The Development of a Loyalty Program - Literature review Example

When customers are loyal, profits are increased. The value of customer loyalty has been implicated in increased profits from anywhere from 18% to 125% (Kincaid, 2003, p. 9).  This is because it costs less to retain existing customers than it does to recruit new ones. Moreover, existing customers cost less to manage, as they are less likely to call the company during peak hours and are more likely to know about the product. Additionally, loyal customers are more likely than satisfied customers to buy additional products from the company, which increases profits still further (Szwarc, 2005).
Rust et al. (2000) view the issue of customer loyalty in terms of transactions versus relationships. They state that the era between 1920 and 1960 was a product-focused era, in which the emphasis, in advertising and marketing, was on the product itself. This mindset gradually changed, however, as companies began to realize that the relationship between the customer and the service provider was more important than the individual transaction. Thus, customer satisfaction came to be viewed as more important to these companies than product ads and single transactions. Current sales became less important to companies than the prospect for future sales (Rust et al. 2000). Levitt (1993) states that customer loyalty comes from effectively managing relationships. To do this, the company must build awareness of problems and opportunities. It must also assess what is necessary to get desired results.  Accountability is another prong that Levitt (1993) states are important, as businesses must establish regular reporting on individual and group relationships. Actions are the last prong of effectively managing relationships, and this means that companies must make decisions and establish routines and communications that target important relationships (Levitt, 1993).
Reichheld (1996) states that there are three rules of thumb to remember regarding customer loyalty. The first rule is that some customers are inherently loyal, in that they inherently prefer predictability and stability in their relationships with stores and brands. The second rule is that some customers are more profitable than others – they pay their bills on time, they spend more money and they require less service. The third rule is that the company should not try to be all things to all people, and needs to find its particular strengths and match these strengths with customers’ needs and opportunities (Reichheld, 1996).  Regarding the first rule, that some customers are inherently loyal, Robinson and Etherington (2006) argue that most customers want to be loyal, especially in today’s ever-changing world. They argue that individuals have a need to belong, and want to belong to customer communities for brands and companies that they like (Etherington 2006).
Among the developments in the past 20 years which have affected loyalty, according to Szwarc (2005) are new technologies and exporting jobs overseas. While new technology, such as “phone trees” in which a customer talks to a computer, as opposed to a live person, as well as transporting jobs overseas, are cost-cutting measures, they also affect customer loyalty. Customers want and need to talk to a human being, so phone trees are often off-putting.