Customer

Loyalty

MonogamyAn unselfish belief in institutions or unswerving fidelity in marriage, or emotional commitment to friends.

A deeply held commitment to re-buy or re-patronize a preferred product/service consistently in the future.

A reliance on a particular brand or company even though numerous satisfactory alternatives may exist.

Three basic approaches to conceptualize loyalty: -

Behavioral ModelAttitudinal ModelSituational Model

Behavioral Model

Historical Purchasing of Brand & Competitors

Satisfactory Experiences

(Reinforcement)

Behavioral Loyalty(Divided Loyalty = Polygamous Behavior)

Loyalty mainly expressed in terms of Revealed Behavior

Attitudinal Model

Attitudes and Beliefs toward the Brand or

Company

Social Factors, influence of significant others and community

Attitudinal Loyalty(Strong Loyalty = Monogamous Behavior)

Loyalty is an attitude that some times leads to an ongoing relationship with a Brand

Situational Model

Situation and usage occasion

Consumer’s characteristics and desire for variety

Co-Determinants of Choice (Weak loyalty = Promiscuous behavior)

Loyalty as behavior moderated by the customer’s characteristics, circumstances,

and/or the Purchase situation

Measures of Loyalty

Liking and preference for the brand

Repeat purchases

Loyalty Types

True Loyalty Attitudinal Brand Loyalty

Spurious LoyaltyInertial Loyalty

Latent Loyalty

Loyalty TypesTrue loyalty = attitudinal brand loyalty. Can be undivided loyalty or divided loyalty (where person is loyal to two brands). Can be temporarily interrupted due to novelty-seeking behavior or stock out of favorite brand, price promotions, etc.

Spurious loyalty = inertial loyalty. The only brand sold.When there is no feeling at all toward brands within a particular product category and the consumer purchases whichever brand the store sells (coffee filters, vegetable oil, sugar) there may be no loyalty at all. Convenience goods are characterized by this.

Latent loyalty: Consumer feels very positive toward a brand but does not buy it, maybe due to economic situation.

Brands are not built by ad and sales promotion alone but are also built by customers’ quality experiences with the brand. By and large, these experiences are based on a customer’s interaction with the company. Chinese Restaurant

Stages of Loyalty

Cognitive loyalty – price and qualityAffective loyalty – due to satisfaction of using the

productConative loyalty – Intention to rebuying the same

brandDelivery failure may diminish this loyaltyAction loyalty – exhibiting consistent repurchase

behavior

Loyalty is Important to Profitability : Index of Customer Profits over Time

Credit card Industrial laundry Industrial Selling Auto servicing

0

(Year 1=100)

50

250

300

350 –

100

150

200

Year 1 Year 2 Year 3 Year 4 Year 5

Based on data from Reichheld and Sasser

What Makes Loyal Customers More Profitable?

Tend to spend more as relationship develops

May consolidate purchases to one supplier

Cost less to serve

Less need for information and assistance

Make fewer mistakes

Recommend new customers to firm (act as unpaid sales people)

Value Proposition of Customers

Product Performance

Customer Needs

Total cost to customer

Customer Relationship life cycle

Value Proposition Formulation

Defining target cutsomers Benefits offered Prices charges vis a vis competitors Is the proposition clearly superior?

To understand benefits of value propositions Ask customers to rank various attributes

Customer Value Chain

• Value Selection• Value Creation/delivery• Value Communication• Value Enhancement

Value Profit Chain

• Key Constituents– Customers– Employees– Investors

• Behaviours– Retention– Related sales– Referrals

Customer Expectations (enhancing value)

Supply reliability Supply lead time Quality Price Technical Support

Customer Touchpoints

Marketing & salesCustomer SupportBilling & paymentDispute ResolutionProduct Development & Testing

RFM Model Novo 2004

• Higher the score, more profitable

Life time value of Customers

Acquisition CostCLV = Average Transaction value X Frequency of

Purchase X Customer Life Expectancy

Retention Strategy

Customer valuationCustomer Retention measurementDetermine reasons for defection

Root causes (probe former customers, analyse complaints)

Develop and implement a corrective planImprove employee practicesBenchmarking

Retention Strategies build barriers to customer switching

Hotel Experience

Aviation Experience

Exploratory Growth Maturity DeclineTransaction Low Growing Stable Declining

Commitment Average Hi Decreasing Maximum Lo

Objective Both higher Both higher Retain Prevent

Policy Inform, Differentiate, Measure Satisfaction

InteractAppealCross Selling

Change Routines

Determine causes, suggest solution

Loyalty Implementation

Observation

Calculating inertial CLVBasis for segmentation

Selection

Prioritization

Leveraging

The Wheel of Loyalty

1. Build aFoundationfor Loyalty

2. Create LoyaltyBonds

3. Reduce Churn Drivers

CustomerLoyalty

Be selective in acquisition

Conduct churn diagnosticSegment the market

Use effective tiering of service.

Deliver quality service.

Deepen the relationship

Give loyalty rewards

Build higher level bonds

Implement complaint handling & service recovery

Address key churn drivers

Increase switching costs

Intensifying Loyalty

Entry Barriers• Economies of scale

• Product Differentiation

• Capital Requirements

• Switching Costs

• Access to channels of distribution

• Govt. policies

Exit Barriers• Customer learning curve

• Process Integration

• Personalisation

• Customization

• Risk reduction and trust

• Loyalty program

• Brand affinity

• Customer collaboration

• Be a standard

Measurement of relationship

• Identify and differentiate between successful and unsuccessful products

• Evaluate the quality of relationship in all cases

• Mapping those relationship with success/failure of the product

Relationship Quality Survey

Client feedback• Product related (5)

• Relationship related (5)

Relationship related inputs• Client Servicing (6)

• Managerial Role (5)

• Synergy and Integration (6)

• Personal Skill Orientation (5)

• Operations (3)

Measurement Score

Score• Below 100 (<50%)

• 100 - 129

• 130 - 169

Explanation• Lack of concern from both

organisation and individual towards customer (Serious)

• Individual commitment to customer is present but organisation goals need orientation

• Individual commitment to excellence, client servicing is adequate. System needs to be streamlined

The Customer Satisfaction-Loyalty Relationship

0

20

40

60

80

100

1 2 3 4 5Very

dissatisfied DissatisfiedNeithersatisfied

nor dissatisfiedSatisfied

VerySatisfied

Satisfaction

Near Apostle

Zone of Defection

Zone of Indifference

Zone of Affection

Terrorist

Apostle

Factors Intervening between Satisfaction and Loyalty

Shear number of competitors’ offerings

Novelty seeking

Lack of consistency in performance

New competitors offering better value or a greater variety of ancillary services

Customer expectation of future use

Customers may not want a relationship with your firm

Customer Satisfaction

• ACSI• Servqual Model• Loyalty Accounting Matrix