Don't Confuse Customer Retention with Customer Loyalty

Many companies have customer retention programs, incentives to motivate customers to remain customers. Think of supermarkets that recognize your patronage by giving you a percentage discount on your next purchase.

But a retention program is not the same thing as a loyalty program, a distinction often lost on companies, notes Harvard Business School professor Frances Frei. In fact, she says, "a mislabeled loyalty program can prevent a company from creating a real one."

In this economy, customer retention is a great objective. But customer loyalty is even better. Why? Retention programs are often built on a financial transaction. Problem is, your value add to the customer is now about lower prices. Competitors can start to pick away your clientele simply by offering a better deal.

Much better is the day when you have loyal customers. These folks have formed an emotional bond with your business that is not going to be broken when the store down the street offers a bigger discount on canned peas.

Frei's blog post looks into how European grocer Asda is attempting to best the retention programs of competitors by increasing customer loyalty. One example: Asda involves customers in deciding what products to offer and how they should be arranged in the store. Writes Frei:

"I'm intrigued by this idea because of the shared benefits of greater customer involvement -- Asda's customers make the service better, and become more devoted to the brand along the way. Everybody wins. And if customers turn out to be very helpful, Asda will compensate them accordingly."

Here's another take on the loyalty vs. retention question from BNET blogger Tim Tonkin, Three Ways to Boost Customer Loyalty.

Do you have ideas on how to increase customer loyalty?