Customer Retention vs Customer Loyalty: the Differences and Main Approaches in e-Commerce

Customer retention and loyalty are often used as synonyms, although these concepts have significant differences. They relate not only to the small nuances in the definition but also to the marketing techniques used to achieve strategic goals. Therefore, it is important to distinguish between these two concepts to choose the best tools to use. Let's figure out the exact differences and why they are so important.

What is Customer Retention

Customer retention means preserving the existing customer base. From a mathematical point of view, it is the probability that customers will remain with the company and not go to competitors at the end of a certain period. The indicator is calculated using the formula:

If you compare customer loyalty and customer retention, the latter is a more rational indicator. Retention means that customers stay because of favorable terms of cooperation, affordable prices and attractive advertising, but they do not necessarily have any emotional connections with the brand. 

What is Customer Loyalty

Customer loyalty is the probability that they will choose a brand despite everything. A loyal customer will not pay attention to the more affordable prices of competitors, possible shortcomings in customer service policies and other minor details. The loyalty indicator can be calculated using the following formula:

But the problem lies in the very definition of loyal customers. Comparing customer loyalty and retention, the former is a much more complex concept because it is determined by emotions, not just repeat purchases. Therefore, a survey is one of the few ways to determine the number of loyal customers. 

Customer Loyalty and Customer Retention: Definitions & Differences

Customer loyalty and retention are often confused due to many common features. Yet, it is imperative to be able to draw a clear boundary between them. Therefore, these two concepts should be given more attention.

Definitions

• Customer retention as a process is a company activity aimed at reducing customer churn and creating long-term relationships with customers.
• Customer retention rate is the number of customers willing to make a repeat purchase over a certain period of time.
• Customer loyalty is a phenomenon characterized by an emotional connection with a brand that motivates people to choose a company's products and recommend them to their friends.
• The level of customer loyalty is the number of customers who are satisfied with the interaction with a company, brand or product and are ready to continue interacting with a company in the near future. 

Common features

• Customer loyalty and customer retention involve long-term cooperation. When working with both indicators, you need to prevent customer churn and retain your existing customer base.
• Retention is the first step to loyalty. The first concept is narrower and is included in the second. Customer retention creates opportunities to establish emotional connections.
• Once a company gains a customer’s loyalty, we can talk about sustainable and stable retention. The probability that loyal customers will leave is much lower. Therefore, it is incorrect to say that one concept precedes the other — in fact, they are very interrelated. 

Differences

• Customer retention refers specifically to a commercial transaction, while loyalty refers to the overall experience of interacting with a brand, which goes far beyond a purchase.
• While retention already makes selling a product 4-5 times easier, loyalty provides even more benefits. According to Emarsys, loyal customers buy 31% more, and 46% of them are willing to continue cooperating with a brand even after a negative experience.
• Customer retention can be presented as a mathematical indicator that is easy to calculate and analyze. Loyalty is a much more complex category that deals with the psychological side of business.
• Customer retention brings merely financial benefits in the form of repeat purchases. Loyalty also means spreading the word, recommending a brand to friends and acquaintances, protecting a brand in disputes, and improving its reputation. Retention provides more short-term benefits, while loyalty offers long-term benefits. 

How to Improve Customer Retention

Creating a class of loyal customers is an important, promising, and even noble goal for a company. However, we have already emphasized that when comparing customer retention and loyalty, the former is more effective in the short term. Therefore, it is quite logical that businesses start with retention. Let's look at the main methods that will help to retain customers and encourage repeat transactions.

1. Simplify the customer journey

Make sure that a purchase takes as little time and effort as possible. When it comes to e-commerce, this means a minimum number of clicks. Add a quick buy button to your commercial pages that instantly directs users to the shopping cart or order confirmation. Claspo offers many opportunities to simplify the customer's purchase journey with pop-ups. For example:

• Show a widget if visitors spend too much time on one page but don't proceed to purchase. Such widgets may offer available channels of communication with your support team or display limited time offer examples,
• Place a pop-up with a discount promo code on the site's homepage. Claspo allows shoppers to quickly copy a promo code and proceed to checkout with a clickable button,
• Use our website widgets on product pages. They can redirect visitors to articles with detailed product reviews or show alternative/complimentary items in an animated slider.

Amazon provides the brightest example of simplifying the customer journey. The company was among the first to add the modules "People who bought this product also bought" and "People who viewed X also viewed Y" to its website. Today, recommendations account for up to 25% of the marketplace's sales. 

2. Use personalization

Personalization can be presented at different levels — from using a customer's name in a message to completely rebuilding the site to meet a customer’s preferences. According to Gitnux, up to 44% of consumers are ready to make repeat purchases from an online store if it makes them personalized offers. 

