Improve Customer Loyalty and Retention by Focusing on Relationships

Ask any business leader, and they’ll tell you that yes, of course, they want loyal customers. But the path from prospect to loyal customer is not a straight line. In fact, it’s fraught with twists and turns, and one wrong move could cause people—even repeat customers—to wander in another direction. That’s what we learned in our research for the 2020 Customer Experience Trends Report, which showed that nearly half of customers would switch to a competitor after just one bad service experience.

In an economy that’s both competitive and ever-changing, retaining customers and turning them into brand loyalists will be crucial to fueling your organization through the ups and downs.

Understanding two key aspects of the customer relationship, loyalty and retention, will help you create an experience that not only satisfies your customers but also engages them in a more meaningful interaction with your brand, forging meaningful relationships that can help you weather any storm.

Read on for customer retention strategies and tips to build long-term relationships that improve your customer loyalty.

Customer loyalty vs. customer retention: What’s the difference?

Here are the key differences between customer loyalty and retention:

• Customer loyalty — an individual trusts and supports your brand, and if given the choice, they would enthusiastically choose your brand over another.
• Customer retention — a customer has purchased from you multiple times, but they don’t necessarily have a strong affinity for your brand and could switch to another.

Or in other words, all loyal customers are retained, but not all retained customers are loyal. Of course, retaining customers is good—necessary, even—but cultivating customer loyalty is even better because it means your customers will be less tempted to switch to a competitor.

While customers can be retained simply by the fact that your product is the one they purchased last time, or your product is the only available option (such as a retailer that carries limited selection), loyal customers will actively seek out your product because they prefer it. They may also be more likely to express their support on social media or refer friends to try your product.

However, just because a customer is loyal doesn’t mean your work is done. Loyalty can be degraded by poor service or a disappointing experience. Customer loyalty endures when there is a relationship between a customer and a brand, so you have to do your part too.

How do you increase customer loyalty?

Customer loyalty doesn’t just happen, and it can’t be bought. It requires a commitment to grow and maintain your relationship with your customers. In our ebook with economist Tony Hockley of the London School of Economics and Political Science, we discussed how consumers see their ties to businesses as similar to their ties with friends. It makes sense, then, that customers would reward businesses with their “friendship” when those businesses treat them with honesty, respect and empathy—and hopefully have a little fun in the process.

There are a lot of ways businesses build brand loyalty among their customers, but they all center around creating a customer experience that makes them feel welcome and heard. These retention strategies are critical to building a loyal customer base.

Here are four things that can help increase customer loyalty:

1. Shared identity & values

Customers tend to be loyal to brands when they feel like brands share their values. You can demonstrate your brand values through your marketing materials, corporate initiatives, and even your customer service protocols. Showing your values helps your customers identify where you stand and align themselves with you accordingly.

2. Customer service

People have high expectations for customer service. Going back to the analogy of a friendship, customers are used to talking to their friends anytime, anywhere, and they often expect the same of businesses. With omnichannel support, you can be there for them when they need you most—just like a friend would be.

3. Customer loyalty programs

Loyalty programs help your customers feel valued and appreciated. By surprising your customers with special offers, rewards or incentives, you make them feel good about purchasing and motivate them to keep coming back.

A sense of community

Once you’ve built a loyal relationship with a customer, it can help to give your loyalists a place to connect with the brand and with each other. A community knowledge base or help center is a common way that loyalists can create a sense of community. They can share tips and tricks for optimizing the product, and community managers can continue nurturing the relationship by providing additional resources and support.

Building loyalty is really about nurturing your customer relationships. When customers feel connected to your brand, they’ll show it through repeat purchases and word-of-mouth marketing—all of which help you build and grow a loyal customer base.

How do you calculate and measure customer loyalty and retention?

There are many metrics you could look at to assess customer loyalty and retention, but here are a few widely accepted metrics that can help you understand where your brand might fall in terms of loyalty and retention:

1. Retention rate

Your retention rate is a reflection of customers who were retained over a period of time. This is a good first step when evaluating customer loyalty because it can show you where to focus. If your retention rate is low, you probably have some work to do on simply retaining customers. If your retention rate is high, it probably means you’re doing something right and you can instead focus on how to foster greater loyalty.

2. Churn rate

Related, your customer churn rate is the percentage of customers lost during a period of time. Churn is calculated by dividing the number of customers lost during that time by the number of current customers at the start of that time period. Churn is inevitable, but you can better retain customers if you look at your retention metrics often and look for ways to improve.

3. Customer satisfaction score (CSAT)

Your customer satisfaction score is measured by asking your customers one simple question: How satisfied were you with your experience today? Your CSAT, then, is the percentage of customers who said they were satisfied. At the very least, high satisfaction ratings indicate retention, but can also point to increasing loyalty.

4. Net Promoter Scoreâ„ (NPS)

Similar to CSAT, your Net Promoter Score is measured by asking customers a single question, measured on a scale of one to 10. The question is: How likely are you to recommend this product to a friend or colleague? Based on their numeric rating, customers can be broken down into three categories: promoters, passives, and detractors. Being a promoter (score 9-10) is a strong indicator of loyalty.

Customer loyalty starts and ends with CX

Customer loyalty isn’t just about a great deal or value proposition. Every aspect of your customer experience—marketing, sales, customer support—plays a role in fostering that relationship. You can have the best product in the world, but if your sales process is impersonal or your customer support is inconsistent, you risk losing your customers’ trust and jeopardizing the relationships that you worked so hard to establish.

Net Promoter and NPS are registered U.S. trademarks, and Net Promoter Score and Net Promoter System are service marks, of Bain & Company, Inc., Satmetrix Systems, Inc. and Fred Reichheld.