Predictors of Customers Loyalty - Essay Example

Customer loyalty Author Course Tutor Date Table of Contents 1.0 Introduction....................................................................................................................3 2.0 Statement of purpose......................................................................................................3 3.0 How to measure loyalty…………….............................................................................3 3.1 Purchasing………….……………………………………….........................................4 3.2 Advocacy…………………………...............................................................................4 3.3 Retention……………………………............................................................................4 4.0 Predictors of customers loyalty……………..................................................................5 4.1 Trust……………….......................................................................................................5 4.2 Customer satisfaction…………………………………………………………………6 4.3 Commitment………….…………………………………….........................................6 5.0 Cultural differences and loyalty…................................................................................7 6.0 Importance of customer loyalty……............................................................................7 6.1 Economic benefit .........................................................................................................8 6.2 Benefits to the consumer..............................................................................................9 6.3 Relational advantage to the company………………….…………………………….9 7.0 Implications…….………………..………................................................................10 8.0 Conclusion…………………......................................................................................10 List of References........................................................................................………..11 1.0 Introduction Customer loyalty is a topic of concern for both business practitioners and academia. Most business operations have found that having loyal customers is beneficial, and it helps the business to grow (Wetsch, 2005). Loyalty concepts and their measures can be used by the business practitioners to predict customer behaviours related to customer retention, the recommendations they give, and unwillingness to look for alternatives (Uncles, Dowling and Hammond, 2003). Loyalty can be associated to a service, brand or the company. Customer loyalty is defined in respect to how a customer is attracted to a particular object. Loyal customers help in marketing companies; are not price sensitive, and often spend a lot on the brand for which they are committed (Baumann, Elliott and Burton, 2012). The study shall discuss customer loyalty as a consideration for the successful business commitments. 2.0 Statement of purpose Many companies struggle to achieve customer loyalty in their daily operations with a lot of focus being on creating a strong loyal customer base. Increase in competition in various business sectors has made companies realize the importance and the need for having loyal customers (Hayes, 2011). The paper is intended to discuss an overview of customer loyalty, and its relevance to business practitioners. 3.0 How to measure loyalty Measuring customer loyalty requires observing the behaviours of customers in relation to how they repurchase a given brand. Growth in companies with customer loyalty is higher compared to companies without customer loyalty. It is important to measure the loyalty of customers so as to develop strategies for business growth (Baumann, Burton and Elliott, 2005) In order to measure customer loyalty; companies need to understand components of customer loyalty that is, purchasing, advocacy and retention (Hayes, 2011). These customer behaviours can be used to measure customer loyalty to an organization, even though customers show loyalty to companies in different ways. 3.1 Purchasing According to Hayes (2011), customer loyalty can be measured by the purchasing pattern of customers. Customers who are loyal to a company tend to increase the purchase of products or services offered by that company, without necessarily considering the price. Customers continue buying a company’s brand because of the satisfaction they get from using the brand. 3.2 Advocacy This is where the customers talk good about the company and the products or services it offers to the public. Loyal customers would always want to share the experiences they get after using a certain brand to other people around them. They act as advocates for the company and this helps to promote the products or services. Companies are able to grow when customers recommend them to friends, because there is a possibility of them becoming customers to the company (Hayes, 2011). 3.3 Retention Hayes (2011) argues that retention is a situation where customers remain committed to a company, and are not ready and willing to defect to rivals. A loyal customer trusts what the company offers, and it may be difficult to convince such a customer to buy a different product from another company. The rate of retention and defection can be used by a company to measure customer loyalty. When customers defect to competitors, it implies that they are not loyal to the company they have defected from. The above measures of customer loyalty can also be explained using their respective indexes (Neil, Morgan and Rego, 2006). Purchasing loyalty index indicates whether loyal customers are likely to buy more product of the company. Advocacy index on the other hand, measures the positive attitude customers feel towards the product and willingness to advocate for the company. Retention loyalty index indicates whether the existing customers will continue being customers to the company. 