The Definition of Customer Loyalty

August 27, 2011

I have been trying to find a good definition of customer loyalty in this wide world of the Internet, and I have come to the conclusion that 1) no one has figured out how to define customer loyalty or 2) I am really bad at finding information on the Internet.

Do some searches yourself; you’ll find a lot of general discussion of what customer loyalty is or concepts that are important in evaluating it — but few definitions, and no good ones.

I believe customer loyalty is one of the most important aspects of the customer service experience, and if I am going to talk about it frequently, I ought to know exactly what it is. So, I decided to take a stab at a definition:

My Definition of Customer Loyalty

Customer loyalty is the continued and regular patronage of a business in the face of alternative economic activities and competitive attempts to disrupt the relationship.

Customer loyalty often results in other secondary benefits to the firm such as brand advocacy, direct referrals, and price insensitivity.

While certainly sounding a bit wonkish (sorry, the academic inclinations slip through on occasion), the definition above is admittedly a theoretical approach. It succeeds as a theoretical construct in that it is comprehensive, but it fails in practical application because it is not easily measurable. The two qualifiers in the definition demonstrate this well.

Your Customer Could Have Gone to Olive Garden
I have always been grateful for business, but since the crash, that gratitude has been taken to another level. For the most part, people’s dollars are more precious now. The $50 someone spends at my place could have been used to take their family to dinner or to pay down their mortgage. Understanding the opportunity costs, the alternative economic activities, of your customers is a great mindset with which to approach their business, but it is not measurable and is ultimately useless as a way to measure customer loyalty.

When the Customer’s Away, The Competitor Will Play
As the saying goes, you don’t know what you don’t know. You really don’t know when, where or how often your competitors are interacting with your clients. Sure, you will have a sense of some things. You might see a competitor’s major marketing campaign or a friendly receptionist at your client’s company might tip you off that the competitor was in for a meeting. But you will never really know how often competitive interests are attempting to interdict the relationship between you and your customer. And you almost certainly cannot use this concept to definitively measure customer loyalty.

In the end, your customer’s loyalty can be difficult to define and difficult to measure. On a theoretical level, they either did something else with the money or they spent it with a competitor. That simple. However finding the measurements that allow a business to accurately define and gauge the loyalty of their customers is much more challenging, varying by industry and even niche.

Is loyalty the same for a restaurant and a PR firm, for a day spa and maintenance company? Once you begin to drill down to measurable metrics, probably not.

I will leave methods for measuring customer loyalty and techniques for how to increase customer loyalty for future posts. For now, we can find value in the theoretical and simply consider what the concept means in our own businesses. We can look at the people we consider to be our most loyal customers and see what they have in common. What, in our mind, makes them loyal, and what did we do to make them that way? So let me know…

How would you define a loyal customer in your business? What behaviors does that person exhibit that make her loyal? Have you ever tried to measure loyalty or at least think about the differences between your most loyal and your least loyal clients? How can we improve my definition?

PS. If you find a good definition of customer loyalty elsewhere, please share it in the comment section, along with the source.

26 thoughts on “The Definition of Customer Loyalty”

  1. Great post, Adam, and one that puts me in mind of the book, “The Butterfly Customer ~ Capturing the Loyalty of Today’s Elusive Customer”. And although it was written in 1997, much of its content rings true today. I will use the authors’ take here to define customer loyalty:

    The authors talk about Butterfly Customers: transient visitors who flit from place to place, as opposed to Monarch customers. Monarch butterflies fly predictable courses and return to the same haunts, “loyal as loyal can be”.

    The key line in the book for me comes in the Preface: “What does the Butterfly Customer need to become loyal? Just one thing, to find you worthy of their trust.”

    I think that rings quite true today, as we hear over and over again that people do business with people they know, like and trust.

    So for me, loyalty’s about creating Monarch customers by giving them reason, over and over again, to know, like and trust us. My two cents, FWIW. Cheers! Kaarina

    1. Kaarina,

      I love the Monarch concept — except butterfly analogies still make me think of Hannibal Lechter. 🙂

      I would agree that trust is a key component of loyalty, and one that is universal across industries and niches. In some ways, you could consider it the base that makes the other factors possible. If there’s not trust, things like value and service fall by the wayside.

      Thanks for the excellent perspective! Appreciated as always!

  2. I liked your definition; it’s almost one of those things, you know what it looks like but you just can’t quite define it.

    I do know I would rather have a loyal customer than a satisfied customer. Granted if they are loyal they are probably satisfied customers, but a loyal customer will give you the benefit of the doubt.

    I’ll ditto what Kaarina had to say about achieving that level of trust, essentially being handed the keys to the car.

    I will be interested to see what others might come up with; but I do like your definition.

    Thanks for sharing.

    1. “you know what it looks like but you just can’t quite define it”… Exactly Bill! And that is the catch, defining it is difficult but the only way to measure if you are being successful at generating loyalty.

      I completely agree about loyalty versus satisfaction. Satisfaction is a temporary state and can easily change to dissatisfaction. As you point out, if you have created customer loyalty, you will often be given the chance to remedy any dissatisfaction, to be given the benefit of the doubt.

