A lot of companies look at customer loyalty the wrong way.

Without question, loyalty is important. Loyal customers hang on for years, devote a larger share of their wallet to the company, and recommend the company to their friends. Customer loyalty, in short, helps drive profits.

But what too many companies fail to understand is this: Loyalty does not always equal profits. In fact, many companies don’t know how to recognize—and thus encourage—the kind of customer loyalty that’s really worth having.

Wrong Definition

We conducted an in-depth investigation into companies’ commonly held beliefs about customer loyalty and came to several conclusions: Most company surveys wrongly define what constitutes a business’s most loyal, and thus desirable, customers; lots of managers chase after these customers mistakenly thinking they hold the key to bigger profits; and the majority of customers whom many companies see as loyal are not even profitable customers.

So let’s be clear about what customer loyalty is.

To be considered loyal, it shouldn’t be enough for a customer to feel a bond to a company, or to simply stick with the relationship. It should also require certain actions, or shopping behaviors, on the part of the customer.

Most corporate measures of customer loyalty focus only on feelings. But our research shows that knowing how customers feel about a company is a poor predictor of how they will behave toward the company. If data about buying behaviors are added to the mix, it can help a company identify not just who its truly loyal customers are, but which ones are profitable.