Last week, I worked at the Philz coffee shop in my neighborhood, where there was a line of patrons waiting 15 to 20 minutes to watch their coffee be freshly ground and brewed and to pay a premium price for it. And the line wound far outside the shop, which made me wonder what made the experience here different than in another popular coffee shop just a couple of blocks away.
So, I asked customers around me why they come to this shop and not the other. It turned out there were two types: customers who were loyal to the brand; they get their coffee only from Philz. They even have the app to tell them where Philz shops are and schedule all their in-person meetings and dates at the coffee shop. The other group likes Philz coffee and comes often, and while most brands would consider this to be successful customer retention, they are not necessarily loyal. They go to other coffee shops and do not often recommend Philz to their friends and family. They were there because they like the coffee and it was close by.
So, what is the difference between customer loyalty and customer retention?
Most companies use loyalty and retention interchangeably when they discuss customers staying with the brand, but there are some important differences.
Customer loyalty is when customers have a relationship with the brand, buy repeatedly, and enjoy the brand experience. They also vouch for the brand to their friends, family, or colleagues and advocate for them to purchase, so they have the same experience.
On the other hand, customer retention is when customers buy and stay with the brand but do not buy it exclusively and might not advocate it to their friends and family. It’s worth noting, especially in B2B, to not confuse retention with captive customers; those customers who just haven’t left because they can’t find a comparable product or because they feel like leaving would be too hard. They would leave you in a heartbeat when they find a compatible or better solution than what you offer.
Thus, customer loyalty requires not just keeping a customer but taking their experience to a level that differentiates your brand from other competitive brands.
These experiences don’t just happen. You must intentionally design them.
Designing the Total Experience
Your customers’ experiences begin well before their purchase from you. You want to map and design the experiences that fulfill your brand promise. Understanding your customers’ pains and needs is a start. But take this idea further; map and connect customer experience touchpoints and moments of truth and align their values to your business values and proposition. Put yourself in their shoes, meet them where they are and show them how far they can go by using your product and services.
You want to bring multiple parts of the organization to designing this holistic experience:
- Your customers are the part of your organization who pay to keep your business alive. You want to understand their wants, needs, habits, feelings, values, and more.
- Your employees keep your engine running. You want to map both frontline and back-office teams; their actions, wants, needs, feelings, and values.
- Your processes and your organization’s operating model keep things moving smoothly. You want to map how your processes help both you and your customers.
During your design, ensure you connect your brand values to customer values. When you can make that emotional connection, you enable customers to attach to your brand and advocate it.
Building Personalized Relationships
In the end, we are all human. And as humans, we have a strong desire to form positive relationships with one person or many. The challenge is for organizations to humanize services so that they are easy and meaningful for customers. Beloved brands are those who can develop emotionally resonant brand experiences that customers dream of.
To do that, you want to know your customer on an emotional level and ensure your employees are empowered and equipped to deliver the human experiences you designed.
Simply giving lip service, as many businesses do, won’t connect your customers to your brand. When you’re engaging with customers based solely on price or convenience, you are only at basic table stakes. Personalize the experience to cultivate lifetime loyalty and value.
Before you commit to delivering strong personalized relationship experiences, be sure these three elements are well-defined:
- Understand what customers value; is it mainly functional or utility, is it economic and price-sensitive, is it experiential, and/or is it symbolic and about social status?
- Hire employees with high emotional IQ and the ability to create genuine engagements. Every employee must be engaged with, connected to, and empowered for the customer, no matter what their role is or to which department they report.
- Build your customer data analytics and artificial intelligence practice. With today’s technology, obtaining data about a customer is easier than ever—from knowing their buying behaviors to anticipating their next business problem. Customers do not have to exert extra effort to explain who they are or what they want; you should already know. And being able to address those issues can be as simple as sending a text message, starting a chat pop up, or making a call.
These three elements enable you to deliver the personalized experiences your customers want—making them feel like they’ve made the right choice during the purchase and long after. This is where mom-and-pop business owners know they have an advantage over the big guys; they can offer personalized service to their smaller customer base. This human connection with personalization becomes even more important as both small and enterprise businesses embrace digital transformations. Moving to digital without the human connection harms brand loyalty.
