Definition

customer loyalty

Contributor(s): Dennis Shiao

Customer loyalty is a commitment between a customer and a brand that causes the customer to make repeat purchases. While customer loyalty may result in strong purchase preference to a particular brand, the loyalty may not be exclusive. Customers may make repeat purchases to multiple brands in the same category.

Customer loyalty is achieved by brands creating offers and programs that encourage customers to make repeat purchases. Offers include coupons, volume discounts, time-sensitive discounts and member-based discounts. For example, a coupon sent to customers that offers 25% off of a purchase by the end of the month, or a special offer for customers that are part of an exclusive customer membership, such as a store credit card.

Customer loyalty programs

Customer loyalty programs are a popular way to retain customers. They often provide special offers and benefits, such as discounts and free products. Often, customers can accumulate "points" to unlock or receive additional perks.

One example of a customer loyalty program is airline frequent flyer programs, in which airlines provide offers and benefits, such as free flights and products, based on the number of miles a customer has flown. Customer loyalty is a primary goal of frequent flyer programs. Customers choose to fly on airlines where they’ve accumulated the most miles.

At the same time, loyalty is not exclusive since customers can enroll in an unlimited amount of customer loyalty programs. For example, a customer wants to fly between two U.S. cities and only one major airline provides a non-stop flight. Most of the customer’s miles are on a different airline’s frequent flyer program. However, the customer can choose to create a frequent flyer account with this new airline and use the airline again when traveling between the same two cities. Customer loyalty is rooted in economic benefits to customers, which drives repeat purchases.

Customer loyalty vs. brand loyalty

Customer loyalty is different from brand loyalty.

Customer loyalty is transactional in nature and occurs as the result of money-saving offers from the brand. Brand loyalty, on the other hand, stems from a stronger, emotional connection between the customer and the brand. Customers exhibit brand loyalty in an exclusive manner and they will not purchase a substitute brand if the preferred brand is not available. 

Customer loyalty can be more fleeting than brand loyalty, since the former is based on incentives and offers, while the latter stems from an emotional connection that’s based on trust.

Importance of customer loyalty

By encouraging repeat purchases, customer loyalty helps increase customer lifetime value (CLV). Since existing customers have familiarity with products and services, it’s easier to encourage them to purchase again than it is to market to new customers who are unaware of the brand. Compared to one-time purchasers, loyal customers are more likely to become brand advocates or ambassadors, recommending products and services to friends, family and associates.

Because of its transactional nature, customer loyalty can be fleeting. A poor experience with a product or brand can cause customers to leave for a competitor’s offering. Brands ought to build on the customer loyalty they’ve established in order to achieve brand loyalty. Building trust and fostering an emotional connection with customers will establish a loyalty that goes well beyond coupons, offers and promotions.

 

This was last updated in July 2019

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