The Difference between Customer Engagement and Customer Loyalty
Customer engagement and loyalty are both words that describe the relationship between a product or service and its customers and the company's customers. However, the meanings and applications of each word are different. Many people may be confusing these terms. This article will clarify the differences between the two words in an easy-to-understand manner, so please read on if you are curious.
What is customer engagement?
Customer Engagement was a term used mainly in the web industry until a few years ago, but recently it is being used in all kinds of business situations. Engagement means promise or contract. However, it is not a term that refers to "promise to the customer" or "contract with the customer," but rather "degree of intimacy with the customer."
As the term "engagement ring" can change its meaning to "love" or "intimacy" depending on the occasion of use, customer engagement represents intimacy with the customer.
The term has become widely used throughout the business because of widespread recognition of the business impact of the customer intimacy with products and services and the intimacy between companies and customers. When customer engagement is high, the following effects generally occur:
- Better word of mouth for the product, service, or company will gather and spread
- Customers will continue to use the product or service.
- They will go directly to you instead of complaining to other customers
- They will be able to give you valuable feedback on your business
- Improve the quality of your products and services while reflecting the opinions of your customers
In conventional business, it was believed that " if you make good products and sell them cheaply, sales will naturally go up." As a result, price competition has intensified in many markets, commoditization of products and services has progressed rapidly, and it has become difficult for companies to differentiate themselves.
Even if we raise the performance and quality of products and services at high unit prices, there is no way that consumers and users will accept them since low-priced products with a certain level of performance and quality are already dominating the market.
That is where customer engagement becomes the focus of attention. If a company succeeds in increasing customer intimacy, customers will become fans of products and services, preventing them from leaving the company and providing various business benefits. Also, with valuable opinions we hear from our customers, we can improve quality from the customer's point of view, resulting in a positive spiral for both the company and the customer.
What is customer loyalty?
Customer Loyalty is a measure of customer sentiment, such as by conducting surveys. Loyalty is a measure of how much loyalty a customer has to a product, service, or company. However, since loyalty is a term that creates a positional relationship, it is often rephrased as loyalty = attachment.
You may be thinking, "How is this different from customer engagement? The difference between the two stems from their respective research processes. Loyalty is measured using the Net Promoter Score (NPS) indicator, while the measurement of customer engagement is done based on the actual actions taken by customers.
In short, loyalty is an indicator that focuses on customer emotions, while customer engagement is an indicator that focuses on customer behavior.
What is NPS?
Score from 0 to 10 points, "How much would you like to recommend this product (service) to your family and close friends?" Do you remember answering such a questionnaire? That is a question for measuring NPS, and NPS is an indicator for numerically measuring loyalty by asking these questions to customers.
In 2003, Fredrik F. Reichheld, Director Emeritus of Bain & Company, a major U.S. consulting firm, published an article in the Harvard Business Review (a U.S. management journal). It has spread rapidly, with world-famous companies such as Apple and Lego proving its effectiveness.
In NPS, asks customers the questions mentioned above, classifying customers who score 0-6 as "critics," customers who score 7-8 as "neutrals," and customers who score 9-10 as "recommenders." The final indicator of the NPS is then the percentage of recommenders minus the percentage of critics.
For example, if the ratio of recommenders is 50% and the ratio of critics is 30%, the result will be "50% - 30% = 20%. On the other hand, if the NPS value is negative, it means that loyalty is declining.
The difference between NPS and the traditional "customer satisfaction" is that NPS is linked to profitability. NPS quantifies future behavior by asking the question, "Would you recommend us to others?"
Difference between Customer Engagement and Loyalty
If you've read this far, you've already concluded, but let me summarize the difference between customer engagement and loyalty again.
- Customer engagement: Represents the customer's actual behavior, their closeness to a product or service, or their closeness to the company
- Royalties: Conducts NPS-focused surveys to express attachment to products, services, and companies
The difference between the two terms may lead you to ask, "Isn't customer engagement the one that the company should prioritize pursuing?" That's the right answer. Customer engagement is an indicator that includes a certain amount of loyalty, so even if you don't operate the two differently, you'll naturally increase loyalty if you try to improve customer engagement.
However, in some cases, it is not easy to grasp future profitability from customer engagement. In such a case, it is necessary to implement NPS and other measures to measure loyalty, understand profitability, and rethink business strategies.
In other words, one or the other is not necessarily more important than the other. The ideal situation is to focus on improving customer engagement while also caring about loyalty. So it is necessary to operate many KPIs (Key Performance Indicators) and set appropriate KPIs for each product or service feature and business goal.
Did you understand the difference between customer engagement and loyalty? If you have not yet adopted these indicators, please take this opportunity to consider implementing them in your business.