Customer loyalty is an intangible but extremely valuable company asset. The ability to effectively measure and model customer loyalty is an essential element to achieving your goal of retaining and expanding customer relationships. We were recently asked, “Do you need to measure loyalty if you are measuring retention – aren’t they the same thing?” In this blog, we explain how these elements are different and related, and provide best practices for modeling and measuring loyalty.

The Difference between Loyalty and Retention

Retention is a measure of whether an existing customer continues to do business with you. Loyalty measures a customer’s predisposition to select a business entity as a preference and indicates a certain resistance to competitors. Loyalty is a behavioral disposition that suggests that a customer will consistently respond favorably toward a brand/company, and also suggests the willingness to engage. This distinction is important. A customer who continues to do business with you may be retained, but not necessarily loyal.

How to Model Loyalty

Responding favorably covers a lot of territory – from passively choosing to remain a customer, to actively choosing to advocate for a brand/company. Therefore, measuring retention, once you define what a customer is in terms of tenure, is a matter of counting. Loyalty takes a bit more sophisticated measurement and needs to take into account three potential behavioral responses if you are going to use the concept to build a model:

Expansion–the likelihood the customer will increase their level of business, e.g., purchasing more of the same product or other products in your portfolio
Influence–the degree to which they can be influenced by the company in a way that positively impacts the company, e.g., seeking out advice, paying online, complying with new policies
Advocacy–the extent to which a customer is willing to actively promote the company, e.g., online reviews, supporting the company’s position on an issue, participation in case studies, serving as a reference, or making referrals.

Note: The Net Promoter Score (NPS) methodology attempts to account for these 3 behaviors, but the primary goal of this score is to help you ascertain the number of promoters vs. detractors.

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5 Questions Help You Define Loyalty

You will want to determine which of these behaviors (it can be all of them) best define loyalty for your company. If you don’t know, answering these five questions will help you get started:

What is the ideal customer for your company? What do they do/not do? What does a less-than-ideal customer look like?
What does your company want from its relationship with customers and why?
What can customers do to support the company’s mission?
What can customers do to help the company improve service and reduce the cost to serve?
What can customers do to reduce your cost of doing business with them?

You may want to engage a number of stakeholders in conversations around these questions. Once you determine the behaviors that define loyalty, you can build a model and begin to measure loyalty. It may be necessary to take different customer segments into account, and as a result you may need more than one model. To validate the model, you may need to conduct some research with customers who meet the loyalty criteria as well as customers you believe do not. Then, set about defining how you will use the model to measure and improve loyalty.

Start on Loyalty Today

Loyalty is not a program. It’s an attitude and value about your customers. By distinguishing retention from loyalty, you can begin to understand the customer experiences, interactions, perception,s and attitudes that drive and impact loyalty. Ready to get started? Do-it-yourselfers can purchase our workbook “Leveraging Eight Key Metrics for the Customer-Centric Organization” through our Marketing Metrics Workshop. Or, if this is a strategic initiative, time is of the essence, or you need an objective third party, contact us to discuss your goals and timeline.

FAQ:

(written by Penn of Sintra.ai)

Q1: Why is customer loyalty such a valuable asset?
A: Customer loyalty is an intangible but extremely valuable asset because it supports retention and expansion of customer relationships. The ability to measure and model loyalty enables organizations to manage customer relationships more deliberately and improve long-term performance.

Q2: Do you need to measure loyalty if you already measure retention?
A: Yes. Retention and loyalty are related, but they are not the same. Measuring retention tells you whether customers stay. Measuring loyalty helps you understand preference, resistance to competitors, and willingness to engage—factors that influence whether customers will expand, advocate, and support your business over time.

Q3: What is the difference between retention and loyalty?
A:

Retention measures whether an existing customer continues to do business with you.
Loyalty measures a customer’s predisposition to prefer your company/brand and indicates resistance to competitors. Loyalty reflects a behavioral disposition to respond favorably and a willingness to engage. A customer can be retained without being loyal.

Q4: Why is loyalty harder to measure than retention?
A: Once you define what constitutes a customer (e.g., tenure), retention is largely a counting exercise. Loyalty requires more sophisticated measurement because “responding favorably” spans a range of behaviors—from passive continuation to active advocacy.

Q5: What three behavioral responses should be considered when modeling loyalty?
A: A loyalty model should account for one or more of these behaviors:

Expansion: Likelihood the customer will increase business (buy more of the same product or additional products).
Influence: Degree to which the customer can be positively influenced in ways that benefit the company (e.g., seeking advice, paying online, complying with new policies).
Advocacy: Willingness to actively promote the company (reviews, referrals, references, case studies, supporting the company’s position).

Q6: How does Net Promoter Score (NPS) relate to loyalty?
A: NPS attempts to account for expansion, influence, and advocacy behaviors, but its primary purpose is to determine the proportion of promoters versus detractors.

Q7: What five questions help define what “loyalty” means for your company?
A: These questions help clarify which behaviors should define loyalty in your context:

What is the ideal customer for your company—and what does a less-than-ideal customer look like?
What does your company want from its relationship with customers, and why?
What can customers do to support the company’s mission?
What can customers do to help improve service and reduce cost to serve?
What can customers do to reduce your cost of doing business with them?

Q8: What are best practices for building and validating a loyalty model?
A: Engage stakeholders to define loyalty behaviors, determine whether different segments require different models, and validate your model through research with customers who meet the loyalty criteria and those who do not. Then define how the model will be used to measure and improve loyalty.

Q9: Is loyalty a program?
A: No. Loyalty is not a program—it is an attitude and value about customers. Distinguishing loyalty from retention helps you identify the experiences, interactions, perceptions, and attitudes that drive loyalty and guide improvement efforts.