Customer

Loyalty

Monogamy
An 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 Model Attitudinal Model Situational Model

Behavioral Model
Historical Purchasing of Brand & Competitors Behavioral Loyalty (Divided Loyalty = Polygamous Behavior)

Satisfactory Experiences (Reinforcement)

Loyalty mainly expressed in terms of Revealed Behavior

Attitudinal Model
Attitudes and Beliefs toward the Brand or Company Attitudinal Loyalty (Strong Loyalty = Monogamous Behavior)

Social Factors, influence of significant others and community

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

Situational Model
Situation and usage occasion Co-Determinants of Choice (Weak loyalty = Promiscuous behavior)

Consumers characteristics and desire for variety

Loyalty as behavior moderated by the customers 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 Loyalty
Inertial Loyalty

Latent Loyalty

Loyalty Types
True 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 customers interaction with the company. Chinese Restaurant

Stages of Loyalty
Cognitive loyalty price and quality
Affective loyalty due to satisfaction of using the product Conative loyalty Intention to rebuying the same brand

Delivery failure may diminish this loyalty

Action loyalty exhibiting consistent repurchase behavior

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

(Year 1=100)
350 300 250 200 150 100 50 0

Year 1
Credit card

Year 2
Industrial laundry

Year 3

Year 4

Year 5
Auto servicing

Industrial Selling

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 & sales
Customer Support

Billing & payment

Dispute Resolution Product Development & Testing

RFM Model
Novo 2004

Higher the score, more profitable

Life time value of Customers

Acquisition Cost
CLV = Average Transaction value X Frequency of Purchase X Customer Life Expectancy

Retention Strategy
Customer valuation
Customer Retention measurement

Determine reasons for defection

Root causes (probe former customers, analyse complaints)

Develop and implement a corrective plan

Improve employee practices Benchmarking

Retention Strategies build barriers to customer switching

Hotel Experience

Aviation Experience

Exploratory Transaction Commitment Objective Policy Low Average Hi Both higher Inform, Differentiate, Measure Satisfaction

Growth Growing Decreasing Both higher Interact Appeal Cross Selling

Maturity Stable Maximum Retain Change Routines

Decline Declining Lo Prevent Determine causes, suggest solution

Loyalty Implementation
Observation
Calculating inertial CLV
Basis for segmentation

Selection

Prioritization
Leveraging

The Wheel of Loyalty

3. Reduce Churn Drivers

1. Build a Foundation for Loyalty

Conduct churn diagnostic

Segment the market

Address key churn drivers Be selective in acquisition Use effective tiering of service.

Implement complaint handling & service recovery

Increase switching costs

Customer Loyalty
2. Create Loyalty Bonds

Deliver quality service.

Build higher level bonds

Deepen the relationship

Give loyalty rewards

Intensifying Loyalty
Entry Barriers Economies of scale Product Differentiation Capital Requirements Exit Barriers Customer learning curve Process Integration Personalisation

Switching Costs
Access to channels of distribution

Customization
Risk reduction and trust Loyalty program Brand affinity Customer collaboration Be a standard

Govt. policies

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%) 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

100 - 129

130 - 169

The Customer Satisfaction-Loyalty Relationship

Apostle
100

Loyalty (Retention)

Zone of Affection
80

Near Apostle
60

Zone of Indifference Zone of Defection

40

20

Terrorist

1
Very dissatisfied

2
Dissatisfied

Neither satisfied nor dissatisfied

4
Satisfied

5
Very Satisfied

Satisfaction

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