However, if the goal is to increase revenue faster than costs, then loyalty is one metric that must get higher attention.
Retention, of course, is the percentage of customers who make repeat purchases over a period of time. Not too difficult. Note, however, that this calculation does not include some key factors that determine both profitability and loyalty:
- what products they purchased, and at what margin
- how often they shop in the category
- how often they shop with you
- where the bulk of their dollars are spent
Now, if loyalty is defined as an expressed preference and a willingness to personally refer friends and family (Reichheld), then these additional factors will begin to address those issues. But how do you get this information, when the bulk of it is not included in your database?
You ask the customer. Through different types of research, you can begin to get a handle on where your heavy frequency customers make the bulk of their purchases, how often they do, and what share of their total dollars they spend with you. Once you have that “share of wallet” assessment, you can then examine the attitudes that correlate to those behaviors.
Those attitudes ARE your positioning. The more you support the key differentiators that your loyal customers see as valuable, the more you will reinforce those customers and attract new customers who resemble loyals, who value the same benefits.