What is Customer Loyalty? - Definition & Retention

Instructor: Allison Tanner
Customer loyalty can help a business become extremely profitable. This lesson defines customer loyalty and discusses how a company can use various retention techniques to build and maintain loyalty.

Customer Loyalty

If you always stop at the same spot for your coffee, you always buy the same brand of laundry detergent, or you couldn't imagine buying any other brand of clothing, then you are a loyal customer. Customer loyalty means that a customer chooses to consistently purchase the same brand of products and/or services.

Think about what keeps you going back to the same restaurants, coffee shops, and buying the same household items. What has built your loyalty to specific brands?

Because your continued loyalty is important to the company you buy from, they may practice various retention techniques to keep you coming back. This might include loyalty programs, quality of service, contractual agreements, or a mix of multiple techniques.

Loyalty Programs

Some companies may use loyalty programs to keep you interested in their products and/or services. Think about your wallet. If you have a points card for your favorite clothing store, a punch card for your daily soda or coffee, and a coupon for a free pizza after the purchase of five pizzas, then you are participating in a loyalty program.

Loyalty programs are a method of rewarding regular customers for their use of specific products and services. Customers that receive an incentive to stay loyal tend to remain loyal. This helps to build retention and maintain loyalty.

Quality of Service

A company's customer service practices also influence a customer's loyalty. Imagine that a local restaurant has a great loyalty program with every fifth meal free, but they have terrible service. For example, if the server rarely checks in on you and your food is always cold, then you might be willing to forego the benefits of free food in order to go somewhere without a loyalty program but has great quality service.

Customers who feel they are important and valued by a company are more likely to continue using that company's products and services.

Contractual Agreements

Both loyalty program and quality of service depend on the customer having a desire or interest in purchasing products from a company. For instance, if you are not interested in buying coffee, then a loyalty program at the local coffee shop won't matter to you. Perhaps you would be more interested in a program that offers a free smoothie or soda.

Unlike loyalty and service programs, contractual agreements lock in loyalty. Customers who might switch to another company get stuck using one service because they are contracted in.

If you have a cell phone plan or a cable TV plan, then you may have been offered the 'benefits' of a contract agreement. Company's who use contract agreements often offer you a lower price, or special deal, for agreeing to use their services for a certain length of time.

Traditionally, most major cell phone companies offer customers a free or significantly cheaper phone if you agree to use their services for at least two years. If you want out of this contract, you will have to pay major fees.

Contract agreements can be a good way for a company to guarantee your retention and loyalty, but agreements can be problematic because they give little incentive for the company to practice quality service.

Mixing Programs

There are many ways that a company can mix loyalty and retention programs but a common way is by mixing quality service and loyalty programs.

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