Don't Confuse Customer Retention with Customer Loyalty

Last Updated Oct 23, 2009 11:02 AM EDT

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."
Frei does an excellent job helping us think about what really keeps customers coming into our stores and using our services. Read her post, Illusions of Customer Loyalty.

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?

  • Sean Silverthorne

    Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

    Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.