This document provides an overview of customer loyalty and its importance to organizations. It defines customer loyalty and discusses the benefits it provides, such as lower customer acquisition costs, word-of-mouth marketing, and shielding from price competition. The document examines different types of loyalty, like behavioral versus attitudinal, and monogamous versus polygamous. It also explores factors that influence loyalty, like the marketing mix of product, price, place, and promotion. Finally, it analyzes models for building customer loyalty, such as customer relationship management, satisfaction programs, retention programs, and loyalty reward programs.
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University of Greenwich
Learnit Institute of Business and Technology
Dar-Es-Salaam
Course: Thematic Independent Study
Topic: Essay 1
Name: Peace Sagatti Munisi
Tutor: Silvanus Mkenganyi
Words: 3919
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STATEMENT OF THE PROBLEM
Does customer loyalty still exist? This paper will discuss how essential customer loyalty still is
to organizations. It will cover the definition of customer loyalty while looking at benefits of
customer loyalty as to how important customer loyalty is to organization. After seeing the
benefits of customer loyalty, factors that influence customer loyalty will be discussed such as the
market mix theory. With new focus on having loyal customers, this essay will look at different
kinds of loyalties that exist in the market but furthermore it will explain as to how organizations
can create customers who are loyal to their products and services. In doing so, different models
of building loyal customers such as the Customer Relationship Management, Customer
Satisfaction, Customer Retention Program and Loyalty Reward Programs will be analyzed.
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Table of Contents
Introduction......................................................................................................................................6
Importance of Customer Loyalty to Organizations .........................................................................7
Types of Customer Loyalty .............................................................................................................9
Factors that influences loyalty ………………………..……………………….……………….11
How to create loyal customers …………………………….…………………………………..13
Customer Relationship Management ……………….…………………………………14
Customer Satisfaction …….……………………………………………………………14
Customer Retention Program …………………………………………………………..15
Loyalty Reward Programs..............................……………………………………… …17
Conclusion ………………………………………………………………………………….….19
References………………………………………………………………………………………20
Research Log …………………………………………………………………………………..21
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Introduction
Customer loyalty is defined as a result of consistently positive emotional experiences which are
based on satisfaction and perceived value of a product or service. According to the Business
Dictionary, customer loyalty is the possibility of previous customers to continue buying from a
specific company. Customer Loyalty Institute states that Customer loyalty is “all about attracting
the right customer, getting them to buy, buy often, buy in higher quantities and bring you even
more customers.” Customer Loyalty means different things to different organizations but one
point cross the border, customer loyalty is highly essential for any successful business.
Since customer loyalty is essential for businesses success, the first part of this paper will discuss
the importance of customer loyalty to organizations. The second part of this paper will cover the
different types behind customer loyalty such as behavioral and attitudinal loyalty, monogamous
versus polygamous types of loyalty. The third part of this essay will look on factors that affect
customer loyalty and hereby the market mix is discussed with its 4p’s. The fourth part of this
essay will analyze how organizations can build customer loyalty by discussing various theories
and programs such as the Customer Relationship Management (CRM), customer satisfaction
program, customer retention program and loyalty reward programs.
Customers tend to maximize value; they have expectation of the value of product or service then
act upon them. Thereafter, they compare the actual value to the expected one which tends to
affect their satisfaction and repurchase behavior. Due to this, this study is going to evaluate if
customer loyalty is the direct result of customer satisfaction or peoples buying behavior is a
result of the marketing mix’s four Cs namely; customer needs and wants, cost to the customer,
communication and convenience? Kotler et al, 2008
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Importance of Customer Loyalty to Organisations
In today’s competitive marketing environment, there are very few new customers to be shared by
organizations. Therefore, having customers who are loyal to businesses is of high importance
than acquiring new ones as it increases sales, creates profit and builds the brand . The costs of
making new customers are on the rise thus companies have placed emphasis on retaining
profitable customers by building long-lasting relationship with them (Aaker, 1996). So, why is it
so important for businesses to have customers who are loyal? The benefits of customer loyalty
are hereby discussed.
Why Customer Loyalty is Important?
Figure 1: the diagram shows the importance of customer loyalty in a summary
Customer
buys
product
customer
loves
product
customer
lovesthe
company
customer
needs
another
product
customer
returnsto
the
company
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Up-sell and cross-sell to loyal customers is much easier
Loyal customers are always familiar with their favorite brand and most of the times are more
than willing to try out new products and explore recommendations. Simply, a loyal customer is
more likely to sample the company’s other products (Mark et al, 2003) .
