Customer retention vs. loyalty – differences, advantages, and tips
Companies invest a lot of money in customer loyalty programs. Most of them are almost indistinguishable from one another. The benefit? Disappearingly small. Could it be better? Absolutely! The trick is to build a relationship and create added value for your customers. Aiming for loyalty pays off.
Loyalty and customer retention are two different things. Customer loyalty is an indicator of whether an existing customer will continue to do business with you or not. However, even if further business is generated, this doesn’t mean that your customer is loyal.
Loyalty is emotional. It’s about the willingness to choose your brand as a preference and thus decide against your competitors. Loyal customers generally have a positive attitude and behave accordingly. They are much more likely to try out new offers, recommend your brand to others, and are even more willing to forgive any missteps on your part.
How do you achieve loyalty?
A common reason for the failure of traditional reward programs is too much focus on transactions: I'll give to you if you give to me. Granted, this exchange is a good tool, but it has limited utility. If you reward for one thing but not for another, it can quickly be misunderstood.
A loyalty program can be so much more than a transaction. Think about what makes you personally loyal. What motivates you to choose one brand over another? Standing up for someone or something? It is also worth taking a detour into psychology here:
Newborns smile when a cotton bud with sugar solution is placed in their mouth and ask for more. The sugar solution is a stimulus that activates or reinforces the desire to satisfy the appetite. The desire and the prospect of a reward motivate us to act. This is ensured by the neuronal reward system in the limbic system. When we feel joy or happiness, the brain is flooded with neurotransmitters. This creates a sense of well-being and makes people (re-)act, always hoping to be happy in the end.
Create added value!
Look for the candy cane for your customers. Build a relationship with them and enable them to love you so much that they want more and more and come back to you. There are many fantastic ways you can add value for your customers. Here are some examples.
Self-image
Doing something positive for self-image is a very strong driver for most people. Personally, I like wearing Toms shoes in the summer. I like them and I like the beautiful story around the brand even more!Gamification
Take a playful approach! Curiosity is a strong motivator and one of the most important drivers of human behavior. But please, don't make the 10’000th wheel of fortune. Really, I'd be happy to give you a dozen better ideas for free.Surprises
Try to reward your customers with more than just X loyalty points. Do something unexpected. For example, my wife bought a coat from Burberry. It wasn't cheap, but she enjoyed the beautiful piece. On her birthday, a bouquet from Burberry came as a complete surprise, which even put my birthday flowers in the shade. There were at least 20 pink roses in it. Wow! It makes you want to shop again!Co-design
Listen to your customers and act on their comments. Let your customers help decide. Let them judge you. The more a customer is involved in your business, the higher the exit barrier.
Advantages of customer loyalty programs
Most companies only spend a fraction of their budget on customer loyalty. A big mistake, because customer loyalty programs have some big advantages!
1
Comparatively low costs
There are dozens of reasons why a customer loyalty program is advantageous. The 1st is the cost: Acquiring new customers is expensive and tends to get more and more expensive. Depending on the source and industry, the cost of acquiring a new customer is said to be 5 to 25 times higher than retaining an existing customer.
2
Higher sales success rates
Competition is increasing. More and more providers are offering an almost identical product. This puts pressure on margins and causes your customers to migrate to the competition. Loyal customers will still buy the product from you. What's more, they buy more often and spend more per purchase.
3
Easier communication
People are becoming more aware of the value of personal data. Fortunately, customer data is being protected better and better, thanks to the General Data Protection Regulation. However, this also makes it more difficult for you as a company to obtain new leads. What's more, communication is becoming increasingly difficult due to constantly improving spam and advertising filters. Communication with existing customers who know and trust you, on the other hand, is much easier.
4
Customer data as the basis for cross-selling and up-selling
Gain an overview of your customers' behavior, purchasing habits, and preferences. This data enables you to optimize your inventory management, pricing, and advertising planning. Data is also a wonderful basis for cross-selling and up-selling. For example, you can offer an extended warranty with the purchase of an item, suggest accessories, or offer discounts on related purchases.
Loyalty program on the smartphone
Are you already thinking about a loyalty program? Digitally as an app or web app, you are exactly where your customers like to be: on their smartphones.
In addition to announcing new products or services, you can use a loyalty program to view your customers' last purchases, save corresponding warranties or process recalls simply and easily.
There are no limits to your creativity regarding the possibilities of a digital loyalty program. For example, the SAUSALITOS app has its own cryptocurrency for its loyalty program and also offers competitions, a chat feature, and mobile ordering.
Or our spin-off Clanq, for example, has an extensive cashback program: Customers who pay with the Clanq debit card receive cashback on every purchase. But not to spend, but to save for their children's future in their own children's accounts.
We also have 5 tips to inspire you in your search for innovation for your digital loyalty program.
Whatever you do, do it with both your mind and your heart. Ultimately, loyalty has to do with decency, fairness, and inner connection. Help people realize that they are much more than an ROI for you and they will be delighted with your brand.