4.0 Predictors of customer loyalty According to Uncles, Dowling and Hammond (2003), companies are supposed to establish good relationships with their customers to enable them achieve their business objectives. Management of consumer-producer relationships entails creating a balance between interests of both parties and value addition through socially established norms, commitment and trust. Business practitioners are expected to show commitment to their customers by providing quality services and products. This is intended to make the customers develop lasting relationship with business practitioners, which eventually results to customer loyalty. Therefore, trust, customer satisfaction and commitment are used to explain customer loyalty. 4.1 Trust Customers who have developed trust to a company tend to remain loyal, and this may lead to increased profitability for the company. Consumer trust explains the outcomes a consumer expects from the producer. Trust helps consumers to feel more secure and rely on the company of their preference (Wetsch, 2005). Uncles, Dowling and Hammond (2003) argue that customers who trust specific brand or business shall willfully buy products of that business. Interestingly, customers tend to build relationships with particular businesses if the benefits they get from the relationship are more than what it takes to obtain those benefits. This is an indication that all parties in the relationship incur costs and benefits. While customers expect to get value and satisfaction from the brand, business practitioners are interested in creating customer loyalty and making profits. 4.2 Customer satisfaction Customer satisfaction is the extent to which the performance of a product or service meets the consumer expectations. A customer is satisfied when the product performance meets or surpasses the expectations. On the contrary, low product performance creates customer dissatisfaction. Factors that determine customer satisfaction are perceived quality and service, and expectation (Hayes, 2011). When developing customer commitment, Eng and Kim (2006) note that the customer begins by having expectations which are tied to their past experiences, needs and value in the product. Customer’s choice of a product depends on the quality received from the first experiences with the product. A customer forms Perceived value to a product when he compares the value received from the product and what is provided by the producer. A company that provides high quality services or products will enjoy customer loyalty and high profitability. 4.3 Commitment Commitment is a product of common values, belief and trust, which is a rare scenario in many business relationships. Commitment is an important predictor of customer loyalty, and explains why business relationships continue to exist (Neil, Morgan and Rego, 2006). In a relationship that is more committed, both parties aim at striking a balance between their problems and desired goals. Customers who are committed to a certain brand or company will purchase the brand over and over again in order to maintain the relationship. Customer commitment forms through influence of attitude and behaviour. 5.0 Cultural differences and loyalty Organizations are very much challenged by the introduction of multicultural marketplaces due to globalization and increased competition. Migration patterns result to formation of multicultural populations in domestic markets, which leads to change in customer behaviour and needs (Baumann, Hamin and Tung, 2012). Increase in mass communication, and the introduction of multinational companies result to development of common markets which dilutes the role of culture in consumer loyalty (Baumann, Burton and Elliott, 2005). Many studies have tried to explain different dimensions of culture and how they are related to customer loyalty. The dimension of collectivism or individualism has received much consideration, especially in Asian-based cultures. Collectivism is the situation where individuals consider themselves as being interdependent in the society (Eng and Kim, 2006). People with collectivistic behaviour have greater concern for others in the society, and are always willing to sacrifice their interests for the benefit of the whole society. In a situation where people value collectivism, (Baumann, Elliott and Burton (2012) argue that business relationships that are formed last for long, and this supports the behaviour of customer loyalty. Some cultures display distinct consumer behaviours, and therefore producers may be required to customize their products or services to suit the needs of specific individuals. 