Loyal customers are organizations marketing agents
Loyal customers are more motivated to share their positive experience of the product or service
with others. But they are more likely to recommend the business to their friends, families and
acquaintances. Having a love for the brand, they will speak about it hence influence other people
whom they associate with. This type of marketing is known as word-of-mouth which is one of
the most powerful marketing channel. Moreover, loyal customers tend to reinforce their favorite
brand or business in the mind of customers who are not familiar and new to the brand (Griffin,
1995)
Lower costs than acquiring new customers
It is more than obvious that it is very expensive to acquire new customers than serving the ones
businesses have. In order to acquire new customers, businesses have to advertise for the purpose
of attracting attention, they have to give incentives through offering discounts, educate them
about brand and product, and also provide personalized services. But, by focusing on building
your brand through customer loyalty, loyal customers will influence new customers into trying
out your brand reducing the associated cost of acquiring new customers. Loyal customers are
organizations marketing force (Kotler et al, 2008)
Shields businesses from price competition
Loyal customers make communication routes that strengthen the brand image thus making it
difficult for competitors to entice customers and allowing setting higher prices. This also means
that loyal customers are not sensitive to price, even if the price of their product will increase they
will continue purchasing because of brand attachment. A good example is of Apple whose
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customers are loyal to the product rather than the products price. Macbooks laptops are more
expensive in comparison to other brands but still its loyal customers purchase it.
Another benefit of organization having loyal customers is that makes it easy for company to do
their financial projections. With loyal customers whose purchasing trend is predictable, makes it
easier for organizations to forecasts their sales and revenues.
Seeing that customer loyalty is core to businesses success, this paper will examine different types
of loyalty before looking on different relationship management strategies that organizations can
use to make customers loyal to their businesses or brand.
Customer Relationship Groups
High
Profitability
Low
Profitability
Short-term customers Long-term customers
Figure 2: Reinartz and Kumar 2002.
According to Reinartz and Kumar 2002, customers are divided in four loyalty categories.
Butterflies are customers who brings in profit but not loyal. They are more likely to change just
like butterflies. This customer’s needs fit well with what the company offers and thus they
delight in their short time experience as customers before they move to the next. Promotional
H H Bu Butterflies
There is a good fit between company’s
offerings and customer’s needs; high
profit potential.
Th
True Friends
Good fit between what the company
offers and their needs; highest profit
potential
Strangers
Little fit between what the company
offers and their needs; lowest profit
potential
Barnacles
Limited fit between that the
company offers and their needs;
they’re low profit potential
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advertisements attract them into becoming customers but it’s very hard to turn them into loyal
customers (Reinartz, 2002).
Another category is “True Friends”. These are both loyal to the business and profitable to the
organization. These are truly committed to the business or brand and will buy the products
because they highly regard them. True friends will also offer a good recommendation to others.
Strangers are customers who rarely make purchases with the business. They may purchase
because of location advantage; they may be wandering about and end up at your business.
Changing strangers into true friends is almost impossible.
The last group in our matrix is the barnacles. These are loyal customers who have little
contribution to your revenues. They may come to a coffee shop daily for a cup of coffee but they
do so in order to enjoy the free Wi-Fi internet available.
There are also other studies of customer loyalty that have divided loyal customers into four main
aspects that reveal the degree of their loyalty. This paper will look into Monogamy versus
Polygamy types of loyalty but also behavioral and attitudinal aspects of customer loyalty.
Monogamy Loyalty versus Polygamy Loyalty
We live in a world that advocates more on polygamy loyalty. A consumer may shop for
groceries at Shoprite supermarket, Nakumatt supermarkets and at Shoppers Plaza supermarkets
or shop from all three. This consumer is a loyal customer to all three supermarkets but not a
hundred percent (100%) loyal to either one of them. Keiningham et al (2005) suggests that
loyalty can be defined as probability of a customer to purchase a certain product depending with
the occasion. Henceforth, there are very few customers who are one hundred percent (100%)
loyal. Therefore, in a competitive world, businesses need to make customers as loyal as possible
by maximizing customer’s share of wallet, increase frequency of purchases and overall
profitability.
