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What Are Customer Loyalty And Retention And Why Are They So Important?

In the simplest terms,  is a lasting relationship that has been cultivated with a client or customer resulting from consistently positive emotional experiences, customer satisfaction, and perceived value of an experience, product, or service. Customer loyalty is when a customer not only recognizes that your business satisfied them and provided them with a positive purchasing experience, but they feel a connection to your brand that inspires them to return again and again for the same great service.

Customer retention is the ability of a company, product, or service to retain its customers over a significant period of time. It’s a business’s ability to create not only a positive customer purchasing experience, but establish a relationship and emotional connection that inspires customer loyalty.

In the online business community it’s easy to think that you need to spend all of your resources – both time and money – on customer acquisition marketing. But this is one of the most damaging mistakes of eCommerce and online business industry.

Acquiring a new customer can cost five times more than retaining an existing customer, so a much more valuable focus for your time and finances is to develop a quality customer retention strategy.

Cultivating Customer Loyalty and Retention Through Loyalty Programs

Customer retention can be established through a variety of methods, including fine-tuning website functionality and usability for a more positive customer experience, email marketing, social media marketing, and more.

One of the most effective ways to focus on customer loyalty and retention is to develop a quality Customer Loyalty Program, in fact 84% of consumers say they’re more apt to stick with a brand that offers a loyalty program.

What Is A Customer Loyalty Program And Why Do I Need One?

A Customer Loyalty Program is a structured marketing strategy designed by businesses to encourage customers to continue to shop at or use the products and/or services that they offer.

Many business owners get caught up in the practices of driving traffic to their website, or implementing conversion strategies.

They want to focus on increasing website visits and clicks, and they forget one important principle: the return customer is your bread and butter. 

Attracting new customers can be very rewarding, but it also often involves a lot of hard work and expense. In a recent study, over 70% of business owners said it was cheaper for them to retain a customer than acquire one.

Acquiring a new customer takes developing strategies, paid advertising campaigns, generating quality content, multiple points of contact, and more.

The practices to  boost  traffic  and  increase  conversions  take  a significant amount of time and energy, and can be costly when you factor in the time required to be successful.

How Can Customer Loyalty And Retention Practices Create Exponential Growth?

Focusing on how to get customer loyalty and retention is going to be  more cost efficient, and will also help you to grow your customer base exponentially year after year.

A common example used to illustrate exponential growth is this:

Imagine two companies side-by-side. They have identical marketing strategies, and have invested the same amount of dollars and time into their marketing campaigns. Each year they add new customers at a rate of 20 percent per year. 

Company A has invested time and energy into a customer retention strategy, and retains 90 percent of their customers each year.

Company B is satisfied with the traffic from their marketing strategy, and does not put any focus on customer retention. This company only retains 80 percent of their customers each year.

This means that Company A will have a 10 percent growth in their customer base every year, while Company B will have no growth, consistently just breaking even every year.

A 10 percent growth rate in one year may seem insignificant, but if you stretch this over seven years, Company A will have doubled its customer base, while Company B will not have grown by much, if anything at all. 

A seemingly small change in customer retention can greatly affect your long-term growth as a business.

What Kinds Of Customer Loyalty Programs Are There?

There are several different kinds of customer loyalty programs that will assist you in your customer loyalty and retention strategy. It’s up to you to decide which loyalty program best suits the needs of your business and your customer base.

1. Points Programs

A points program is the most common program, probably because it is the simplest. The basic principle is “spend more money, get more points.” 

Every time a customer makes a purchase they receive a credit of a certain number of points that is directly proportionate to the size of their purchase.  

These points are then translated into a reward, whether it is a discount, a cash credit, or a free product or service.

Although this method is easily the most popular points program, it is not the most advisable. Customers don’t like having to translate points into dollars, and they are much more motivated to use a program that rewards them in real dollars or more calculable benefits.

2. Tiered Program

A tiered program is another popular program, but has been found to be vastly more successful and economical, as it helps cultivate an emotional response to your business and brand. 

Research shows that if you can create an emotional connection between your brand and your customer, they have an estimated 306% higher lifetime value as a customer.

A tiered loyalty program works by awarding customers permanent perks and benefits depending on their “rank” as a customer. The longer a customer belongs to your loyalty program, or the more they have invested into your brand, the better the perks they earn.

Unlike other “earn and burn” loyalty points, where you earn points and spend them until your reward balance drops back down to zero, tiered loyalty rewards increase in value as the customer progresses in the reward program.

These customer ranks can be determined by anything, from how many dollars they’ve spent in a year, or how many purchases they’ve made over a lifetime, but it is always determined by how engaged your customer has been with your brand. 

Tiered loyalty programs have been proven to be more fun for the consumer, more socially driven, and excellent for not only expanding your customer base and increasing their lifetime value, but promoting your brand to a wider audience.

3. Paid Program

Paid loyalty programs can be great resources for gaining more revenue for your brand, as long as you are offering the right product or service to the right audience.

With a paid  loyalty  program,  customers  pay a monthly or annual fee to join your VIP membership or club.

This membership fee offers your customers access to valuable services, discounts, promotions or unique opportunities for your customer that are not available outside of the loyalty program.

Offering a paid loyalty program is a great way to generate higher sales: if a customer is willing to pay a membership fee for your goods and services, they are already primed to buy from your brand.

The value of your ongoing interactions increases greatly, and you’re more likely to make more sales through email marketing, promotions and sales events.

4. Spend Program


Although the spend loyalty program method is simplistic, it has been proven to drive sales and increase customer retention.

The process is simple: customers earn loyalty credits per each dollar spent on your brand.

The spend method works best in real dollars: offering 5% cash back, or a $10 discount for every $100 dollars spent.

Customers like seeing rewards in real dollars, and accruing rewards that can only be used on future transactions keeps customers coming back to make more purchases in the future. 

Our Final Thoughts

Spend some time strategizing: decide which loyalty program is most realistic for your brand. 

Customer loyalty is the most powerful sales and marketing tool that you have, and implementing the correct strategy for your business will be key in developing a successful rewards program that keeps your customers invested in your brand.

Never be afraid to adapt and change: online marketing is all about innovation. As the industry changes and evolves, so should your online business.

Need Help Getting Started?

Developing a successful customer loyalty and retention strategy is a great step for your business, but can take a lot of time and energy.

If you aren’t sure where to begin, we can help!

With over a decade of experience in the business of customer loyalty and retention marketing, we specialize in developing programs that are right for you and your business and will help you reach the conversions goals you’re aiming for.

Contact us today, or submit a comment below to sign up for a free quote and consultation!

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