6.0 Importance of customer loyalty Uncles, Dowling and Hammond (2003) assert that it is often not easy for companies to establish and maintain consumer loyalty. It is also beneficial for an organization to maintain its loyal customers than to get new customers. Loyal customers benefit a company in different ways. Such customers stay in a long relationship with the company, they sell the company to other people and they are not price sensitive. Customer loyalty benefits business practitioners in the following ways. 6.1 Economic benefits The main reason why companies do marketing according to Uncles, Dowling and Hammond (2003) is to increase their profit margin. The ultimate goal for marketing is for companies to make their customers clients, and also to turn prospect customers into business partners. Many companies focus on retaining their customers since it is economical than getting new customers. Customer retention has the following economic benefits to the company. a) The company benefits from price premiums because consumers make purchasing decision even without waiting for a promotion or the price to reduce b) The cost of acquiring new customers and replacing loyal customers is reduced c) The company gets new customers through referrals by the existing customers, which is a saving in terms of introductory fees d) Operational costs reduces since the company is able to spread its cost over many consumers for a considerably long time e) The company is guaranteed of base profits since the loyal customers are most likely spend in every period f) Increase in per-customers revenue because of frequent purchases by the existing customers 6.2 Benefits to the customer In order for business relationships to exist for long, promises made to the customers must be kept. The consumer is able to benefit from lasting relationship in terms of increased confidence in the company, increase in efficiency, reduced risks and economic advantages. These benefits can either be functional or social (Hayes, 2011). A customer who is loyal will be able to save time in a more convenient way, and will be in a position to make an appropriate purchasing decision. Such a customer shall also enjoy a more pleasant and comfortable relationship with the company. Stable relationships reduce the possibilities of making poor purchase choice (Neil, Morgan and Rego, 2006). 6.3 Relational advantages to the company According to Wetsch (2005), customer loyalty makes business operations to improve due to the advantages of loyal customers. Loyal customers strengthen the brand, and this prevents competitors from enticing customers to buying their brand. A company that has established a strong customer loyalty shall incur low cost of marketing its brand since customers understand the company very well, and the quality of its products. Loyalty could be either affective of behavioral, depending on how it occurs. Affective loyalty benefits a company in terms of customers developing a positive attitude towards their brand. Behaviour loyalty indicates how frequent an individual purchases a certain brand (Uncles, Dowling and Hammond, 2003). It is important that companies be affective and effective when making relationships with their customers in order to maintain personal and social bonds for the benefit of their business. 7.0 Implications The paper indicates that many companies are focusing on maintaining loyal customers because of the associated benefits. The existence of loyal customers in companies is due to close relationships with customers which are well nurtured (Hayes, 2011). Customer loyalty benefits the company, and customers are able to be loyal to a company if they are provided with quality services or products. This implies that a good seller-buyer relationship occurs when both parties benefit from each other. This paper provides a basis for further research in the area of customer loyalty. 8.0 Conclusion In conclusion, the paper indicates that customer loyalty is established through strong and beneficial relationships between the sellers and buyers. Customer loyalty is measured by the purchasing behaviour of customers, how they advocate for the company and the ability of the company to retain its customers. The paper identified predictors of loyalty to be trust, customer satisfaction, and commitment. A culture with a belief of collectivism creates a basis for a strong customer loyalty. The paper also explained the benefits of customer loyalty to business and customers. A loyal customer benefits from a company in terms of having a lasting relationship that brings economic advantages to the customer. The paper indicated that companies who are in good relationship with their customers incur less cost, and this increases their profitability and growth. List of References Baumann, C. Burton, S. & Elliott, G. 2005 “Determinants of Customer Loyalty and Share of Wallet in Retail Banking”, Journal of Financial Services Marketing, March, Volume9,Number 3, pp.231‐248. Baumann, C. Elliott, G & Burton, S 2012 “Modeling Customer Satisfaction and Loyalty:Survey Data vs Data Mining”, Journal of Services Marketing, Vol.26 Iss: 3, pp.148‐157. Baumann, C. Hamin, and Tung, R.L 2012 “Share of wallet in Retail Banking: A comparison of Caucasians in Canada and Australia vis‐à‐vis Chinese in China and Overseas Chinese”, International Journal of Bank Marketing, Vol. 30 Iss: 2, pp. 88‐101. Eng TY, Kim EJ 2006 “An examination of the antecedents of e-customer loyalty in a Confucian culture: The case of South Korea”. Serv Ind J; 26(4): pp.437–458. Hayes, B. E. 2011 “Lessons in Loyalty”. Quality Progress, March, pp. 24-31. Neil A. Morgan and Lopo Leotte Rego, 2006 “The Value of Different Customer Sat­isfaction and Loyalty Metrics in Predicting Business Performance,” Marketing Science, Vol. 25, No. 5, pp. 426-439. Uncles, M.D. Dowling, G.R. & Hammond, K 2003 “Customer loyalty and customer loyalty programs”, Journal of Cinsumer Marketing 20(4), pp. 294-316. Wetsch, L.R. 2005 “Trust, satisfaction and loyalty in customer relationship management: an application of justice theory”, Journal of Relationship Marketing, 4(3): p.29. . Read More