Behavioral and Attitudinal Loyalty
Behavioral loyalty refers to those customers who are loyal out of habit. The primary reason for
buying are situational factors like, convenience and tendency Thus customers find switching
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from one brand to the next causes them problems therefore they remain with the organization
even though they might not be happy with it. A study from the business school of Connecticut
points out that the majority of loyalty programs advocates that the more you spend with an
organization, the more rewards you earn hence rewarding behavioral loyalty (Kumar et al, 2004).
A good example of loyal customers due to behavior, are consumers of Mohammed Enterprises
group of companies branded as Azam. Most of Azam customers are loyal to its products because
of product distribution. Azam products are distributed to all corners of Tanzania and East Africa
hence convenience to consumers. Therefore, many Tanzanians are loyal to Azam brands simply
not only because of satisfaction but because of availability and convenience (Griffin, 2002).
Attitudinal Loyalty
Attitudinal Loyalty is another type of customer loyalty which is different from behavior loyalty.
It is a premium type of loyalty that involves emotional attachment. There are customers who
prefer a particular brand since they have a positive attitude towards the product. They will be
willing to buy the same brand even if it is more costly than other brands of the same product. The
customer who portrays attitudinal loyalty, do not care about price, but rather brand preferences.
The customer in this type of loyalty trusts the brand. A good example of attitudinal customer
loyalty is when a customer trusts a particular brand. For example, a customer might prefer Dettol
hand wash soap. This customer will be willing to spend more money and even go to another
shopping mall far from his home as long as he/she gets Dettol hand washing soap. The attitudinal
behavior does the same with Coca Cola drinkers and Colgate, or Sensodyne tooth paste users.
In marketing, the attitudinal loyalty can be increased and maintained to customers by enhancing
the brand image and maintain the product quality. Cronin and Taylor, suggest that, attitudinal
loyalty can be identified by repurchase intentions or purchasing additional products from the
same brand. It also involves willingness in recommending a particular brand or company to
others (Cronin et al, 1992).
Factors that influences loyalty
With different types of customer loyalty discussed, what are the factors that drive customers into
purchasing and repurchasing? This paper will look into the marketing mix and discuss how it
influences customer loyalty or customer defection.
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The Marketing Mix
It is described as the set of tactical marketing tools that can be controlled. This tool is a blend in
of product, price, place and promotion that the company uses in order to produce the desired
response in the market (Kotler et al, 2008).
The four P’s: the marketing mix
Variety List price Advertising Channels
Quality Discounts Promotions Coverage
Design Allowances Personal selling Assortments
Features Payment period Publicity Locations
Brand name Credit terms Inventory
Packaging Transport
Services
Warranties
Figure 3: Kotler et al, 2008.
Product Price Promotion Place
Target market
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In the marketing mix, there is a product category which covers the product’s variety, quality,
design and its features. It furthermore covers product’s brand name, packaging, services and
warranties. These product features can play a role in influencing a customer into making a
purchasing and further more becoming a loyal customer. Customers look for varieties, need for
options but quality is also very important to customer. Louis Vuitton has for decades carry a
number of loyal customers mainly because of its product’s unique designs and features but also
quality which insures durability.
Price is the cost a customer incurs in order to get the product. Customers in a competitive market
where there are multiple options available, appreciate value for their money. If the money spent
correlates with the product value received then there is a good chance of making such a customer
a loyal one. People are ready to spend high prices for valuable goods or services. Such customers
are like those who will spend lots of cash into buying BMW vehicle instead of TATA because
they are certain of the value of BMW cars. There are also customers who can become loyal
because of low priced products. Thus companies can consider both or focus on one segment.
Promotion covers those activities designed to communicate to targeted customers the merits of
the product or service in order to persuade them into buying. As technology advances so are the
communication channels hence the use of the internet and social medias in promoting products
or services. Companies are spending more on advertising because in communicating its products
to the consumers it’s a step towards making them customers and eventually loyal customers
(Kotler et al, 2008 ch. 3).
Place includes all the company activities that make the product available to customers. Place
insures convenience to customers. A company can have high quality, designed products but if
they are not extensively distributed then it will be very hard for a customer to remain loyal to a
specific brand while there are other brands of the product available in the market. Thus,
companies need to insure that their products or service are of convenience to their customers.
How to create loyal customers?