Delivering Value to Customers
Defining value is not easy, as human behavior, emotions, needs, and wants in a particular time can change from one interaction to another. Maxie Schmidt-Subramanian from Forrester explains that the value of experience depends on the benefit that the customer perceives on a functional, economic, experiential, and/or symbolic level.
Functional: Does the brand promise to get the job done for the customer with reasonable effort?
Economic: Does the brand save the customer money or make money for them?
Experiential: Does the brand deliver a delightful experience or have positive, memorable, or pleasurable interactions with the customer?
Symbolic: Does the brand create meaning, social status, or belonging to a particular community?
Understanding each value will give you an edge during the experience design process to target the right customers with your product and/or service offers.
Think about how you want to measure the value of loyalty, what it means for your business, and, ultimately, what it means for your customers’ experience. Customer loyalty is the result of consistently meeting and exceeding customer expectations. Customers that trust the companies they do business with will be more likely to purchase again in the future. When a customer is loyal to one company, they aren’t easily swayed by price or availability. They would rather pay more and ensure the same quality service and product they know and love. The best strategic metrics are customer lifetime value, Net Promoter Score, repeat purchase, and share of the wallet.
- Customer Lifetime Value (CLTV): is the net present value of all of the purchases each customer makes over the lifetime with the brand, and it should grow with time. You want to keep their interest and engagement with your products and services as long as you can. The longer a customer stays and spends on your products and services, the higher their lifetime value.
- Net Promoter Score (NPS): measures the likelihood of a customer recommending your services and product; it is a strategic metric used to measure a relationship or benchmark that compares you with your competitors. NPS is essentially a grade point determined by your customers’ perception of and loyalty to your brand.
- Repeat Purchase is the purchase by a customer of the same brand product or services as they bought on a previous occasion. Repeat purchase is an indicator of a degree of customer loyalty to a brand. It is calculated by dividing the total number of customers who have purchased more than once by the total number of customers.
- Share of the Wallet (SOW): is the dollar amount an average customer regularly devotes to a particular brand rather than competing brands in the same product category. Organizations try to maximize an existing customer’s share of wallet by introducing multiple products and services to generate as much revenue as possible from each customer. Calculating SOW is done by dividing money spent on a product or at a company by the total amount a customer spends in that category.
Combine NPS, repeat purchases and/or SOW, and you measure customer loyalty.
Retention and Churn Metrics
These metrics consider corporate insight metrics and are managed by addressing customer issues to keep them with the company and hope they stay longer.
- Customer Churn: is the loss of customers or subscribers who they stop doing business with the company. Also known as customer attrition, customer turnover, or customer defection.
- Gross Attrition: is the loss of existing customers and their associated recurring revenue for contracted goods or services during a particular period.
- Net Attrition: is gross attrition plus the addition or recruitment of similar customers at the original location.
- Customer Retention: refers to the ability of an organization to retain its customers over some specified time period. High customer retention means customers of the product or business tend to return to, continue to buy or in some other way not defect to another product or business, or to non-use entirely.
Using a combination of loyalty and retention metrics gives you new insight into the current state and future of the business.
Once you’ve designed personalized relationship experiences that are emotionally connected and that your customers value, you should continue reinforcing your practices. The payback is that your customers will stay with you—and they’ll tell friends and family to use your product and services, even if there are times when you deliver less than optimum experiences. They are more willing to forgive and allow you the opportunity to make it right rather than simply leaving.
The cost of obtaining customers is high, and you can’t afford to play at the table stakes level. Think of how you can differentiate from your competitors by designing an end-to-end, personalized experience that connects your brand promise to whatever your customer values the most.
A beloved brand requires a lot of hard work and commitment for the long term. It also requires alignment of brand purpose and a culture in which every employee understands that purpose and finds passion in achieving these goals.
Ultimately, brands who deliver deliberate, well-defined experiences dominate the business they’re in because customers enjoy interacting with them.