Note 22 Loyalty-Based Marketing, Customer Acquisition, and Customer Retention

The Logic of Loyalty Loyal customers: Provide the base profit that all customers presumably deliver Buy more Cost less to serve Provide referrals Pay a price premium Spread their initial “acquisition cost” across more occasions

The Logic of Loyalty The ambiguous relationship between loyalty and referrals is clarified by the difference between “attitudinal loyalty” and “behavioral loyalty” Attitudinal loyalty – customers really like the product or brand and recommend it to others Behavioral loyalty – customers stay with company or brand for unflattering reasons Loyalty is part of the picture, but it’s not the whole picture. This logic is directly related to customer lifetime value.

Figure Note 22-1 - Why Loyal Customers Are More Profitable Many firms tend to focus their time and money on acquiring customers rather than retaining them. This suggests that firms are putting too much emphasis on attracting new customers. Each firm must find a balance between its acquisition and retention efforts.

Figure Note 22-3A - Returns on Investments in Customer Retention

Figure Note 22-3B - Profits on Investments in Customer Retention

Figure Note 22-2 - Customers Differentiated by Loyalty and Profitability This matrix differentiates among four types of customers based on profitability and loyalty and spells out appropriate strategies for each sort of customer.

Tools of Customer Loyalty: Improving Customer Satisfaction Customer Relationship Management Improving customer satisfaction The purpose of a firm is to serve the customer, and serving the customer well will engender customer satisfaction and, customer loyalty and recommendations. Customers form their satisfaction based on evaluation of how well a product meets their expectations. If the product fails to meet expectations, customers will be dissatisfied—and, depending on their degree of displeasure, dissatisfied customers can become “brand terrorists.” If the product just meets expectations, customers will be minimally satisfied, still shopping for a better experience — footloose customers. If the product exceeds expectations, customers will be satisfied and perhaps delighted—and delighted customers stay with the firm and sometimes even become “brand evangelists.” Customer relationship management Begins with collecting data on customer behaviors across “touch points.” The actions that can be guided by CRM range from choosing target segments to customize offerings for specific chosen segments and even for specific customers. It is a valuable tool in developing customer loyalty and in adjusting the marketing mix to attract the “right customers.”

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