This paper has established the concept that customer loyalty is very essential to businesses
success. How can businesses create or make customers who are loyal to their brands or
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businesses? There are several theories and programs that organization can use that will be
discussed on the following part beginning with Customer Relationship Management.
Customer Relationship Management
In order to create loyal customers, businesses need to build profitable customer relationships.
This can be done through the Customer Relationship Management model which is a process of
building and maintaining profit based customer relationships through the delivery of superior
customer value and satisfaction. It covers all aspects of acquiring, keeping customers and
growing them. Using CRM, companies can capture information about their customers at every
possible customer contact point. The contact points include service and support calls, sales force
contacts, customer purchases, website visits, satisfaction surveys, credit and payment interactions
and market research studies; simply every contact made between the company and the customer.
Having all these details at hand, CRM integrates the customer information in order to get a 360
degree view of the customer relationship. Through the use of CRM, companies can provide
higher levels of customer service while developing deeper customer relationships hence loyal
customers (Kotler et al, 2008).
Customer Satisfaction
Under the Customer Relationship Management theory, there is Customer Satisfaction theory
which is essential for building customer loyalty. Customer Satisfaction is described as a measure
of how supplies products or services met the customer’s expectation. Most companies go out of
their way to keep their customers satisfied as studies have shown that when there are higher
levels of customer satisfaction, loyal customers are created. When customers are satisfied and
delighted, they are more than likely to repurchase and further more they will evangelize others
by telling others of their good experiences with the brand or business. A company can increase
its customer’s satisfaction by lowering its prices or by increasing its services while ensuring the
making of profit. Customers experience various levels of satisfaction based on the expectation. If
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the product falls short of one’s expectation then the customer is dissatisfied but if the
performance exceeds expectations, then the customer is highly satisfied.
Model of two levels of satisfaction and Perceived Service Quality
Figure 4: Bitner and Hubbert, 1994
This model answers the question as to how to customers form their expectation? Expectations are
formed based on the customer’s past encounter, friends and associates opinions, marketers’
information and promises. If the service received was poor then the overall service satisfaction
will be low hence negative perception of the quality of service or product. In order to track
customer satisfaction, companies should conduct surveys often, create a complaint and
suggestion system and do a hunt-down for lost customers. When there are many lost customers,
it’s an indicator that the company is not satisfying its customers. So, companies should ensure
that its customers are satisfied with their products in order to make them loyal hence profitable
(Kotler et al, 2008).
Another theory that companies can use to create or make for making their customers loyal is
through;
Customer Retention
Overall
Service
Satisfaction
Service
Encounter
Satisfaction
Perceived
Service
Quality
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Many companies have realized that losing a customer means losing the entire stream of
purchases that a customer would have made over a lifetime of loyalty. Successful retention of
customers starts with the first contact businesses make with the customer and continue
throughout the relationship period. Thus, working to retain and cultivate customers makes a good
marketing sense. A company’s ability to attract and retain new customers is related to its product
or services, but also it is strongly related to its services to the existing customers and its
reputation within and across the market. Customer retention in turn provides the business with a
good reputation and goodwill in the competitive market. It also creates a healthy competition
with the competitors. The retention of the customer record is the best proof regarding the quality
of the products and the services provided. Customer retention paves the way for more research
and development to happen in the company’s products and services. Through retention, the
business hears the voice of its existing and potential customers and adopts a system that offers
the best customer satisfaction products and services in the market. If a business is able to add
new customers and retain them then it’s a good indicator for the business and its associates.
By creating loyal customers and increasing retention by just 5%, can increase profit by 75%.
Most dissatisfied customer will spread a bad report to at least nine people who are supposedly
the company’s potential customers.
Economic benefits of retaining customers
Economic Benefits
Savings on customer’s acquisition or replacement cost
Guarantees of base profits as existing customers are likely to have a minimum spending
period
Growth in per customer revenue as, over a period of time, existing customers are likely to
earn more customers, have more varied needs and spend more.
A reduction on relative operating costs as the firm can spread the cost over many more
customers and over a longer period of time.
Free of charge referrals of new customers from existing customers, which would
otherwise be costly in terms of commissions or introductory fees.
Price premiums as existing customers do not usually wait for promotion or price reduction
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before deciding to purchase.
Figure 5: Kotler et al 2008.