      Thanks for the thumbs up on the definition. We’ll see if Merriam Webster calls! 🙂

  3. Hi Adam,

    I would divide customer loyalty into two parts : tangible and intangible. If the customer has gone ahead and done the business with you twice, you may safely say they are loyal in terms of tangible terms. This is very measurable.
    The intangible part is the one that we cannot see. It is also word of mouth, keeping the good memories of doing business and others. I often remember some of the surprises ( positive ) that one of my favorite hotel gives. Of course they are good at what they do , so I don’t expect anything over and beyond. But I am always surprised by their out of the turn services. There is no monetary transaction here but I am impressed and I tell ten different people about and thus the business of the hotel gains. If they keep doing this, I am sure it compounds very well. This too can be measured for example by measuring the references but I think organizations will soon know if they are doing great. After all everyone would be talking about them 🙂

    1. Hi Ashvini,

      I like how you divide it into tangible loyalty and intangible loyalty. I would add that the “intangible” items are really the secondary effects of loyalty.

      You mention your favorite hotel that gives you great service. For this service, they get your loyalty — so you continue to go to their shop. But that great service also inspires you to be an ambassador for their company and tell other people — which is what every business wants!

      It’s great to see you again Ashvini! Thanks so much for sharing your thoughts.

  4. Great!!! This is what I’ve been looking for, I enjoyed reading this article it’s very informative… Thanks

  5. The picture you shared and the headline reminded me of a story I recently read.

    Jon Tumilson was a Navy Petty Officer 1st Class who was one of 30 Americans who recently died in the Chinook helicopter crash earlier this month in Afghanistan.

    The funeral was held not too long ago and something unexpected happened. In the middle of the service, Tumilson’s pet labrador retriever proceeded to walk up the aisle until he was just a few feet in front of the casket. He then mournfully layed himself down as the remainder of the services continued.

    However, the audience was instantly touched and tears were flowing incredibly. I couldn’t think of a better example of loyalty. From a loyal marine to his loyal dog, it was a remarkable experience.

    At the funeral, Hawkeye walked up the aisle to lay mournfully beside the casket of Tumilson for the remainder of the services.

    1. Hey Bryce,

      Thanks for sharing that story. I had seen that last week on another blog, and it was very touching. I don’t think any customer loyalty can approach the loyalty of a dog. Not even Apple’s customers. 🙂

      When I chose the photo, I was actually thinking of a famous dog who is a national legend in Japan. After his owner died, he went to the train station every day for 11 years to wait for him. Here’s a link for that story:

      Thanks for stopping by and sharing the story. A gracious nod to our troops and their dogs.

  6. Adam, customer loyalty to me, for my small business, is when they keep coming back even after we royally screwed something up. They have every right in the world to take their business somewhere else, and yet for some reason, stick with us.

    Locally, if there is one business that always amazes me with their extreme customer loyalty, it’s Wawa. It’s been a staple ever since I was a kid, and now even as fast as they are expanding, they still have the customer on their side. Pretty cool stuff!

    Terrific post! Talk soon – Adam

    1. Hey Adam, I couldn’t agree more about screwing up. That is one of the truest tests of customer loyalty — will they give you a second chance and the ability to make it right? The wonderful part about that chance-to-fix is it often makes customers even more loyal when you have rectified the situation.

      We don’t have WaWa here but I would be interested in hearing one day what they do that is so special.

      Thanks for the great support. I appreciate it!

  7. Hi Adam,

    Try using the eMarketing Matador Marketing Search Engine. I found this post there on a search for ‘definition of customer loyalty’ and you may others you may find interesting.

  8. Your definition is just right. It is quite hard to define customer loyalty but I would say it is when a customer comes back more than once. Customer loyalty can really help a growing business and if customers are loyal to you then give them the best customer care service you can offer in order to maintain this.

  9. Customer loyalty is truly an important aspect to be able to determine how engaging your business is. Establishing a good relationship with customers is must in every success of a business. Thanks a lot for sharing this article! Great job!

  10. Details provided are perfect we can understand easily…

    Thanks a lot the information, learnt a lot…….

  11. I agree with the concept about customer loyality, But the problem is i found this Question about custome loyality and i failed to face it. Please help if you can…….

    Customer loyalty is preached by most of the managers in tourism and hospitality industry for the betterment/success of their organization. Although, as every manager talks about customer loyalty and marketing relations, that isn’t case/way they are working in those organization. In fact, too many organizations works not in the line of customer loyalty and marketing relations, discuss how these organizations works differently.

    1. Hi Immanuel,

      Thank you for your comment. I’m not sure I understand your question fully. If you are asking about the disconnect between what many companies say regarding customer loyalty and what they do, I would agree that is a very real challenge for many companies. Almost always, this stems from company leadership who want to put on the appearance of a “focus on loyalty” but do not want to put the investment in time or capital that loyalty/service initiatives require. Upgrading service and experience levels usually requires an investment that does not pay back in the short term, and unfortunately, many organizations “manage to the quarter.”

      I hope that answers your question!

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  13. Adam, you’ve tackled a tough question with a pretty good definition. The one part I struggle with is “alternate economic activities.” Does this mean that if I have $5 to spend and I decide to spend it at Starbucks, I’m loyal to Starbucks because I didn’t use the $5 to make an extra contribution to my IRA?

    I’m not sure if this is what you mean or not, but I’d define loyalty in this example as I spent $5 on a latte at Starbucks even though I could have spent $4 on a latte at McDonald’s or $5 on a latte at “Joe’s Cafe” that was 4 blocks closer than the Starbucks.

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  15. Good team work and quality contributions here.
    Adding to the subject topic as it were is the fact that your loyal customers respect and adhere to your organisation operational principles in relation to the do and don’t.
    Thanks you all!

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