Claspo is an easy and budget-friendly way to display these offers on your website. With our advanced targeting, you can show personalized pop-ups based on the traffic source, a previously received campaign, the keyword that triggered the ad that brought the visitor to the site, or the specific element that the visitor clicked on in the ad to get to the site.

Moreover, Claspo's geotargeting allows you to show personalized widgets to users from different countries, regions, and cities. The icing on the cake is that the language of your widget can dynamically change depending on the language of the visitor's browser or the language they have chosen on your website. With this approach, customer retention is guaranteed!

Funko, a company that produces souvenir figurines, takes personalization very seriously and enables its customers to fully customize the products they buy. It launched a special POP! Yourself series, which allows customers to create characters' appearances on their own. Currently, this collection accounts for up to 20% of the brand's sales. 

3. Launch a loyalty program

It may seem strange, but despite its name, this tool is primarily designed to retain customers. It uses the same methods of price competition to demonstrate additional benefits but hidden under the pretense of various bonuses, gifts and discounts. Claspo pop-ups can attract as many members as possible to your loyalty program thanks to smart display rules:

• Show a widget that highlights the key benefits of the loyalty program only to first-time site visitors and invite them to join it by sharing their contact details,
• Place a pop-up on the "Thank you page" and encourage them to join your loyalty program to get rewards for the purchase they just made,
• Use a limited time offer template on pages with the highest traffic and offer visitors the chance to join the loyalty program on favorable terms only during the specified period (double bonuses, big discounts, etc.).

Try this template

AdiClub by Adidas is one of the best loyalty programs in the world. It combines price offers, exclusive events, a multi-level ranking system and personalized communications. AdiClub members have twice the lifetime customer value and make purchases 50% more often. 

How to Boost Customer Loyalty

Although loyalty works best in a long-term event horizon, this does not mean that you should postpone working with it "for later." On the contrary, you need to apply the relevant tools right here and now to get the desired result in time. After the first surge in customer retention, you can immediately start stimulating loyalty. We will explain how to do it. 

1. Collect feedback

It's not difficult to get important information from a client. Usually, it’s enough to ask them directly. Ask your customers to rate the level of service, indicate the probability of recommending your brand to friends, and choose priority areas for improving cooperation. You can do this with Claspo. Create short surveys in our intuitive editor and configure your widget to display at strategic moments, such as after placing an order, when trying to leave the site, in case of prolonged inactivity on the page, etc.

Since Claspo integrates with a variety of ESPs and CRMs, all responses are immediately transmitted to the chosen platform for audience segmentation based on feedback and building effective and timely communication with customers. Apologize for the negative experience and offer compensation. Reward the most active customers and thank them for their invaluable assistance in business development, giving customers a chance to be heard and improving their loyalty.

One example of a company that collects user feedback and uses it to improve its service is Uber. Its widgets in the mobile app allow it to respond to problems in real time, significantly increasing the level of loyalty. Thanks to quick problem-solving, the average rating of Uber drivers in the US is 4.8, and in New York City, it is 4.85. 

2. Create an emotional connection

Go beyond the standard "sell, thanks, forget" scheme. You should become your customers' best friend and confidant. To create this emotional connection, share useful content on your blog, social media and external platforms. Claspo widgets can promote and redirect to valuable content on your blog, invite visitors to join your social media community or collect their email addresses for regular newsletters that make life a little better.

A great example of an emotional connection with customers is demonstrated by Nike, which launched the ‘Find Your Greatness’ campaign. It motivated its customers to find the energy in themselves and achieve success with their own efforts. The campaign increased Nike's revenue by about $500 million and the number of loyalty program participants by 55%.

3. Increase your social media engagement

Most people want to feel part of a community. To give them this chance and, at the same time, improve customer loyalty and retention, build your own social media community. Don't limit yourself to merely commercial and information content — mix it up with entertaining materials and relevant humor. Engage in dialogues in the comments and thank your followers for their activity. You can also use standard SMM tools to increase engagement, such as prize giveaways, contests and user-generated content. 

Chipotle is one of the most active brands on social media. The company was one of the first to recognize the potential of the TikTok platform. By launching two challenges on it, it collected more than 670 million views, significantly increasing the reach of the target audience. 

Conclusions

The concepts of customer retention and loyalty are so interrelated that it is impossible to say for sure which one precedes the other. And yet there are significant differences between them. Retention brings more benefits in the short term and is easier to analyze. Loyalty is aimed at distant horizons but provides even greater material benefits and improves brand reputation.

Whatever strategy you choose now, Claspo will help you successfully implement it on your website. Simplifying the customer journey, personalization, collecting feedback, promoting a loyalty program, and valuable content are just a tiny part of our superpowers! Get started with our free plan and see that our widgets can do an excellent job for your business.