Customer Loyalty in Marketing - Essay Example

Customer loyalty

Loyalty implies the relationship between a consumer’s attitudinal inclination towards a product and the repeat support of that product. Customer loyalty results from customer satisfaction due to the quality of products and services and is the driving force for profitability.

The concept of customer loyalty revolves around the idea that the acquirement of new consumers is more costly compared to retaining an existing customer. Customer loyalty is also associated overriding price barriers and not affected by price changes (Dick & Kunal, 1994, 108). Loyal customers also provide advertisement for the company through the provision of free word of mouth referrals and advertisement. Customer loyalty also cushions the firm and allows it to get back in the event of a service or product failure. Acquiring knowledge on customer loyalty also assists in improving negotiations with customers and enhancing the effectiveness of the marketing strategies of a firm. Since customer loyalty is correlated positively with employee loyalty, a firm can use employee loyalty as a reflection of its employee loyalty (Basak & Bob 2011, p.128). Customer loyalty is also associated with frequent and similar orders for customers, which results in reduced costs in service. Consumer loyalty significantly reduces the cost and effort necessary for the firm as loyal consumers are likely to purchase even without marketing.

Types of loyalty in marketing

Contractual loyalty

This type of loyalty arises when a customer purchases from a business using a formal contract. Where a client is bound to the firm for a certain period owing to a contractual arrangement and legal reasons then a contractual reason for loyalty subsists. This type of loyalty is often common in business-to-business transactions (Wong & Sohal, 2003, 495). This type of loyalty also applies to consumer situations that involve subscriptions such as telephone, newspapers, broadband services, cable, and magazine subscriptions. The profitability of this kind of contract stems from the contracts net present value (Xiang, 2010, 327).

However, this loyalty scheme becomes unprofitable when there are negotiations on contracts and in circumstances where competitors employ aggressive marketing techniques to lure customers from the business. Contractual loyalty on can prompt customer dissatisfaction, as the customers may feel confined by the contractual arrangement (Rosalind & O'Neill, 2010, 36).

Transactional loyalty

Transactional loyalty results from repeat purchasing by a customer without contractual obligations. This type of loyalty results from elements such as convenience, value perception, and price. Where the consumer is in the marketplace for a product and a firm has such a product the customer is at liberty to switch where they find a better deal. Transactional loyalty is easy to manipulate with the use of promotions and reward programs (Robert 2010, 70).

It is also significant to note that this type of loyalty can be attained exclusively through the customer's perception of the cost associated with moving from the firm. An instance of this is a case where consumers identify difficulty with switching between banks for marginal value propositions (Han & Chunxiao, 2008, 40).

Functional loyalty

Functional loyalty arises where the customer perceives every aspect of the product as superior and, therefore, preferable. This type of loyalty is based on the functionality of the product, and the customer prefers this functionality. When a telecommunication company provides a better network coverage near the home of a consumer, then the consumer will be functionally loyal to that company (DeWitt & Marshall 2008, 272).

Differentiation often stems from functional loyalty. This loyalty can also be attained through the provision of as a product that is physically and substantially different and yet functional to customers who prioritize the advantages (Mattila, 2004, 146).

Emotional loyalty

Emotional loyalty is a function of the customer’s ego, sensibilities, values, and other intangibles. A customer grows interest in a product or a service founded on their appeal. The brand of the product or the firm is a hugely crucial element in this respect as it enables the customer to identify with it. Customers do not usually seek functional benefits from such a product but rather seek nonfunctional benefits from the experience or association related to the product. The benefit of this loyalty is that

It can withstand challenges associated with the product or service. Thus, the customers who are emotionally loyal to a service or a product are able to forgive errors in the products or delivery of services and maintain loyalty to the firm. Additionally emotional loyalty is often connected with price premiums in influential brands that have no apparent differences in the value, function, form, or convenience (Corstjens, 2000, 281).

Measurement of loyalty

The approaches to the measurement of customer loyalty can either be objective or subjective approaches. Objective approach to the measurement of customer loyalty includes metrics captured systems and involves hard figures concerning behaviors of the customer, which are valuable to the firm (Söderlund 2006, 76). The data used in such scenarios can be acquired from past records and additional objective sources, such as records of purchase and online behavior. Examples of data used in the objective approach include computer created records for instance the time a customer spends on a website, the number of products or services sold and whether customers renewed their subscriptions.