Loyalty Rewards Programs
Most companies offer loyalty reward programs in order to retain their clients, acquire new
customers, and also in order to increase sales with their products. There are several customer
Loyalty Reward programs. In this paper, we will discuss only few Loyalty reward programs
which are widely used by many companies Worldwide. These loyalty reward programs are
Purely point based loyalty program, Pure Lifestyle program and Tier based affinity loyal reward
program.
Purely point based loyalty program
This customer loyalty reward program is based on customer expenditure to the products or
services provided by the service provider. In this type of program, a customer generates and
accumulates more points as he/she spends more money to the product or service. The
accumulated points may be redeemed by a provision of a free service or a free product provided
by the company or the service provider. There are several advantages linked to this program such
as it is a very flexible program which can easily be used to encourage customers. Another
advantage is majority of the customers may receive points creating more tangible value.
Pure Lifestyle Programs
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This is a special loyalty reward program that focuses on segmenting customers according to their
lifestyle which involves age group, wealthy class, and other lifestyle groups.
The main aim of this reward program is find a niche that is more inclining to use their
product/service and put more effort on that group. This may lead the company into creating
products that cater the needs of that particular group and make them more loyal to the
company/brand.
Most companies use market strategies that provide different rewards to different groups.
MIC telecom, with a branded name Tigo, is a good example of how a Pure Lifestyle reward
program works in Tanzania, and worldwide at large. Tigo provides a special data bundle for
students. This student bundle is created to cater the needs of data services to the students with
affordable price to students since they are perceived as not reach enough to afford higher costs.
As a result, many students in Tanzania have become more loyal to Tigo and hence purchase
more data from Tigo.
Tier Based Affinity Loyal Reward Programs
Tier based affinity loyal reward program is another type of reward program which is somehow
similar to point based. However, this type of reward program involves the upgrading of customer
loyalty level through different ways, such as continuing patronage to the company, more
accumulated points, or sometimes paying a membership fee. This type of program attracts
customers to remain loyal to the company, however is also has one common weakness.
This drawback is more common to customers with lower points. Most of these customers always
feel that they won’t be able to reach the required level of being rewarded; hence they end up
giving up.
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Conclusion
The intention of this essay was to show how essential customer loyalty is to businesses and
companies in a highly competitive era where each business fights for maximizing their market
share. Though loyalty is highly crucial, not all customers are 100% loyal to brands or businesses.
Several types of customer loyalties were discussed such as monogamous versus a polygamous
type of loyalty; whereby one depicts 100% loyalty while the other presents partial loyalty.
Customer loyalty plays a big role in businesses marketing strategies thus this paper established
the importance of customer loyalty to businesses such increasing their sales hence revenues
which is a number one goal for organizations. Through customer loyalty, organizations enjoy the
benefit of having a marketing force through satisfied loyal customers hence spreading the good
will of the company.
In order for the organizations to create and maintain loyal customers, they need to look at
different program such as Customer Relationship Management, Customer Retention program
and Loyalty Reward Programs.
These programs might assist organization to create loyal customers though it may take more than
that in such a highly competitive market. In the next essay, a deeper look at the customer loyalty
programs and their effectiveness will be looked upon.
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REFERENCES
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Griffin, Jill 1995, Customer Loyalty: How to earn it, How to keep it ,The Free Press, New York.
Kotler, P, Armstrong, G, Wong, V, Saunders, J 2008, Principles of Marketing, Pearson
Education Limited, England.
Kumar, V & Denish Shah 2004, “Building and sustaining profitable customer loyalty for the
21st century,” Journal of Retailing, Volume 80, Issue 4, pp.317-329, Elsevier Inc., New York
University, New York.
Mark D. Uncles, Grahame R. Dowling, Kathy Hammond, (2003) "Customer loyalty and
customer loyalty programs", Journal of Consumer Marketing, Vol. 20 Iss: 4, pp.294 – 316.
Oliver, RL. 1999, “Whence Consumer Loyalty?” Journal of Marketing, 63 (Special Issue), 33-
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Reichheld, Frederick F. 1993, “Loyalty Based Management”, Harvard Business Review, 71
(March – April), 64-73.
Reinartz, W & Kumar, V 2002, “The Mismanagement of Customer Loyalty,” Harvard Business
Review, July, Vol. 80, Issue 7.
Zeithaml, VA & Mary Jo, B 1996, Services Marketing. McGraw-Hill, New York.
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