Fostering Loyal Customer Relationships Duarte B. Morais, Ph.D. Assistant Prof. of Recreation, Park and Tourism Mgt. dmorais@psu.edu

Presentation Outline Introductions Why talk about loyalty 1. Introductions Why talk about loyalty What is a loyal customer How to foster loyal relationships 2. 3. 4.

1. Introductions www.quintadamata.net

Why talk about Loyalty Mature Industry Focus on getting more customers 2. Why talk about Loyalty Mature Industry increasing competition Focus on getting more customers Market share Vs. share of customer Competitive advantage Price Service quality Loyal relationships

2. The bottom line Reduction of 5% of defective customers may result in 80% increase in profitability (Reichheld & Sasser, 1990) 60% to 80% of lost customers were satisfied (King, 1996) 90% of customers who love a company will repeat but only 30% of customers who like the company will repeat (Opinion Research Corp.) 20-40% of your customers bring 80% of your profits

What to expect from loyal customers 2. What to expect from loyal customers Behaviors: Come back frequently Buy most expensive products Recommend provider to friends Give important suggestions Emotions: Are attached to the provider/staff Trust the provider Resist changing despite competitors’ persuasion Willing to forgive mistakes ?

What is a Loyal Customer 3. What is a Loyal Customer Definition: customers with a long record of purchases from a preferred provider caused by their psychological and emotional bond with that provider Are there various types of loyalty?

Types of Loyal Customers 3. - + Frequency of Purchases + High loyals Latent loyals Attachment Spurious loyals Low loyals -

Differentiated Strategy to Loyalty Segments 3. Differentiated Strategy to Loyalty Segments “Not all customers were created equal” High loyals – most profitable, make them feel like family (20% of your customers) Latent loyals – find out why they can’t come more often, find other ways they can help, don’t discount Spurious loyals – come but don’t care, make them connect with you, make them wish for special treatment Low loyals – don’t get distracted with them, but make sure they are satisfied (approx. 40-60% of your customers) ?

How to foster loyal relationships 4. How to foster loyal relationships Current loyalty programs Ineffective in creating a bond Most are simply frequency programs Make people shop around and look for deals Make customers price sensitive Erode profits We can identify loyal customers but we don’t know how to generate customer loyalty

The Love Triangle 4. Social Network B.C. R.I.M. Provider Customer

R.I.M. Resource Investment Model Retribution to the provider Protect customer’s equity Provider’s investment of special resources Customer’s investment of special resources Customer’s loyalty to provider Loyal relationships facilitate special treatment Morais, Dorsch, & Backman (2004)

Types of Resources 4. RIM Love Status Services Information Goods Money Particularism and tangibility Empirical support to structure & exchange Information Goods Money

Types of Investments Give – to your valuable customers 4. RIM Types of Investments Give – to your valuable customers Make sure that your special customers receive special treatment Send cards for birthdays rather than just for the holidays Make them feel unique (use name, compliment them for helping) Educate them about front and back stage Receive – from customers Give them opportunities to get to know you (your staff) Help them become advocates of your company (merchandize, web) Seek their opinion Allow them to commit to you with a long term program ?

4. BC B.C. Brand Communities Definition: group of individuals united through the consumption of your products Harley-Davidson’s “HOGs” Club Med’s “Gracious Members” Characteristics Communality – help and expect help from others Brandfests are used to share history Keep consuming to stay connected

Building a Community Community 4. BC ? Use a newsletter to share news about customers Develop an online forum for customers to stay in touch Organize annual events “by invitation” for VIP customers Facilitate picture / story sharing Help customers help each other Give a name to the community … ?

Action Outline 4. 1. Select your market segment Identify most valuable customers (what criteria?) Identify customers who might become valuable 2. Design a relationship-building service culture Identify what type of treatment promotes customer loyalty Identify what loyal customers want to give to you Identify potential for the development of a brand community 3. Implement a loyalty treatment Design specific communication strategy and message Train staff to understand the importance and the process Create opportunities to invest and receive investments Generate a sense of community among your customers 4. Measure effects of program and redesign Maintain constant communication with your loyal customers Monitor costs and results of your program

The Love Triangle Social Network Provider Customer