Conversely, the subjective approach to measurement of customer loyalty involves the use of soft numbers in respect to customer loyalty (Sritharan, Tamizh and Rajakumar 2008, 52). The metrics used in the subjective approach comprise self-reports from customers’ on their feelings about the firm and their behavior toward the firm. Examples of data in the subjective approach include the rating of customers from standardized survey queries (Wirtz, Mattila and Lwin 2009, 330).

Although most firms have both the subjective and the objective approaches to the measurement of customer loyalty, most of them maintain customer surveys as the most significant approach in the measurement of customer loyalty (Clark & Maher, 2007, 70). Moreover, the use of surveys continues to be the foundation of management programs relying on customer experience. Thus, firms employ customer surveys in measurement of customer loyalty rather than exclusively trusting objective metrics for customer loyalty. This is because customer surveys permit companies conveniently and swiftly measure the levels of customer loyalty. Additionally customer surveys offer in depth information regarding the experiences of the customer. This information can be easily used to change the organizational process of the firm and enable a forward perception into customer loyalty (Andreassen & Lindestad , 2013).

Indicator of loyalty

In order to measure customer loyalty effectively, it becomes necessary to recognize loyalty indicators. Each type of loyalty is open to its own set of variations. Concerning contractual loyalty, it is necessary to note that customers are buying in respect of the contractual agreement, and; therefore, the agreement should be measured together with its status (Gracia et al, 2011, p.463). Ways to measure this include the market share under the contract, the profitability of the contract, customer distribution and the rates of renewing the contracts. The rate of expanding the contract into new markets or new product lines as well the effectiveness of price changes on the renewal rates need also be measured (Velázquez et al, 2011, p.67).

Transactional loyalty, on the other hand, involves customers who are associated with patterns that are reflective of data analytics for instance the changes in the customer’s frequency of monetary value and the velocity of change in the mobility of the customer. Behavior and trends in the cross-category purchase and the latency of purchases, as well as the frequency in the distribution of the customer’s transaction value, also act as indicators of transactional loyalty (Schmitt, Zarantonello, Lia and Brakus 2009, 58).

With the functional loyalty, the key to measurement is closely monitoring the root of the functional preference. The approaches to the measurement of this loyalty include awareness of the key functional dimensions of the product, and variety of the perceptions of customers in light of the products of the competitors. The willingness of a consumer to recommend a product as well as the price elasticity of a product is indicators used in measuring loyalty (Dawes 2012).

In measuring emotional loyalty, attitudinal surveys on the main features of the product play a significant role. A feature such as “liking” a product and “trusting” a brand act as a measure of customer loyalty (Lam & Bvsan, 2004, p.299). Price insensitivity, competitive brand preference, resistance to competition, general brand preference, and tolerance to problems also serve to measure customer loyalty.

Benefits of measuring customer loyalty

In order to effectively measure loyalty and benefit from such measurement, it is essential to understand the benefits related to measuring consumer loyalty. Without these benefits of measuring consumer, loyalty then measuring consumer loyalty becomes useless. Employing the correct measurement techniques in customer loyalty presents a firm with advantages that lack in firms who do not measure loyalty (McMullan & Gilmore, 2008, 1087).

Measuring customer loyalty provides targeted solutions aimed optimizing the different types of customer loyalty. Customer loyalty measurement assists the company identify why consumers are leaving the firm or product and helps in finding a solution aimed at retention of these customers. Measurement of customer loyalty can also assist in improving customer-purchasing behaviors (Gummerus et al, 2004, p.175).

Measuring consumer loyalty also helps to ascertain the key performance indicators related to each type of customer loyalty, which are drivers to consumer loyalty identification of key performance indicators ensures that the firm keeps monitoring all the essential; customer experience areas. It also focuses the firm in providing goods or services that are aimed at consumer loyalty and reflects on the consumer’s preferences.

Measuring consumer loyalty also provides a more accurate return on investment for the firm especially concerning improvement initiatives. Return on investment is the ratio of extra revenue as a result of improved loyalty to the cost of the product (Palmatier & Steen 2007, 188).